U.S. Global Investors' CEO Discusses F2Q 2014 Results - Earnings Call Transcript

Feb.10.14 | About: U.S. Global (GROW)

U.S. Global Investors, Inc. (NASDAQ:GROW)

F2Q 2014 Results Earnings Call

February 10, 2014 8:30 AM ET


Susan Filyk - Investor Relations

Frank Holmes - Chief Executive Officer and CIO

Susan McGee - President and General Counsel

Lisa Callicotte - Chief Financial Officer



Welcome to U.S. Global Investors Webcast, U.S. Global Investors Earnings Announcement for Second Quarter 2014. If you have any questions during the webcast, simply enter your question in the dialogue box at the bottom of the screen and click submit. Also, you may download a PDF of today’s slides by clicking on the Resources tab in the top center area of your screen. You can also download some of U.S. Global Investors’ latest research on the Resources tab, to switch back to the presentation just click the slide tab.

We would like to begin by introducing Ms. Susan Filyk, Investor Relations at U.S. Global Investors. Ms. Filyk.

Susan Filyk

Thank you. Welcome to our webcast announcing results for the second quarter ended December 31, 2013. The presenters for today’s program are Frank Holmes, U.S. Global Investors’ CEO and Chief Investment Officer; Susan McGee, President and General Counsel; and Lisa Callicotte, Chief Financial Officer.

During this webcast, we may make forward-looking statements about our relative business outlook. Any forward-looking statements and all other statements made during this webcast that don’t pertain to historical facts are subject to risks and uncertainties that may materially affect actual results.

Please refer to our press release and corresponding Form 10-Q filing for more detail on factors that could cause actual results to differ materially from any described today in forward-looking statements. Any such statements are made as of today and U.S. Global Investors accepts no obligation to update them in the future.

If you have a question for us, you can submit it at anytime during the webcast. Simply type your question in the dialogue box at the bottom of the screen and click submit. If we aren’t able to answer your question during the live presentation, we will follow-up with you individually.

Now, let’s go to Frank Holmes, CEO and CIO for an overview of the quarter. Frank?

Frank Holmes

Thank you. U.S. Global -- GROW, a boutique investment advisors specializing gold and natural resources in emerging markets and domestic equities and munis and something we’ve repositions to also focus on our fundamental models in particular for the Holmes Macro Fund which I will talk about little later and to addition to the resources in emerging markets.

The strength of GROW were go-to-start for exposure to emerging markets and resources. Remind all investors, we are debt free, we have a strong balance sheet with reflects of cost structure, which Lisa Callicotte will address the monthly dividend return on equity discipline.

Our top institutional shareholders for their interest to review and take a look at, slide #7, with six years of paying dividend which we are happy, demonstrate that consistency. And on page eight, the Board’s approved to repurchase of up to 2.7 million of outstanding common stock on the over market through counter year 2014 and during the second fiscal quarter of 2014 the company repurchased 28,227 Class A shares using cash of $72,528.

During the fiscal year-to-date the company has repurchased as from July to December has purchased 41,446 Class A share. We are spending a $109,737. We does an algorithm with the buyback shares in down days and according with all applicable rules and regulations that restrict amounts and times of repurchases and this practice may be suspended or discontinued anytime.

Going on the next visual, I think its important is the strategic accomplishment in the second fiscal quarter. We shifted out of costly money market business. We provided shareholders with the new Ultra-Short Bond Fund.

We close and emerge and reorganized small funds for more focus product line-up where margins are bigger and better, successfully transition client accounts to a new transfer agency, while retaining service relationships with key client accounts. We streamline the company with staff less than 15 employees, fewer distractions allowed U.S. Global to focus on its core competencies.

The next visual to show you on 10, why we shifted out of money market business? Look at the U.S. fed funds rate, even though last year, in May we saw mortgage rates in 10-year govern notes rise dramatically, nothing happened to fed funds and fee waivers for the industry rose to a record high $5.8 billion. So this is decision we have been supporting, has been costing us millions of dollars since 2008 to support and it is best to remove ourselves from that line-up business.

Next visual is when we took our Government Securities Savings Fund and for investors looking for safety, securities, in particular government securities and not being too worried about rising interest rates, the best way to get the higher yield and not take the risk of having five or 10-year, 30-year bonds is to go Ultra-Short where the yields are higher and as you can see, when the interest rates has spiked, we have converted the Government Fund into an Ultra-Short Bond Fund. We are applying our proprietary statistical model of when we shrink or extend the length of the maturity for those basic for government agencies.

Next visual showing the new line-up of the funds, its simple, its cleaner and so we are happy with that and you can please visit the website, usfunds.com and read more regarding what we are doing with the marketing position of each of those products.

Page 13, building for future growth, increase ownership of Canadian asset management company is important, as we go to 65%, we are laying the ground work for launch of ETF products and monetizing our brand in over 170 countries.

When I say monetizing our brand, what is interesting is, in research shows that PIMCO came out with an ETF and they wondered where they will get the money for the multiple internet ETF to what they found was money was coming from all over the world because of Bill Gross’ strong, strong recognized brand globally. It makes it easier and we have a following when we take a look at Frank Talk and Investor Alert.

We have seen over a 170 countries that they cannot buy, investor in Americas cannot buy out mutual funds but in ETF, they can and in GROW they can. So we do have a strong ownership of growth outside of the U.S. and now that is -- going forward, particularly this year, it’s getting our products out in the market place. So that they are global on their reach. The growth of EPS products continue and the disintermediation of mutual funds appears to be continuing and we think it’s important that we are positioned for that growth.

On Slide #15, strategic partnership with Galileo. GROW plans to purchase an additional 15% of the company in the third fiscal quarter after purchase U.S. Global loans 65% of the outstanding shares of Galileo, Toronto based company with CAD$260 million under management that’s accretive to GROW. They are 5 Star fund manager in 2013 Lipper Fund Awards for the best small cap over five years.

The next visual is the quarterly average assets under management. They have been down and the biggest factor, I’ll try to address this later in this presentation, is just the gold assets themselves in particular that they have been down for three years in a row. Over the three decades, this has only happened three times.

Touchwood, this never happened fourth year in a row, it doesn’t appear so to us. But there has been tremendous pressure and volatility in emerging markets. The big sell-off last May and then that the huge surge coming back into the asset class and vice versa at the first beginning of January of this year, a big sell-off. And so we’re receiving these stocks that are so undervalued and so many fundamental factors.

So we feel that the worse is behind and it is liquidation has taken place with regard to gold assets. What’s important for us is that most of our redemptions have been through these platforms and not where the shareholders have a strong world relationship with us through the Investor Alert or through Frank Talk.

That connectivity is so important in building sustainable brand and we continue to have a high percentage for shareholders to have a direct relationship with us. The beta for the big volatility in fund flows positive or negative do come through these platforms and that’s important for investors to recognize.

Balance sheet strength. You can see here. There is no debt. We own our building and so -- and less expensive to lease, I mean, to own our own building and to go on lease, even in San Antonio which is considered a market that’s not as expensive. It is still substantially less expensive for us to be position to have our own building.

And what we’re trying to show you here the different shades of grey is that we have taken money for the money fund which is there and put into the elevation of bond fund, so that we’re earning a higher yield. Lisa can comment on that, if there is any additional questions but our liquidity is in place. It’s instant liquid money but just trying to squeeze every penny we can, our basic asset base without taking undue risk to generate that.

Earnings per share quarterly were terrible. I think that there has been a real challenge in cost of restructuring, what was estimated to take three months and then it takes longer and then severance of maintaining that there is a continuity with employees, at whole end of that this just costs more than one anticipates.

In fact, it costs more to unwind a fund then it does cost to set up a fund today. So it’s been a great learning experience. And as we take a look, we still have done better than we did in 2008 or ‘09. What’s the difference is that we lost less money but that money declined back in ‘08 or ‘09 was fast and rapid. It remind me of 1987 crash &come back. This one has been much more gradual and with that, we feel that the worse is behind us as we streamlined our organization.

The next visual is up, I think it’s important for me is I’m communicating with Investors. I have an audience of value investors and audience of income investors which I like to talk when I meet with. But the key factor is just return on capital and that’s something we have to really be focused on and on earnings per share growth to drive that return on equity.

The next visual shows the decline over the 10 years of what’s happened to grow as an annualized return. The next visual is a chart. This chart looks very pretty with colors but crowded with lots of content and what’s important for investors to recognize is that we are still highly correlated to -- due to commodities in particular, golds and asset class.

And many of these commodities are also highly correlated to the strength of emerging market when you take a look at fund flows. But we have declined less than gold than the gold funds or bullion and the next visual showing year-to-date any balance in gold, any sentiment we explored on the upside.

I’m using comparison to another great company, Sprott Asset Management but just to show how reflexive we are in responsive to that gold following a past week up. In addition that year-to-date we’ve seen a Russell 2000 decline and we’ve seen the S&P. However, gold is put up and is looking more constructive but growth is highly responsive to that.

That just adds to the volatility which I comment many times before. There are volatility, it’s greater than bullions. It’s greater than any gold stock. Other positive news is on visual 24 where GROW has gone above 200-day moving average which appears to be constructive, long-term trend that many, many investors look at and comment on.

Now I’d like to turn it over to Lisa Callicotte to make comments on the financials and later on to be able to come back and address any financial questions.

Lisa Callicotte

Thank you, Frank. Good morning. I would like to summarize our results of operations for the quarter ended December 31, 2013.

Beginning on Page 26, we reported operating revenues of $2.7 million for the quarter, down 45% from the $5 million we reported last year, primarily as a result of lower assets under management and performance fees paid out during the quarter.

On Page 27, operating expenses for the quarter were $4.2 million, a decrease of $607,000 or 13% due to the following. Employee compensation and benefits decreased $445,000, or 19% as a result of lower performance-based bonuses and fewer employees. General and administrative expenses actually increased to $178,000 or 13%, mostly due to expenses related to strategic fund changes

Platform fees decreased $281,000 or 38% as a result of lower assets held through the broker-dealer platforms. On Page 28, other income for the three months ended December 31, 2013 increased $120,000 or 75%, compared to three months ended December 31, 2012, due to dividends received from securities held.

As discussed previously, we have exited the transfer agency business, so we can focus on our core strength on investment management. The transfer agency had a loss from discontinuing operations of $207,000. Net loss for the quarter was $1.165 million, or $0.08 per share compared to net income of $166,000 or $0.01 per share in the same quarter last year.

Moving on to the balance sheet, as Frank mentioned, our change in cash and cash equivalents compared to June 30th is due to the company’s investment in the U.S. Government Securities Ultra-Short Bond Fund. This fund converted in December from a money market fund to an ultra-short bond fund.

Therefore, the amount invested in this fund in December 2013, approximately $14 million, was transferred from cash and cash equivalents to trading securities. And our cash and security equal 82% of our total assets. On Page 31, as Frank also pointed out, we have no debt and we have a net working capital of $23.5 million and a current ratio of 11.8 to 1.

With that, I'd like to turn it over to Susan McGee.

Susan McGee

Thank you, Lisa. And thank you to everyone who’s listening in this morning. And you’ve just heard a few of the noteworthy events going at U.S. Global Investors. In the marketing and sales areas, we’ve also had a few accomplishments in the past quarter. As many of our long-term shareholders are aware, several of our funds have been recognized for their leadership and investment performance.

Since 2000, our funds have received about 29 Lipper performance awards, certificates and top rankings. The Global Resources Fund continues to be highly ranked by Lipper. As of December 31st, the fund has been in the top 11% out of the entire universe of mutual funds for the 10-year period.

We are pleased that two of our funds hold the top Lipper Leaders Rating. This rating is based on investor-centered criteria, and on the scale of 1 to 5, Lipper Leader Funds that rate a ‘5’ are in the top 20% of their category. The All American Equity Fund rates a ‘5’ for preservation and the near-term tax-free fund rates a ‘5’ for preservation and tax efficiency.

Investors these days seek preservation and tax efficiency, so we are very pleased to offer funds that are highly-ranked in these categories. We had three funds that continued to be highly ranked by Morningstar. As of the end of December, the Global Resources Fund and the Gold and Precious Metals Fund had overall ratings of 3 stars in their respective peers and the near-term tax refund had an overall rating of 4 stars in its respective category.

Even though our municipal bonds experienced their worst declines since September ’08 in the past calendar year, we are pleased that the near-term tax-free fund gains a modest 31 basis points and that makes 13-years in a row that the bonds has provided positive annual returns to shareholders.

We are pleased that the Holmes Macro Trends Fund outperformed its benchmark of S&P 1500 Index by 659 basis points. The goal of these funds is to focus on domestic companies offering growth at a reasonable price and which trend quickly growing industries and sectors that are experiencing positive momentum.

Along with investment leadership, we also continued to be leaders in the financial industry based on our significant marketing and communication efforts. Since 2007, the marketing and investment teams have earned 54 awards for marketing and communication excellence by the national organization and Mutual Fund Education Alliance. We are especially honored because the winners of these awards are selected by industry peers and their highly regarded financial firms.

And by our focus on educating investors, we feel that we are building our brands and marketing the funds and GROW. We believe a key to building assets is to reaching out to investors within cycle and rich content and we help them become more aware about investing in the global markets.

We have two-free weekly publications, the Investor Alert and the Advisor Alert that we believe fulfils that purpose of education. We have special reports and they are another key way that we educate advisors and investors, we share our expertise and also build our brand and we invite you to download a copy of our latest report on the American Energy Renaissance on our website usfunds.com. In fact, our website has a number of rich materials that includes weekly investment commentary, buy shares, quizzes, and interviews on multiple investment topics.

Our marketing focus is on earned media which is a publicity gained through promotional efforts rather than paid advertising. We believe this focus helps us reach millions of readers and viewers and potential investors. And in addition, we also think it’s important that we reach investors where they want the same content whether it’s via e-mail, Twitter, LinkedIn, Facebook or directly from our webpages.

And as you can see, Frank continues to be sought out for his opinions on the gold and natural repurchase markets up in a financial news media. Interviews over the past few months of 2013 include appearing on CNBC, [the Financial Plans, Month and Money], Stansberry Radio Show and TIBCO. Other members of our investment team are also sought for their opinions from media including Business News Network, The Gold Report and The Energy Report.

And now I would like to turn it back over to Frank who will discuss what investors can expect from the markets over 2014. Frank?

Frank Holmes

Thank you, Susan. Thank you, Lisa. What we’ve tried during the past year in particular is have investors focused on follow the money and we’ve commented many times on the presidential election cycle and (inaudible) that all the attack on Obamacare and I understand all the reasons why, but most interesting healthcare is the best performing sector. And many investors got out of the stock market and missed one of those spectacular moves. We’ve also done presentation several years back that going back in data over 100 years that the best cycles are when you have a Democratic President and a Republican Congress.

The presidential election cycle is just an incredible tool to try to match expectations and last year and then using the second year as the worst year the market was up wonderfully. Thus, the big part is to try to help investors to navigate through the noise, that’s out there in the marketplace. The trend is your friend and then the trend is your friend to a certain level and it’s to understand it in that context, in particular gold as an asset class as were particularly when it comes to fear trade of understanding it.

Inflation is a key component. And when it placed as a key component of driving gold up in any country’s currency, there is a big debate that takes place in America. And one is the CPI calculation. And if we went back to the 1980s, the factors that went in to determine what is CPI, what is that number and you’re to take that model and apply that today, what would the inflation rate look like? And basically it says inflation will be over 9%. However, it’s being characterized now as 1.75%.

There is the base in the apps, less the spread and that’s accretes in market. We tried to comment on that being as rational, logical that there is always a spread between two stories, like there is a price action in the stock or commodity.

The next big commentary is regarding this debate on unemployment. What is the unemployment rate? And when you take a look at old data, old factor models to make a determination of who is unemployed and what percentage? It looks like unemployment is much higher. It seems to the psychology of investors is that it is much higher, everything bloom and doom, but there is so many positive factors out there when you take a look at America. Like credit card debt is down to 2003 levels. The refinancing for Americans on cars that now they can get a card that has an extra 15 miles per gallon that will offset the higher energy prices and the cost of borrowing for car is at an all time record low, there could be ability to do that. I think there are so many positive factors that investors have to look at.

And the other one going back is follow the money. On a regular basis you go to investor alert and you can see what we have written about this subject, the significance, the importance of following the money, following the market and see what the government is doing and their policies and other hand find out exactly where is this money going besides the rhetoric.

The next visual is 20% not as abnormal as it seems because there is always run up to stock market called bubbleology and I find just remarkable that on a regular -- every kind of my speaking panel, it’s bubble this, bubble that and what’s really simple and we’ve written about this going back many years ago that bubbles are created by excessive leverage and usually it’s the government’s policies that allowed for excessive leverage. Excessive leverage for house buying in 2003, ’04, ’05 and ’06 was all government policies and for us, we've always commented and it's in our [prospectus] that we believe that government policies are precursor to change, hence it's important to recognize that. And what is the normal D&A of volatilities, another thing we -- on a regular basis comment to shareholders and it is just normal for the S&P, 70% of the time to go cluster minus 20%.

So a rally last year, of what took place, is not abnormal, and I think it's just very healthy for investors to recognize that and not miss that companies are leaner, companies are much more focused on buying back the stock and increasing the dividend. We're seeing in fact the S&P and we've written about this, has been shrinking in the total number of shares outstanding and this is another key factor for the stock market going to all time highs.

We've also written -- other articles, have taken look at on what is the strongest sectors and try and make a determination from the wonderful book called The Wisdom of Crowds, by [John Surowiecki] sic (James Surowiecki), and there's -- so here I'm trying to show you the healthcare was the best performing sector even though there was nothing but negative news on it. So it's trying to avoid the negative news and look at how this sector is doing and then what are the fundamental factors driving that.

Well for Obamacare, those companies should move the quickest -- most quickly, sorry, move the most rapid in movement to create new software, to create new services benefits, those who were slow perished, and that's the same thing and take a look at discretion in industrials, that there was a renaissance taking place, for America, having the cheap oil, cheap gas. Therefore the cost of manufacturing in America is so competitive.

And when we take a look at gas, the ability for gas to be so inexpensive to America, compared to Europe, therefore the making of any chemicals, the making of any gas for -- gasoline for cars, we became a net exporter because our input cost that is natural gas was trading at $4 when in Europe they had to pay $12. And right now, you can look at LNG, that is being imported in Japan and it's being imported in India between $14 and $22 in mcf.

So with that we really trying to see -- follow the money, where's the money going, well how can you capitalize that opportunity. Now, what's been a headwind for gold, and we've written about this regarding when it comes to the fear trade is the -- we call the CPI number minus what the government is going to willing to pay you.

When you take a look at a 5-year treasury note and here this is showing that it was paying 1.31%, inflation got down to 1% so therefore you had a positive rate of return. Well that was the first time in a decade that you really had a positive rate of return for a three, five, and ten-year money. That has always proved to be a short-term headwind.

But what would really make gold unattractive totally, if you go back and in all the research books and look at previous patterns, as it would be if the government's Fed fund's rates were 2% above the CPI number. Well what would that do to the economy, turnaround the engine. We think it would be a massive depression. So we do not bet on -- we're going to see Fed funds rate jumping to 3% overnight and that's another rational reason why we had to get out of the supporting of the government funds, on particular sort of money funds.

Now, gold rises with the deficits and we've written about this, historically it has. But why has it not for the past 18 months? The past, particular year for gold and three years for gold stocks. Well a lot of the gold companies have seen their CEOs fired because they've not performed and where's bullions for the first time being down, which we're seeing that took place with regards to gold, is this sort of -- [debate] that the dollar is going remain strong, but one of the things we did see is that money velocity, that is money loans, loans being taking place in Europe, with all the printing of the money and Japan and the U.S. actually didn't rise. So that about the money being put into the federal reserve system, putting in to the banking system, is not running out and being investor in the marketplace which creates an inflationary movement, or a big demand for jobs which creates some price inflation so that was another reason why gold did not take off.

But what's interesting to watch is that China and India continued to dominate gold demand and last year India did everything to try to slow down the gold demand but what we're witnessing is that China became a record importer of bullion, not only they are the largest gold producer in the world today, they are -- they basically imported all the world's supply from mines last year. We see this as being a continuing position because for China to have a strong currency we need to have gold as a back-up, they're largest gold holdings in the world of the U.S. dollar as a reserve against its money and you're now seeing renminbi, which has appreciated, making it less expensive for them to buy gold.

But Chinese continue also to have the highest dollar amount in dollars, U.S. reserves. So this is an interesting phenomenon has taken place and I think it's going to play over the next four years.

We have also commented this whole trade has taken place for gold is the unusual gold trading in futures market and we think it’s important to recognize that there was some type of financial futures where as leverage you can short the big position cover it and you can manipulate stock losses, et cetera and this was covered last year.

So how much is really would roll down the price of gold. I think that was important for investors is that interest rates did go positive for the three-year and five-year and 10-year government bonds and they went positive because the CPI number fell and longer term rates rose in the second half of the year.

Nevertheless, going to this year, CPI numbers are starting to rise and the economy looks like globally has start to slowdown, it’s not a recession, but it’s just modestly slowing down and rates are coming up again. So now we are going to start seeing, we think in the next three months with this -- I guess this negative interest rate will prevail again in government bonds.

Now, we would like to point out that Gordon Brown was never held accountable for his $10 billion air, we did this because we went over to England and just interesting to see that how fast he just sell his gold at under $300 an ounce and thought that there were a better trading at the country’s currency like buying BRIC bond or Spanish bonds, et cetera and loan be hold, they should always have some gold, just like the U.S. Treasure Department owns gold as part of its foreign reserves.

Management expectation is one of my favorite visuals of looking at things becoming overbought to oversold. On a regular basis, I will be on CNBC and when it’s been overbought I commented that things are overbought and do for correction and they are oversold they do for correction and this is one of most severe overselling periods, I think this date goes back even further. So, with that, it only bodes well that the opportunities are for gold to rise back to the mean.

Another visual showing how mass of the decline and which has impacted U.S. Global in particular our gold funds is only three times or three decades have stocks declining three consecutive years. We are now hopefully. We are seeing a bounce take place in these gold stocks.

And what’s interesting and the next visual is the gold in the process that’s where the short-term 50-day moving average crosses above the long-term 200-day moving average. These two moving averages were most watched on the Yahoo! Finance, on Bloomberg default button and it just gives you an idea that investors sentiment and emotions of confidence both short-term and long-term are going through a shift.

I highly recommend you go to the January 24th article and read it. But what’s important here is that the small cap gold stock seem to have bottomed that they have gone above, there is the Golden Cross taking place and I roll with this in natural gas 18 months ago and there was so many days there on natural gas and natural gas prices had done nothing but has spectacular run here recently to $5.

So the Golden Cross is an important factor and when we have junior mining companies, all of the sudden they selling is capitulated, everything is negative and we are witnessing takeovers, the Cisco’s takeover the producers and today another company has corporate of huge deposit in Arizona is now also takeover. So we think that this is going to be a great year for many of these companies that have advanced projects.

The next one article it’s really I think it’s important for investors to go and dust off and look at if Texas were a country, it would be the 13th largest oil producer. And when you take a look at the Permian Basin, it just has nothing but opportunity for America to be able to position itself for the low cost of energy and on relative bases to the rest of the world but we are still seeing record oil imports. So as GDP per capita rose last year especially in the last quarter and PMI is all term positive, oil demand accelerated. But the pricing power of America gives a huge competitive advantage and this is something else that helps the S&P 500 do so well.

Domestic production of tight oil has grown dramatically over the past five years as this visual and I think it’s important for that in context. We saw our global resource fund at 50-day crossed to 200-day, these are all positive factors.

The next visual is just trying to come back to home basin to America that the average investor is not aware that every American born will need almost 3 million pounds of minerals, metals and fuels in their lifetime. And when you have the rest of the world wanting the American dream and their GDP per capita is rising, it means it’s only going to be can turn with the demand for commodities.

China has changed its policies for one channel policy for allowing for two, that means millions and millions and millions of babies over the next 20 years. You take a look at India, where you have 600 million people that’s two Americas under the age of 25 and unlike back in the 70s when China and India only had 2% of world’s GDP and today they have 24% of world’s GDP. They’re wired or hooked up with Facebook. That’s where real significant fact of the world is connected like never before and they all want what we have been able to build or create.

Now here is a next visual showing China’s historic GDP growth. It’s important to put that in context because when you take a look at 2002 to 2007, the GDP was not as great. We think that GDP is going to be modest in China and we think it’s important for investors. This negativity is so quick to jump all over China, it is just missing the both on the government and their policies as they fine tune their economy, just like Europe is struggling to fine tune their economy and so are we here in America and there is a balance between fiscal monetary policy.

Now we look at the next visual that China is becoming the largest e-commerce market in the world and what’s important is that Facebook is not the dominant player in China and Russia. There are other internet players. We own them in our funds and they have been great winners. Technologies stocks have also been very strong in sectors in Europe, Eastern Europe and in China. And so this is to give you an idea of that impact. So people are connected, they are wired.

And then just last visual, as I like to point out that in last couple is reasons for active management, this annual rotation leadership of countries is so important to recognize who is at the top and who is at the bottom. There is tremendous rotation and quite often has to do with government policies and imbalance between a government’s monetary and fiscal policy or lack of rule of law. Rule of law is so important for private property and those countries that have rule respect for private property that are much more socialistic policies and quickly might leave those countries and there is a lack of job creation and they sink to the bottom.

So it’s important to recognize as active managers looking around the world, one has to look at not only at fundamentals of companies but also other factors of a macro level. Commodities reaches for active management, this is the most wanted piece of paper that we, I guess, sheet we put out. Susan comment on this and so we won an award for this. It is trying to show the rotation in leadership that takes place for these different commodities and the drivers. So you can see here several time gas is at the bottom, 2011, 2010, and all of a sudden, gas goes at the top half for 2010 and number one for 2013.

There is just tremendous voluntary that takes place. It’s important for investors to recognize that and that portfolio dynamically has to shift. And now you are reading your global Investor Alert and if you are listening to this call you are not, I highly recommend you do. Jim Cramer commented on when we wrote a piece six months ago, Dow Then and Now and they tweeted to a 600,000 loyal readers. So connect with us and now let’s open up for question. Thank you.

Question-and-Answer Session


(Operator Instructions) Frank, our first question, if you could comment on your entry into the ETF market.

Frank Holmes

Well, the ETF market is becoming quickly very crowded and one of the key factor is distribution. And so with that I think that we have a unique brand and the following and as I mentioned earlier in the 170 countries and we have the loyal stickum customers are directly with us. And I think the ability to come out with attractive ETFs and our philosophy here is to have the pass of model but they are actually, it’s a beta, smart beta as some like to call it, I’d like to call smart alpha ways to rebalance your portfolio and come over to those assets that have not been touched. Those opportunities that we see that are showing prodded funds and we’ll wait till we file more, we talk about it. We’re in that process now fast tracking that. Maybe Susan, you give any comments on the legal process.

Susan McGee

Since we are going through the various filing and listing processes now. And we should take a few months.

Frank Holmes

Thank you.


Thank you for the questions. This concludes U.S. Global Investors earnings webcast for the second quarter of 2014. This presentation will be available for replay on our website at usfunds.com. Thank you for joining us this morning.

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