U.S. Global Investors Presentation on Global Infrastructure Opportunities Transcript

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

"Infrastructure: A Global Opportunity" Conference Call

January 22, 2008 12:00 pm ET

Executives

Michael Dunn - Director of Institutional Services

Frank Holmes - CEO and Chief Investment Officer

Jack Dzierwa - Global Strategist and Co-Manager of the Global MegaTrends Fund

John Derrick - Chartered Financial Analyst and Co-Manager of the Global MegaTrends Fund

Presentation

Operator

Greetings, ladies and gentlemen, and welcome to the U.S. Global Investors "Infrastructure: A Global Opportunity" Conference Call. (Operator Instructions)

It's now my pleasure to introduce your host, Mr. Michael Dunn, Director of Institutional Services for U.S. Global. Thank you, Mr. Dunn. You may begin.

Michael Dunn

Thank you very much, and thanks everyone for joining us today. We hope that you each enjoyed a wonderful holiday season. And as we're setting course for 2008, we wanted to focus a discussion on what we believe is an incredibly important global phenomenon: the physical construction of global infrastructure.

At U.S. Global, the first step in our investment process is the top-down analysis that shaped our sector allocation. We revisit this every week on Monday mornings, and John Derrick leads the investment team in a review of macroeconomic drivers.

For sometime that discussion has been dominated by facts and figures related to the construction of bridges, roads, dams, schools, information technology backbones, and even entire city, such as the ambitious $40 billion project New Songdo City in South Korea. That we discussed recently in Frank Holmes blog, "Frank Talk," which is located on our website.

To address the U.S. Global approach to this enormous global opportunity team, we are guided with three principles that manage the Global MegaTrends Fund, which is focused on infrastructure.

Frank Holmes is the Chief Investment Officer of U.S. Global, and directs the efforts of its investment team in the management of 13 mutual funds. John Derrick is the Chartered Financial Analyst and is also Co-Manager of the Global MegaTrends Fund, as well as Director of Research for U.S. Global.

Jack Dzierwa is the newest addition to the U.S. Global investment team, joining the firm in September 2007. Jack is both Global Strategist and Co-Manager of the Global MegaTrends Fund. Jack's broad background includes several years as a Director with ING in their Emerging Markets Research Department, and also as a consultant of a large beverage company in Mexico. Jack received his MBA from Chicago and has undergraduate degree from London School of Economics. Jack can choose from five languages to speak, and today he is going to do his presentation in English.

Frank and his team are coming off a very strong 2007 campaign. The Wall Street Journal's latest quarterly fund report ranks three U.S. Global funds in the top 1% overall and another fund in the top 2% overall as of December 31, 2007. The report also lists two U.S. Global large cap funds among the top 10 in their categories in the latest 12-month period.

With a lot of ground to cover, and also making time for your questions, without further delay, please let me introduce Frank Holmes. Frank.

Frank Holmes

Thank you, Michael, and thank you, everyone, in this sort of volatile market I want to share with all of you. We have published twice and we're going to do it again. The theme of: “anticipate before you participate” and: “understand how to use volatility to your benefit”. And the simplest way to use it with a math as in your favor is to look at the S&P. Its daily volatility to be plus or minus just under 2%; its weekly volatility is plus or minus 5%.

So anytime it drops more than its weekly fall in a day, it's a spectacular buy, because, as a methodology, its one purpose is it lowers the margin of air. And I think that, as you know, when you give us money that we are always functioning in this process and executing in this matter for this. And so this volatility doesn't frighten us as much as government policies in the most populated nations of the world.

And government policies for the strongest economic force in the world, America, it's tracking these policies that's important for us to see the stream we have been talking about this global infrastructure build out to emulate the incredible infrastructure that America has invested in, particular during the '50s and the '60s. Now this is what's driving the long-term secular boom market and demand for commodities, and Jack and John will talk about the urbanization.

I also want to point out that we just recently -- take a look at some of this bear market statistics, and specifically they say that an official bear market is a loss of 20% from the high, and over 43 global benchmarks have achieved this dubious honor. The slump has made stocks cheap by historical standards. When you look at the Morgan Stanley World Index, it is now valued at 14 times earnings, the lowest since 1995.

So this volatility can truly be put in your favor, and a recession, it will probably be very end one, and they're going to do everything to pump this economy. We have mentioned before on our website that in this cycles that we like to look at in the four-year presidential election cycle for the past 50 years there is an 80% probability that market will be up 8%. And we like using this math to try to manage our risk and manage our expectations.

So I thought I'll start off this presentation to highlight this big thing, because everyone is so overwhelmed and frightened with this market. And I just don't think you should be frightened, because we are one of the great, great [holdings] of the world where governments will want us to empower, realize and must create sustainable jobs.

So let's get into the presentation. Please turn to page five. What is a global MegaTrend? MegaTrends are usually defined by sustainable and substantial growth in capital expenditures in any country or sector. MegaTrends can be created by government policies for infrastructure or massive technological breakthrough.

Jack and I were at a Chindia Conference last week, and it's just amazing to see what the numbers are that China and India are committed to. India is committed to over 200 tax free zones, copying the American methodology to attract capital to a city. I think it's important to see those and all of those policies. MegaTrends increase the use of commodities, especially infrastructure, which creates sustainable jobs and massive usage of commodities.

Slide number six. In the '50s and '60s, MegaTrends, with massive growth of infrastructure in U.S. and Europe, led to post-war prosperity, creating a wealth effect and consumer culture. America consumed 50% of all the world's commodities building the interstate highways, and it was basically under the Eisenhower administration. Coming after rebuilding Japan and Europe, it was a big building plan for America.

In the '90s, the MegaTrends was Moore's Law and disrupted technologies, which led to massive growth of information technology and data communication. And we saw telecom companies spending hundreds of billions of dollars globally with this new technology. And the big correction that took place, the bubble, was because telecom was, basically, contracted by a couple of hundred billion dollars.

This capital expenditure had already been made. So, there was no need to continue it. And this had a big impact on all the other technology stocks. So, it's understanding what creates a bubble. It's is very important to understand infrastructure spending or major CapEx spending.

And then 2000, beyond this mega-trend, we have seen unprecedented change in global growth driven by globalization, urbanization and wealth creation, which leads to global infrastructure boom on a massive intractable scale, pumping over to number seven.

Infrastructure is an essential element of our country's culture, economic vitality and global competitiveness. Demographic change is sweeping the global landscape as urbanization will necessitate the need for basic city infrastructure.

The American Society of Civil Engineers estimates that the U.S. requires an investment of up to $1.6 trillion, $1.6 trillion to catch up. And a record budget was in India. Now, it's just under $500 billion for infrastructure.

Going over to page number eight, this is not a political position. While I just thought it was appropriate, because with the bridge creating difficulties, breaking down, immediately the (inaudible) proposed $10 billion over ten years, which is just a small fraction of the estimated needs by the American Civil Engineers Society.

World-wide infrastructure needs are estimated at $41 trillion by 2030, $41 trillion, $2.1 trillion global market cap of the S&P list of infrastructure assets. Now, what's interesting is that most of these are utilities, and we're focused on this space, but not just utilities where we can get, we believe, higher returns on our capital.

Hopping over to page nine is infrastructure, the basic facility services and installations needed for the functioning of the community or society: transportations, communication systems, energy utilities and public institutions.

Now, what we're seeing right now is mass of substantial money going into energy and utilities, particularly energy and utilities in China. 50% of all China's infrastructure is towards power and utilities. And what's also interesting is it consumes -- these mega projects consume 60% of world's copper.

Going over to page 10, I've mentioned this before. I think it's so important that people remember that this is what's driving this. It's a tipping point. I think what's amazing to see is how the population growth is expanding rapidly. We take a look at from 100,000 B.C. to 1929 when the stock market crashed. We have about 2 billion people on the plant Earth.

And in a very short period of time, by the time America lands on the moon, we have basically grown to 3 billion. So we're up 50%, and then it accelerates even faster that by the time we have Y2K and all that concern and everyone is so focused on the technology boom, the world had 6 billion people, and globalization was starting to get serious traction.

So, I want to make a point, this population boom growth is very important. So, when you have leaders in China and India, they recognize what they have to do to be able to manage the -- ruralize and going from rural communities into the city centers. This is a serious and a very big trend to graph the significance of.

Hopping over on page 11, by 2008, the path of global population, that's over 3 billion people, is expected to live in urban areas. Next year, projected urban population will be larger than the entire world population in 1965. We have the song: "Born to be Wild."

And Beijing population grew from 12.8 million to nearly 16 million in 10 years. And now, they basically replaced an airport and are building another airport for Olympics, two brand new airports, building out the infrastructure in Beijing.

I’m always amazed every time I go back, how many new skyscrapers there are, highways that have been expanded, the plans to build another loop and how many billions of dollars it costs to put a loop around the city.

Going over to page 12, demographics is the key. According to the UN, the world population will reach 8.3 billion in 2030, of which 5 billion will live in cities. So, the need to build and upgrade water systems, energy generation, hospitals, roads and schools, which we in America take for granted, and it's amazing to see we got a poor rating by the American Civil of Engineers.

It's shocking to you when you go to countries like India and China, and it might frighten you, because you see how much they have to do, especially in some parts of India. I found Bangalore has not changed so much. And now, they're going to be opening a brand new airport this year.

So, I think that's when you go and see these places and see for yourself, it looks terrible, but it's all upside, because the governments have policies to create sustainable jobs and to do that is through infrastructure.

So with that, I want to turn it over to Jack.

Jack Dzierwa

Thank you very much, Frank. This is Jack Dzierwa joining the team. And I would like to maybe start with page 13. Well, thanks to our marketing team, we have got a split of this 41 trillion infrastructure spending that is likely to be undertaken between now and 2030.

As Mr. Holmes mentioned, we are talking massive amount of money here, 41 trillion, which is sometimes difficult to imagine. And on this month, you see the split as to how the amount is going to be allocated.

And what is wonderful about this infrastructure project is that this is a truly global phenomenon. It is not something that is going to be happening in the developed market, but this is really happening from A to Z across the world. So please, I would like to bring your attention to this map, which shows you where the money is likely to be spent, both in terms of geographic location as well as sectors that are split between water, power, roads and airports.

And moving to page number 14, as Mr. Holmes mentioned, the American Society of Civil Engineers is forecasting that 97% of the roads, bridges and car tunnels in the U.S. will need to be upgraded, as well as 88% of rail systems.

And on page number 15, we show the report card from the American Association of Civil Engineers, which gave the U.S. infrastructure a good rating and called for $1.6 trillion to bring the existing infrastructure capability to acceptable levels. We want to stress: We are not talking here about building some skyscrapers and fancy stadiums, but basically bringing the infrastructure to acceptable levels.

And moving to page number 16, we show here the spending in the emerging markets universe between now and 2009, and we are talking here about $1 trillion. I stress: it's only between now and 2009, and it's usually China, to which Mr. Holmes also alluded, with the spending 36% of this amount.

Then to sum off the quarter, moving to page 17, please, we would like to highlight that even in Mexico, which in the past was probably lagging behind in terms of infrastructure spending, Mr. Felipe Calderon, when he took over in July last year, mentioned that over the next five years his country will be doubling the amount targeted on infrastructure compared with the previous administration. So we are talking in Mexico about $234 billion between now and 2012.

And on page 18, what I would like to bring to your attention is that we are showing the split of this amount that will be spent in Mexico. So its main energy sector, that Frank also mentioned, was dominating in China. In Mexico, it's going to be 62%, followed by the roads 11.3%, and telecoms 11.2%, as well as water 6.1%. And also what's important to know, ladies and gentlemen, that in the budget from the past now the Mexican government would allow private sector participation given the scale of the project undertaken.

Moving to slide number 19, (inaudible) $175 billion on railroads, $200 billion on airports and $80 billion on highways. And what is important to note that (inaudible) have been in China, but many members of my team has -- many people, when they talk about China, think that after the Olympics there is likely to be a slowdown; everything is going to develop at a slower pace. But please note that what we are talking about is railroad spending alone, this is around three times the current Olympic project and this is just the railroads!

And if we are going to slide number 20, here we have got one estimate from the Morgan Stanley Utilities team, which is calling for additional spending of $334 billion on electricity generation and distribution. So we are really, really talking about massive, massive amount of money here. Moving to slide number 21, please, we show two very proactive leaders, in China and in India that will increase infrastructure creation in their countries.

Also, as Mr. Holmes mentioned, moving to slide 22, please, it's the future population growth that is really driving this infrastructure creation around the world. And, as you see, between now, when the world has got about 6.5 billion to 6.6 billion people, to 2030 the population is really going to increase to 8.3 billion. And all of this is creating pressure on existing infrastructures around the world.

And on slide 23, which I would like to bring to your attention, we are showing a list of 22 largest cities by population size in 2015. Please note that according to United Nations population estimates, in the year 2015, there would be 22 cities which are going to have more than 10 million people. To put it in perspective about seven, eight years ago, there were only 10 cities which had population more than 10 million. So this growth is unprecedented around the world.

Moving to slide number 24 here, as Mr. Holmes mentioned, we are talking on a global scale about $41 trillion. But on slide 24, we have provided some split which is showing infrastructure spending in the emerging market universe. And here, according to one estimate that we looked at, we are talking about almost $22 trillion between now and 2017. Then in terms of geographical breakdown, which you are going to see on slide 25, again, Asia would be accounting further on two-thirds of this spending.

Then, as Mr. Holmes mentioned on slide number 9, we showed a selection of infrastructure outfits around the world, which include roads, which include airports, which includes electric utilities, and they also include telecommunication services. And this is, ladies and gentlemen, what's fascinating when we look at this infrastructure opportunity that this is not only typical road building or bridge building. There is much more to that. And one of those factors that we would like to mention is telecommunication growth, particularly the growth of mobile services.

On slide number 26 -- page 26, we would like highlight the correlation between the GDP per capita around the world and average revenue per user. And as you see, there is a steady growth in ARPU as GDP per capita rises. So, we have got the counties at the lower left side, which are mainly represented by the emerging markets. And then on the right side, you see developed markets.

So, the reason why we are seeing this infrastructure creation in the telecommunication services around the world is obvious, because as GDP per capita is rising in the developed countries, there we'll need to have more of those telecommunications services and as the companies already preparing for that.

Then on page number 27, we would like to show potential opportunities. If we are going to use an example of India, currently the penetration of mobile services is only 22%, which compared to, say, with almost 120% in Russia. In terms of ARPU, however, in India, we are talking only about $8 per month compared with, say, $56 in a developed market like Canada. So, here we are dealing with two different modes, which is one of them is the growth of penetration and another one, growth in ARPU, as GDP grows.

Then another slide that I would like to highlight is on page 28, which mentions the water services, which again is going to demand a lot of spending in the next few years. And please note that developed markets, say, like Bulgaria and Slovenia are currently wasting between 40% and 50% of water because of leakages.

However, this is not only the problem in developed countries as even there is a lot markets like Italy are wasting between, say, 30% or even 35% of their water. So, that's when a lot of water utilities are investing heavily in these infrastructure assets.

Then I would like to move to page number 29, please. In the United States, unfortunately most of infrastructure assets are still government-owned, and we would like to see an opportunity here, for example, some assets like airports in many countries are already privatized.

If the government here in the U.S. were to take those measures, first of all, we will see a major improvement in the facilities of the airports around the United States, but also these might provide like another investment opportunities here -- investment opportunity.

Then I would like to -- before we move to slide number 13, I'd like to say that apart from those traditional infrastructure, which is bridges, toll roads, airport or telecoms, it is visible in other parts of the economy.

For example, our team visited Westshore Terminals in Vancouver yesterday, which is the largest coal terminal along the Pacific Coast, stretching from Alaska to Chile. And when we went there yesterday, we saw that they are increasing their coal processing capacity from 22 million, 23 million at times to about 29 million.

And when we asked them where is the growth coming from, they say it is coming first of all from the demand for steel around the world, which is likely to be accompanying this growth infrastructure as well as the growth of power generation capacities around the world, which again is going to demand coal. So, this terminal is just one example, which shows in addition, say, to the telecommunications, how this infrastructure can be played out.

Then moving to slide number 30 please, we'd like to highlight a number of companies which offer the exposure to this sector and they include the likes of Caterpillar or CEMEX, Lafarge or Chicago Bridge & Iron as well as maybe Jacobs Engineering and the Rio Pinto.

And then obviously, there is a risk in every investment involved, and we're monitoring very closely the companies in which we are investing. And very often, as the experience shows, there is a potential for cost overruns here. So, we are speaking to companies and monitoring: how they are managing the cash flow, how they are managing those projects, as the less experienced players are likely to be affected by potential cost overruns, which might ultimately sink to the bottomline.

Then on page 32 please, there are obviously also political risks as sometimes higher taxes maybe required in order to fund portions of those projects, and we have noticed that there maybe some negative sentiment from -- I would split some members of the population.

Still, when we are speaking to people in developed and emerging markets, I think the concessions you're getting there, where people probably agree to pay $10 departure tax from the particular airport in order to see an improvement in the quality of service available, but it's likely that we are also looking at as well as the regulatory risks in a number of those countries.

And with that, I would like to move over to our Head of Research, Mr. John Derrick, who is going to talk about the portfolio in some detail.

John Derrick

Great. Thank you, Jack. I know there's been a lot of interest in the Global MegaTrends and how the funds are going to be positioned going forward and those kinds of things. There have been a lot of questions along those lines.

You can see on slide 33, where you can look at the top 10 industries, obviously, we made some significant changes to the portfolio over the last several months, I'll just highlight a couple of things there. Some of the thematic things that we're playing in the infrastructure stage is the engineering construction area. Steel is another one you can see, both of those showing up pretty heavily in the top 10 industry there.

Jack has already mentioned the emerging market wireless telecom space. That's another space that's very interesting. And then the last theme that we have had lately has been cash, and that cash position has helped us during the most recent volatility, but also has provided a great opportunity for us as we move forward as a lot of the companies that we are looking at and interested in are cheaper than they were just a few months ago for sure.

On the country breakdown, this is a global fund and you could see the rough breakdown there, it's roughly 60-40 right now, 55-45 something like that between the U.S. and foreign companies. But my comment there, even companies that are based in the United States, say, an engineering construction firm based in the U.S. likely has operations really around the world. And that's where a lot of the infrastructure spending is going, at least, right now. And so, even though they may be based here, their operations are more likely worldwide. So definitely you get global exposure even through some of those U.S. listed companies.

On the slide 34, here is a list of the top 10 holdings of the fund as of the end of the year. And you can see we've made some changes as well. Couple I'll point out: Chicago Bridge & Iron, Foster Wheeler and Manitowoc. Those are all companies that are leveraged to global infrastructure build out, huge CapEx expenditures, et cetera, but are all essentially engineering construction related firms. And that's one of the major themes that we've had and how we're approaching it.

I'll also point out there are a couple of utilities in there, which is the traditional infrastructure state. And as Frank alluded to at the beginning of the call, I think our focus is a little more broad than just that.

And: you know what? I'll wrap it up with that and turn it back over to Michael Dunn.

Question-and-Answer Session

Michael Dunn

Thank you very much, John, Jack, Frank. Just a reminder: to ask a question, there is a small tab marked "Q&A" in the upper left hand area of the screen. You can tap on that and get your questions through us. And, for those that we don't have time for during the webcast, we generally do our best to follow-up subsequently by email.

First question today is an obvious question. Why now? Why we're hearing so much about this topic now? Obviously it's an election year, but it seems to go beyond that with such significant figures, both from the American Society of Civil Engineers, but also more significantly globally. How do you respond to that?

Jack Dzierwa

Mike, if you don't mind, maybe I will attempt to address this issue. It's a very important issue: why now? And not, for example: why not five or ten years ago? And we can look at the answer from different angles:

First of all, in the United States, the collapse of a bridge in Minneapolis last year, where lives were lost, showed to both the public as well as politicians that something needs to be done. So, there was a tragedy and it really highlighted the importance of this issue.

However, I need to stress: this is not the problem in the United States only. These problems exist around the world. For example, two years ago, we had just the second anniversary, there was a major tragedy in Poland where, during the trade fair, the roof collapsed and 65 people lost lives. So, this problem is around the world. And the reason why we are having this problem now is that a lot of people are forgetting that nothing lasts forever and, I would say in particular, certainly not infrastructure.

For example, when we were looking at some statistics, an average useful life of an asphalt road is about 26 years. An average useful life of a bridge is about 46 years. So, at some point, there needs to be repairs, there needs to be upgrades, and if nothing was done for 20 or 30 years, indeed (inaudible) if you are in the system. And this is precisely what's happened, that we saw a major underinvestment in the fixed assets around the world, and that's why there is a problem.

To put it in perspective, between the year 1950 and 1977, in Canada, looking very objectively, which has got a very good level of infrastructure, the infrastructure spending was growing at 4.8%. However, between 1978 and 2000, the infrastructure spending was growing around the 0.1%. So, when you see slowdowns such as these, that’s the reason why we are having these problems now.

Michael Dunn

Very good. Thank you. John any comments to add to that?

John Derrick

The only thing I would add I would just reiterate: I thought Jack did an excellent job of summing up what the issues are. I think it's the massive underinvestment that's taken place, and Jack pointed that out. And we saw that not only in infrastructure, we've seen it in energy, we've seen it in some of the commodity spaces, the mining space, et cetera, and it all goes like, you know, 10 years ago technology and telecommunications, et cetera.

That's where you had the money flowing into. That's where the money was flowing. That's where that capital expenditure that Frank was talking about at the beginning of the presentation, that's where all that money was flowing. And it wasn't going into all these other areas.

And basically, I think what's happened is, is that those kind of policies have caught up with us to a certain extent, and the under investment really rose to the surface and people became aware of how underinvested this sector was, not only here in the U.S., but around the world.

And I think this sets the stage for a very long run. These are long-live assets and these projects are multi-year by projects. These are not things that are going to be done quickly. So, the remedy to underinvestment, it's going to take probably an equally long period of time, 10 or 15 to 20 years to remedy it.

Michael Dunn

Thank you. The next very popular question, it's really kind of a two-part question, first being: what do each of you see as possible derailments to this story, sort of -- if not a derailment, at least kind of a sidetracking effect? And in addition to that, the very significant sums of investment that are required for these infrastructure projects: how are developing countries affording this allocation?

Jack Dzierwa

With your permission, I would maybe attempt to answer this question. When we are talking to companies around the world, we have already seen the developed and emerging markets, the first thing we're asking is: are you seeing a slowdown in the order book because of a subprime issue? Because of the private credit conditions?

We're aware of that. But when we did it, for example, pay one of the company in Canada, (inaudible) a couple of weeks ago. He tells me -- one of their representatives that we met tells me: “we haven't seen any slowdown whatsoever”.

When we called, say, some companies in the U.S. and ask: are you seeing any slowdown yet? They say: “No, not at all”. Maybe a particular company has got some exposure to housing, then, yes, there maybe some slowdown on those big projects. At least not the companies that we've spoken to, they revealed to us that there is some slowdown because of private credit conditions.

But obviously, we are talking about such major, major sums of money here that it is maybe likely that somewhere out there, a particular project is not going to be, say, $500 billion, but maybe $450 billion. So we are aware of that, but we are taking a global view.

We are looking for those countries and companies which are likely to participate in this on a truly global basis, not in a particular market segment or geographical location. If for whatever reason, there is a slowdown, then the company might be in problem. So, we are monitoring on a close basis those companies that are likely to participate on a global scale here.

John Derrick

Michael, I might just add to that. I think one of the risks that you have in this space is the political fortitude to move forward. Some of these are not predicated on. So, obviously, some of it is private investment. The other is public investment.

On the public side of it, you have to have the politicians being willing to spend the money et cetera, and those kind of things. So, that's obviously a risk that you're watching -- that we're watching. But I think if you look at around the world and you look at China and you look at India and you look at the Middle East, these are projects that they feel compelled to do. They feel like they have to do these projects.

And these are $1 billion projects and those kinds of things. And they are not going to change their mind on a dime. The Chinese are very long-term oriented. They have made their plan. And, generally speaking, they are probably going to stick to it, but there are risks and we're reviewing those risks.

I think in the U.S., I think the political events may change et cetera, but I think we've gotten to the point now where it's pretty obvious and evident to most people that we need to reinvest back into United States. We need to reinvest back into the highways, into the roads, the ports, the airports, subway systems, et cetera, and so, water system, you name it. And I think there is growing consensus among the U.S. population that that's the direction that we need to move as a country.

Jack Dzierwa

And maybe to compliment this very important comment that John just made is we also are looking at the issue of property rights around the world, as it is very likely that a government may be willing to expense a highway or a school, but there are many communities out there that maybe opposed to that as their likelihood is likely to be affected. So, there is another thing that we are looking at is whether the property rights in that particular country are likely to impeach on the development of these projects.

Michael Dunn

Thank you. A question that comes up quite a bit with respect to host of investment opportunities and construction of important projects, whether it's wind, solar, nuclear, etcetera, and that is the environmental issues that are related with such considerable undertakings. Are they likely to play hand in significant delays for, again, sidetrack these projects?

Frank Holmes

I'll take a stab at that one, Jack, if you let me to. I think what we've seen is they have in the past. And I think, if you look, they all use the mining industry or the oil and gas industry, and you've definitely seen environmental concerns trumping some of these other energy concerns that we have.

But I think we've kind of reached the tipping point here where we're seeing a lot more emphasis on renewable energy, wind and solar and those kind of things. So I think those projects are going to continue to maybe get an emphasis to kind of solve some of the energy needs that we have.

But I think at the same time, I think, people are going to have to be pragmatic about how they are viewing the world. And once they realize their energy consumption is at risk, you know, if you have a rolling blackout in a community or a state or wherever, it's going to get to your attention.

And so, particularly for the developed world, there is a big emphasis on environmental concerns. And I think that will continue to move forward, and I think that's very supportive of some of the alternative energy, green energy, those types of projects. And in the developing world, I think environmental concerns are an issue, but not as much so as in the United States or Europe.

And I think they view it more as, this has to be done for the development of the country. And that's why I think a lot of these projects that we were just talking about, billions of dollars projects, are going to get done; they are going to get completed. I'll stop with that.

Jack Dzierwa

If maybe I can add into what John said, but from a slightly different angle, when we visited Westshore Terminal, coal terminal and it was [spread] in Vancouver yesterday, my first impression was when I went was that: “oh, it's coal, it's going to be dusty, it's going to be dirty”.

Ladies and gentlemen, if you want to see some of the best wildlife anywhere in North America, I would really recommend that you go and see Westshore Terminal. We were really amazed by the number of bears and other animals that were really congregating around this terminal. And when I raised this issue with the manager, he tells me: “Because for us environment is so important. We are cleaning literally every single day many of those coal (inaudible) that are coming here. We are making sure that the water that we are really seeing is clean and that the wildlife is protected”.

So certain companies out there are taking it very seriously. They develop [schemes] how to combine the growth of the infrastructure, but also with a great respect for the environment around.

Michael Dunn

That's great. Thank you. Then sort of bringing it very current: do you see anything that is taking place in the U.S. economy currently as a potential catalyst one way or the other, either to speed up infrastructure spending or is the market conditions and the concerns about the economy likely to remain at that?

John Derrick

All right. I'll jump in Jack. I think we have two issues as I see. I think from a public spending standpoint, like [Crimson's] if you're in the state of California, and you're improving the roads, et cetera, and your tax revenue is spend back, that's going to potentially cramp budget and those kind of things.

Michael Dunn

Sure.

John Derrick

So maybe those projects get delayed, or you're not spending $500 million like Jack alluded to earlier, spending $450 million this year, et cetera, something like that. So I think that's a risk.

Outside of that, I think the needs are so pressing, really around the world, that I think a lot of these projects will move forward. I think the economics of the projects make sense long-term. These are very long lived assets. This is not something you go out and you make a decision because you're trying to make a quick buck in a year or two. These are decisions that are going to have lasting impact for the next 10 or 15 or 20 years.

And I think that's how people are viewing them. They're viewing as long-term investment. And the investment wins may change a little bit and blow, and those kinds of things. But I think at the end of the day, I think a lot of these projects are still going to get done, particularly in the developing world.

Frank Holmes

I think it was great, great summary by John.

Michael Dunn

Thank you. The next three questions are really sort of MegaTrends Fund related or Global MegaTrends Fund. And first being: how much of the portfolio will be applied to infrastructure assets that are dividend play such as private toll roads and port operators, et cetera?

John Derrick

It will be a focus, but it's not going to be a dominant part of what we do, at least initially. I think what we are looking for is we are looking for companies that are earning high returns on capital or high returns on equity, depending on the situation, are going to grow earnings, are going to grow sales, et cetera.

And so, we are looking for companies that are going to benefit to a certain extent like: “the picks and shovels like analogy” to a certain extent. Those are the kind of companies at least initially that we are going to be focused on as apposed to more traditional infrastructure dividend paying type of private projects, private roads, et cetera.

There is still going to be a utility exposure. There is still going to be more traditional like an airport or those kind of things. We are definitely going to be involved in those. But I think the emphasis is finding companies that are shareholder friendly and focus on returns on capital metrics and try to generate the highest returns possible given the environment as opposed to really a more dividend-focused fund that some infrastructure projects are maybe traditionally; that's how people look at.

Michael Dunn

So, a follow-up question for that, which I believe you pretty much answered, but I'll allow you to share your thoughts on.

John Derrick

Sure.

Michael Dunn

How closely would the fund be tied to the S&P infrastructure index?

John Derrick

Well, the S&P infrastructure index is about 80% or so utilities. And I think our focus is going to be a little different than that. It's really going to be, like Frank would mention, the engineering construction firms. We are very excited about lot of the things that we are seeing there. Some of the steel companies, some of the wireless telecom and those kind of things that Jack had talked about quite a bit.

And so, I think we are looking at those as growth opportunities within the infrastructure space. And I think that's going to be the emphasis that we have and possibly a differentiator between either the infrastructure index or possibly the competitors.

Michael Dunn

And a final question: have the current market conditions presented any particularly attractive opportunities, anything that’s really sort of captured your eye in reference to the sectors?

John Derrick

Well, I think we've got a broad-based sell off. And it's impacted a lot of sectors. And I think one of things I hate to keep going back to and circling back to it, but the engineering construction stage is talking a particularly hard knock. And so, a lot of the companies that we are looking at investing, and et cetera, are down 25% or 30% after highs from just a month or so ago or maybe not even that one.

And so, I think those are some of the companies that we are looking at and saying these are really some good opportunities here. And I think some of the companies that are listed in that top ten holdings list, it's in the back of the presentation there, provide some good opportunities for future investment or continue for us to add that those positions.

Michael Dunn

Okay. Jack, any closing comment?

Jack Dzierwa

Well, I would say I really concur with what John is saying here that we are talking to those companies. We are taking long-time view. And indeed, if we see a company with which we are in contact and we know that, if anything, order book is growing, there maybe even probably revisions of earnings, this is what we are looking for. This is what we are spending time on to identify those players that in this [sell-off], can they provide a good opportunity for us, whether it is emerging markets or in developed markets.

Michael Dunn

Okay, very good. Thank you, both. Thank you, Frank. That concludes our webcast. There is one question that did come up, and it had to do with the funds expense ratio. And right now, it's a little bit over 2%.

And I just wanted to point out to folks that the reason for that is that that it's relative to the asset base, obviously expressed as a percentage of assets. And the fund is so small. It's just over 20 million. And as the assets in the fund increase, the relative expenses decrease.

So, the management fee is significantly lower than the current expense ratio. And as soon as the fund is more mature, it will be better valued from that standpoint.

So, I want to thank everybody for joining us today. And just to remind you that if you have an interest in any of these themes, such as the global investments, the infrastructure theme, energy, you can check our website, which is www.usfunds.com.

And on that site, you'll find content, including "franktalk", which we mentioned earlier, which has won six different awards from the Mutual Fund Education Association. And also, we'd like your feedback. You can reach me personally at [e-mail]. And we're interested in finding out your ideas for future webcast presentation topics. And that would be what you want to hear from us.

Finally, please call us if we can assist you in any way, 1-800-US-FUNDS. That's 1-800-873-8637. And once again, thank you very much for joining us for today's webcast. Take care.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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