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Please note: The Frank Talk articles listed below contain historical material. The data provided was current at the time of publication. For current information regarding any of the funds mentioned in these presentations, please visit the appropriate fund performance page.

India’s Achilles Heel
August 27, 2010

Achilles Heel IndiaPoor infrastructure continues to be an Achilles heel for India—if it were better, analysts say, the country could add 1-2 percentage points to its annual economic growth rate of around 8 percent.

India spends $17 per capita annually on infrastructure and capital investment—by comparison, China spends $116. With millions of people moving to India’s cities each year, McKinsey says the country will have to spend $1.2 trillion on infrastructure just to meet basic needs. This works out to $134 per person, or about eight times current levels.

The Delhi government has a plan to spend $500 billion on infrastructure by 2012 and twice that amount in the subsequent five years. But there’s a big difference between plans and execution—India is scheduled to host the Commonwealth Games in just a few weeks, but many of the venues are still not ready due to corruption and inefficiencies.

Eight miles of new roads are being built each day, but the official target is 12 miles per day. Desperate for more electricity, the Indian government turned to a failed Enron project that had been dormant for a decade.

One reason for lagging infrastructure is a lack of qualified engineers. A New York Times article this week said many of the best and brightest are going into the high-tech sector rather than the less glamorous (and less lucrative) world of roads and bridges.

Despite the challenges, Morgan Stanley analysts think India’s economy could begin growing faster than China’s as early as 2013. MS says this is because India’s ratio of working age population to dependents is improving while China’s is declining. Their government has been successful at creating jobs and the country has a strong footing in the lucrative global services export market.

But for India to overtake China’s growth pace, it’s vital that the country get better at executing on its ambitious infrastructure vision.

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Traffic Jam on the Superhighway
August 20, 2010

There’s growing congestion on one of America’s highways and reports say the problem will only get worse. In just the past few years, America’s technological network—our information superhighway—has gone from hare to tortoise. Dropped calls, Internet outages and surfing at a snail’s pace now seem to be commonplace.

One of the main causes of the congestion is the exponential growth of smartphones. Did you know that the new 4G iPhone uses the equivalent network capacity of 200 older generation cell phones?

Smartphone Ratio

Earlier this year when Apple sold 1.7 million of them in just three days, it was the data equivalent of dumping 340 million new cell phones into the system at once—no wonder there were problems. It isn’t Apple’s (or AT&T’s) fault so many people wanted their product, but it does highlight the investment opportunity.

According to tech research firm PacificCrest, the global technology buildout is a $200+ billion opportunity over the next five years. The infrastructure needs include $100 billion to relieve congestion and $50 billion for boosting networks by upgrading Internet protocols. PacificCrest also estimates $54 billion is needed for new routing systems to improve data flow.

PacificCrest says we’re entering the next phase of the Internet infrastructure build cycle as big firms boost their capital spending to alleviate bottlenecks and accommodate technological improvements.

During the last cycle (2004-2008) the top five Internet firms spent roughly $15 billion on infrastructure, but that figure is expected to jump to $28 billion over the next four years.

Internet Capex Spending

The infrastructure upgrades and additional networks are important because much of the world still isn’t connected. There are 183 billion emails sent each day, but 78 percent of the world’s population still doesn’t have email. There are roughly 6 billion devices (4.6 billion mobile phones, 1.2 billion computers) hooked up to the Internet today, but less than 10 percent of those have high-speed access.

As more people—especially in the developing world—join the broadband and mobile communities, immense strains will be placed on the global network over the next few years. There should be substantial opportunities to participate in this buildout along the way.

The following securities mentioned in the article were held by one or more of U.S. Global Investors family of funds as of 6/30/10:  Apple, AT&T

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World Spotlight on South Africa
June 14, 2010

South Africa takes to the world stage as it hosts soccer’s first World Cup to be played on the African continent. For the next 30 days, the eyes of the globe will be watching Rooney, Cristiano Ronaldo, Maicon and Messi battle it out for world soccer supremacy.

COMM WroldCupInfrastructure-THSouth Africa’s $287 billion economy is already the largest in Africa and it’s estimated that the World Cup will generate 400,000 jobs and contribute $7.3 billion to the country’s GDP, according to research firm Grant Thornton. It estimates 450,000 tourists will visit the country spending a total of $1.1 billion.

In preparation for this event, South Africa has given itself quite the makeover. This infographic from MENA Infrastructure details how South Africa has made substantial upgrades in its infrastructure.

A reported $2.2 billion was spent on 10 stadiums that will host the matches. Some of these, like the 46,000 seat Nelson Mandela Bay stadium in Port Elizabeth, the first stadium in the world to be completely powered by green energy, were new construction while others, like the 95,000 Soccer City stadium in Johannesburg, received major upgrades.

COMM - World Cup 061110Another $9.1 billion was invested in the country’s road systems, $2.4 billion in airports and $2 billion on a new commuter rail. In all, the World Cup infrastructure program is estimated to have brought $52 billion in investment.

Once the games are over, the South African government hopes the investment will continue to pay dividends. World Cup hosts have experienced increased economic growth in the two years following the event. Analysis from Credit Suisse shows the host countries experienced 2.7 percent and 2.6 percent growth, respectively, in the years leading up to the World Cup but saw 3.2 percent and 3.7 percent economic growth in the two years after.

Only time will tell if this scenario plays out. Luckily we have the world’s best tournament to keep us entertained in the meantime. Enjoy the Cup!

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Brazil's Infrastructure Plays Catch Up
May 20, 2010

Brazil has become one of the globe’s beacons of growth but in terms of infrastructure investment it needs to catch up to its peers.

As you can see from the two charts below, Brazil’s investment in its infrastructure has lagged that of emerging market leaders India and China, but it’s also lagged other Latin American countries like Peru and Mexico. In terms of investment-to-GDP ratio, Brazil averaged 17 percent over the past five years, according to a Morgan Stanley report, far behind China (44 percent), India (38 percent) and Russia (24 percent).

Brazil Infrastructure Plays Catch-Up

Brazil’s infrastructure investment as a percentage of GDP has been declining for some time. In the 1970s, infrastructure investment averaged 5.4 percent of GDP but that number has dropped off to just over 2 percent in the 2000s. This is considered just enough to maintain existing infrastructure, not enough for new projects or to fill new needs.

The U.S. spends roughly the same amount and we have our decaying infrastructure to show for it.

The Brazilian National Development Bank (BNDES) estimates that infrastructure investment could total more than $145 billion over the next three years alone. Morgan Stanley believes that this figure needs to double to 4 percent of GDP if the country is to achieve 5 percent annual growth for this decade.

So where is the $290 billion worth of investment needed?

Morgan Stanley says that the biggest opportunities are in roads, railways and ports. Because they’ve received little investment so far, ports and railways are projected to increase by 24.8 percent and 12.7 percent annually respectively for the next four to five years. In addition, we’ve seen firsthand the need for more airports and large-occupancy housing in its major cities.

Luckily, Brazil already has some drivers in place to increase investment. In addition to the second-edition of the Growth Acceleration Plan we discussed back in April (Brazil’s Plan to Accelerate Growth), Brazil will play host to the 2014 World Cup and the 2016 Olympics. Morgan Stanley also sees that the development of pre-salt oil reserves, a key driver of economic growth, will spur additional investment.

Our team’s visit to Brazil last November confirms the view that the country will benefit enormously from an upgrade of its infrastructure. It will take Brazil to the next level of economic development that will lessen reliance on commodities and diversify the engine of sustainable economic growth towards internal consumption.

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A Bridge to Prosperity
April 16, 2010

Mena Infographic sml 041610Two of the Middle East’s most promising economies will soon be joined together by the world’s longest bridge. The Qatar-Bahrain Friendship Causeway is set to begin construction later this year.

Spanning roughly 24 miles, the causeway would take nine hours to walk across and is the equivalent of 536 Boeing 747s lying end-to-end.

The $2.3 billion bridge, which includes a railroad, is expected to take five years to construct.  Once completed, 10,000 to 12,000 vehicles will use it daily to cut what’s now a four-and-a-half-hour drive to a mere 40 minutes.

A stronger connection between the two nations should be a catalyst for business activity. Qatar’s 9.5 percent GDP growth in 2009 was the fastest in the world and the country currently ranks as the second richest in the world in terms of GDP per capita ($122,000).

Already a banking center of the Arab world, the causeway should aide Bahrain in its efforts to diversify the country’s economy away from oil and natural gas. In recent years, Bahrain has worked to expand trade with both the United States and surrounding countries in the Middle East, including Qatar.

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Net Asset Value
as of 05/20/2019

Global Resources Fund PSPFX $4.32 -0.01 Gold and Precious Metals Fund USERX $6.59 -0.02 World Precious Minerals Fund UNWPX $2.51 No Change China Region Fund USCOX $7.95 -0.12 Emerging Europe Fund EUROX $6.45 No Change All American Equity Fund GBTFX $24.23 -0.12 Holmes Macro Trends Fund MEGAX $16.51 -0.11 Near-Term Tax Free Fund NEARX $2.21 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change