U.S. Global Investors · · 2014-05-14in performance. 3 *SWOT analysis (Strength, ... Compare...
Transcript of U.S. Global Investors · · 2014-05-14in performance. 3 *SWOT analysis (Strength, ... Compare...
Enduring the Global Financial Crisis
www.usfunds.com
U.S. Global InvestorsSearching for Opportunities, Managing Risk
Frank E. HolmesCEO and Chief
Investment Officer
John Derrick, CFADirector of Research
Brian Hicks, CFAPortfolio Manager
October 16, 200808-723
Evan Smith, CFAPortfolio Manager
Romeo Dator, CFAPortfolio Manager
Jack DzierwaGlobal Strategist
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Fund Recognition
Winner of 26 Lipper Fund Awards and certificates since 2000
Investment
leadership results
in performance
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*SWOT analysis (Strength, Weakness, Opportunity, Threat). Alpha is a measure of the difference between a fund’s
actual returns and its expected performance, given its level of risk as measured by beta.
Multidisciplinary Focus
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Our Strategy for Enduring a Credit Crisis
Goal: Stabilize volatility of funds
Reasons: Massive headwinds from billions of dollars of
hedge fund redemptions
Government response has not generated
confidence in the plan
Credit contraction has gone global
Tactics: Raise cash levels, utilize covered writing until
our proprietary macro indicators turn positive
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What is a Financial Crisis?
• Financial crisis can be divided into:• Banking crisis• Currency crisis• Twin crisis
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Crisis Frequency
Source: CLSA
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1. Wholesale price
2. Retail price
3. Fairytale price
Three Price Levels When
Valuing Derivatives
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Derivatives-Weapons of Mass
Destruction (WMDs)-Proliferate
5 Times Bigger In Five YearsTrillions
Source: U.S. Global Research
Warren Buffett 2002
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Derivatives-Weapons of Mass
Destruction (WMDs)-Proliferate
Trillions
Source: Bank for International Settlements
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As Seen on TV
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Balanced Thought Process
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Government Policy Model —
Precursor for Change
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U.S. Broad Money Growth
Source: CLSA
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M3 vs Crude Oil
Government will continue to printmoney, like the recent bailout ofFannie Mae and Freddie Mac, tosupport the economy
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No Triangle, No Conflict
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Blame Game
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Blame Game — Who Pays?
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80:20 Rule — Did You Know?
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Convergence and Unexpected Consequences
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Picking Bottoms is Challenging
Source: UBS estimates
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S&P 500 2002-2004 — U Bottom
Source:Merrill Lynch Market Analysis, Bloomberg
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S&P 500 1990-1992 — U Bottom
Source:Merrill Lynch Market Analysis, Bloomberg
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S&P 500 1987-1989 — U Bottom
Source:Merrill Lynch Market Analysis, Bloomberg
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S&P 500 5 Day Rate of Change
Source: Bloomberg
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S&P 500 52 Week Rolling Return
Source: Bloomberg
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S&P 500 Rolling 8 Year Weekly
Source: Bloomberg
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Recent Energy Downcycles
Source: Tudor Pickering, Holt & Co., Bloomberg
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Baltic Dry Index
Source: Bloomberg
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Cash Flow Multiples
The source of this graph is Tudor Pickering, Holt & Co. The securities identified in the graph
were selected for inclusion by Tudor Pickering, Holt & Co. and may or may not be held by
portfolios managed by U.S. Global Investors, Inc., whose holdings may change daily.
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S&P 500 Energy Index vs
Its Forward P/E Ratio
Source: Bloomberg
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Copper Approaching Marginal Cost
Source: Credit Suisse, Barclays Capital and Bloomberg
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Copper Approaching Marginal Cost
Source: Brook Hunt, Merrill Lynch Research
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China’s Oil Demand
Source: UBS estimates
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China’s Oil Demand
Source: China National Bureau of Statistics, Reuters, China Customs, UBS
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Oil Consumption
Source: BP, BCA Research
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Developing Nations’ Per Capita Income is at a
Level Where Oil Demand Begins to Grow Rapidly
Source: PIRA
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Mexico’s Oil Production Decline
Source: UBS, Pemex
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Russia’s Oil Output Slide
Source: UBS, Reuters
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Mismatch Between Oil Reserves and Economic
Systems (Proven Reserves vs. Level of Access)
Source: PIRA
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MSCI ex Japan 10-year Oscillator
Source: Bloomberg
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Performance of Hong Kong
Source: Datastream, CLSA Asia-Pacific Markets
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CPI Trending the Right Way
Source: CEIC Data, CLSA Asia-Pacific Markets
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Positive Policy Moves
Source: People’s Bank of China, CLSA Asia-Pacific Markets
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Compare Financial Strength 1997 to 2008
Current account balance (US$bn)
Source: CLSA Asia-Pacific Markets
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Infrastructure: Has something changed?
• Infrastructure related stocks havenot escaped the rout of themarkets this year
• Postponement and cancellationof some projects due toregulatory impediments
• Expectation of a global slow-down in infrastructure spendingdue to tighter credit conditions
• Lower commodities pricesdo not bode well forinfrastructure creation
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Delay vs Destruction of Construction
• Infrastructure assets are reaching theiruseful life
• Governments, including both U.S.presidential candidates, remaincommitted to infrastructure spending
• Recent renewal of tax credits for solarand wind in the USA should supportthe theme
• Sale of Midway Airport in Chicagolast month (at a high multiple of ~35x07 EBITDA) illustrates an attraction ofquality infrastructure assets
Chicago Midway Airport
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So how to play it now …
• We continue to believe in a diversifiedportfolio of infrastructure assets.
• In light of the current market conditionswe may be more focused on the U.S.
• Concentrate on steady cashflows andhigh dividend yields of traditional assetssuch as power utilities, selected airportsand toll-roads.
• Valuations in the construction &engineering space have fallensubstantially – one year forward P/E ofaround 12 vs. 25 at the end of 2007.
We search selectively for opportunities.
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We are aware of the risks
• Will emerging markets, including China,continue to grow/support commoditiesin light of a slowdown in the West? Yes.
• Although recent data from Chinaillustrates that the economy is slowing, astimulus package is already underway
• Will investors have access to sufficientcapital in light of tighter creditconditions? Uncertain outcome.
• Watch backlogs of construction &engineering companies for signs of ameaningful slowdown in demand – nextsix months will be critical
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6 Billion People-Tipping Point
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• EMEs hold 70% of global foreign-exchange reserves
• Less prone to contagious crises than before
• Unlike the U.S. and other developed nations, EMs are net creditors,
with improving debt ratings and foreign currency reserves
• 40% of EM debt now rated investment grade vs 3% a decade ago
Long Term Bullish is a Sustainable Paradigm
Source: Merrill Lynch
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Long Term Bullish Drivers for
Commodities in Infrastructure Spending
Source: Morgan Stanley Research, World Bank, Global Insight e=Morgan Stanley Research estimates
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Disclosure
Please consider carefully the fund’s investment objectives, risks, charges and expenses.
For this and other important information, obtain a fund prospectus by visiting
www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully
before investing. Distributed by U.S. Global Brokerage, Inc.
Foreign and emerging market investing involves special risks such as currency fluctuation and less public
disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s
returns and share price may be more volatile than those of a less concentrated portfolio. Because the Global
Resources Fund concentrates its investments in a specific industry, the fund may be subject to greater risks and
fluctuations than a portfolio representing a broader range of industries. All opinions expressed and data
provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in
U.S. companies. The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the
energy sector as a subset of the S&P 500. The Baltic Dry Freight Index is an economic indicator that portrays an
assessed price of moving major raw materials by sea as compiled by the London-based Baltic Exchange. The
Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies
listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months. The Hang Seng China
Enterprises Index is a capitalization-weighted index comprised of state-owned Chinese companies (H-Shares)
listed on the Hong Kong Stock Exchange and included in HSMLCI index (Hang Seng Mainland Composite
Index). The following securities mentioned in the presentation were held by one or more of U.S. Global
Investors Funds as of 9/30/08: Freeport McMoRan. 08-722
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Disclosure
Alpha is a measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual
fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to
the return of the benchmark index is a fund's alpha. The MSCI Asia ex-Japan Index is a free float-adjusted,
capitalization-weighted index measuring the performance of all stock markets of China, Hong Kong, Indonesia,
Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand, India and Pakistan. The Nasdaq Composite
Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks. Red chips are
Chinese companies that trade in Hong Kong and are incorporated in Hong Kong. The Russian Trading Systems
Index is a capitalization-weighted index that is calculated in USD. The index is comprised of stocks traded on
the Russian Trading System. The following securities mentioned in the presentation were held by one or more
of U.S. Global Investors family of funds as of 9/30/08: Agnico-Eagle (Gold and Precious Metals Fund 3.71%,
World Precious Minerals Fund 2.94%); Hyflux (Global MegaTrends Fund 1.83%); Randgold Resources (Gold
and Precious Metals Fund 4.84%, World Precious Minerals Fund 7.83%); Yamana (Gold and Precious Metals
Fund 4.05%, World Precious Metals Fund 3.90%, Global Resources Fund 0.84%, Holmes Growth Fund
0.02%); Mechel (Eastern European Fund 1.99%); Royal Gold (Gold and Precious Metals Fund 4.26%, World
Precious Minerals Fund 1.66%); Kinross (Gold and Precious Metals Fund 5.47%, World Precious Minerals
Fund 0.68%); Goldcorp (Gold and Precious Metals Fund 6.20%, World Precious Minerals Fund 9.16%, Global
Resources Fund 1.79%); Newmont Mining (Gold and Precious Metals 3.77%, World Precious Minerals Fund
1.35%); Aurelian Resources (World Precious Minerals Fund 2.67%); Peabody Energy (Global Resources Fund
1.72%); Freeport-McMoRan (Gold and Precious Metals Fund 1.07%, World Precious Minerals Fund 0.90%,
Global Resources Fund 1.02%, Holmes Growth Fund 0.95%, Global MegaTrends Fund 0.93%); ExxonMobil
0.00%; British Petroleum 0.00%; HSBC 0.00%; Mitsubishi 0.00%. 08-723