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Investor Alert

Why Energy is Catching the Market’s Eye
April 17, 2014

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

Over the last month the energy sector has outperformed the market, and as you can see in the chart below, has done so by 6.5 percent. Year-to-date the sector is beating the S&P 500 Index by over 3 percent.

In a spectacularly performing market during 2013, energy lacked some of the incredible performance seen throughout the other sectors, but recently it has turned up, catching the attention of the market yet again.

Greek 10-Year Government Bond Yields Back to Pre-Crisis Levels
click to enlarge

What’s causing this sudden shift in relative strength?

As our Director of Research John Derrick describes in our recent video on the Periodic Table of Sector Returns, it is not unusual to see sectors move from top to bottom from one year to the next. For example, energy ranked as one of the top-performing sectors from 2004 through 2007, but quickly lost momentum in 2008 when it was hit the hardest after the financial crisis. In 2012 and 2013 energy turned in some solid numbers, but lagged in comparison to the other sectors.

Greek 10-Year Government Bond Yields Back to Pre-Crisis Levels
click to enlarge

In looking at an overview of market performance, it’s important to recognize what caused the moves. For example, one reason the energy sector is climbing back up, could be due to the broader market rotation that we’ve noticed recently, from growth stocks to value stocks.

Growth stocks are generally successful companies that are expected to continue growing their earnings, usually at a rate that outpaces the market, causing investors to pay more for them. Value stocks rarely outpace the market as much as growth stocks do. Investors see potential in buying these cheaper names, ones that trade at lower price-to-earnings (P/E) ratios than the S&P average, because they still have the potential to significantly outperform over time.

As I mentioned, in the past few weeks high-growth names have pulled back, while value names are steadily gaining momentum. One of the main reasons for this rotation is that some investors view the valuations of growth names as too high, especially in comparison to the value companies.

What’s significant is that many of these value names happen to be in the energy sector. We’ve taken advantage of this shift to value in our Global Resources Fund (PSPFX) through names like Pacific Rubiales and Valero Energy.

Although this rotation is important to the recent moves in energy, it is not the only factor driving the sector up. Take a look at the price of oil and natural gas.

Currently natural gas prices are starting to stabilize while the price of West Texas Intermediate (WTI) crude oil is up by 4 percent year-to-date, reaching $104 a barrel just this week. This price increase in WTI is linked to concerns over future supply, but nevertheless higher oil prices bode well for stocks within the energy sector.

According to the Energy Information Administration (EIA), short-term projections for the price of WTI remain relatively high. Additionally, the group commented that, “Aside from seasonal issues, the EIA expects strong crude oil production growth, primarily concentrated in the Bakken, Eagle Ford, and Permian regions, continuing through 2015. Forecast production increases from an estimated 7.4 million barrels per day in 2013 to 8.4 million barrels per day in 2014 and 9.1 million barrels per day in 2015.” This projection is good for North American producers and service companies.

So how can you gain entry into this energy opportunity?

The portfolio managers and I continue to stay focused on companies that show robust fundamentals and are located in sectors showing strength. Currently, within our Global Resources Fund (PSPFX), we are seeking to capture the latest takeoff in the energy sector through our exposure to companies that appear reasonably valued. In addition to the two I mentioned previously, if you look at the fund's top 10 holdings you will also see our investments in large-cap names like Schlumberger, EOG Resources and Halliburton.

Are you ready to energize your portfolio? I believe a well-diversified portfolio includes exposure to natural resources. In fact, I am in Tirana, the capital city of Albania, where I have had the opportunity to expand my tacit knowledge by visiting several resource companies.

I am excited to share my journey with you next week when I return home!

Holmes Macro Trends Fund

Index Summary

  • Major market indices finished higher this week.  The Dow Jones Industrial Average rose 2.38 percent. The S&P 500 Stock Index gained 2.71 percent, while the Nasdaq Composite advanced 2.39 percent. The Russell 2000 small capitalization index rose 2.38 percent this week.
  • The Hang Seng Composite fell 1.16 percent; Taiwan gained 0.41 percent while the KOSPI declined 0.27 percent.
  • The 10-year Treasury bond yield rose 9 basis points to finish the week at 2.72 percent.

Frank Holmes kicks off his new show with Kitco: Gold Game Film

Domestic Equity Market

The S&P 500 Index rose 2.71 percent, bouncing back this week after suffering its worst weekly decline since 2012 last week. Utilities were the only sector to eke out a gain as bonds rallied and money flowed into defensive areas of the market. The energy sector led the way, and has emerged as the new leader in the market over the past month.

S&P Economic Sectors
click to enlarge

Strengths

  • The energy sector rose 4.67 percent this week as there was ubiquitous strength in virtually every industry group, including refiners, energy service and exploration and production.
  • The industrials sector also exhibited strong performance with every index constituent up for the week. Leaders included Textron, Ingersoll-Rand and Kansas City Southern. 
  • Micron Technology was the best performer in the S&P 500, rising 13.16 percent this week. Flash storage competitor SanDisk reported after the close on Wednesday, topping expectations and raising margin forecast; this news bodes well for Micron.

Weaknesses

  • Weakness was seen in the managed care stocks. UnitedHealth reported weaker-than-expected revenues and higher costs for a new Hepatitis C therapy but this report dragged down the entire group.
  • Computer and electronics retailers were also weak with Best Buy’s news that the company’s U.S. retail chief is retiring, along with a profit warning from a competitor.
  • Intuitive Surgical was the worst performer in the S&P 500 for the second week in a row, falling 6.29 percent. Last week, the company announced that sales of its robotic surgery systems fell sharply in the first quarter, coming up well short of expectations. This week’s move appears to be continued fallout from that news.

Opportunities

  • The current macro environment remains positive as economic data is robust enough to give investors confidence in an economic recovery, but not too strong as to force the Federal Reserve to aggressively change course in the near term.
  • The selloff in high-quality companies offers an opportunity to pick up companies with robust fundamentals at attractive prices.
  • Quarterly earnings reports were generally well received by the market this week, which is good news considering expectations have been lowered considerably going into earnings season.

Threats

  • A short-term market consolidation period after such strong performance cannot be ruled out.   
  • Higher interest rates are a threat for the whole economy. The Fed must walk a fine line and the potential for policy error is large.
  • Quarterly earnings reports out next week include Apple, Facebook, Amazon, Starbucks and QUALCOMM, which all have market-moving potential if they disappoint.

Uncover the patterns in commodity returns.

The Economy and Bond Market

Treasury bond yields rose sharply this week, reversing last week’s gains. The market is in a broad trading range, as can be seen in the chart below, which shows the 10-year treasury yield over the past six months. The market is gyrating from week to week, with Fed commentary, economic data and geopolitical events the drivers, but changing from week to week. We likely will stay in this trading range until economic data provides a clearer signal of the strength of the economy and the weather effects have passed.    

10-Year Treasury Yield
click to enlarge

Strengths

  • Retail sales rose 1.1 percent in March. This was the best growth in 18 months and even bad weather didn’t keep the shoppers away.
  • Initial jobless claims fell to a seven-year low last week and experienced only a very slight increase this week, suggesting the job market is indeed improving. As mentioned last week, job openings hit a six-year high, showing there are positions to be filled.
  • Industrial production grew 0.7 percent in March, ahead of expectations. February data was also revised higher, reinforcing the positive data point. Capacity utilization continued to grind higher, indicating that the slack in manufacturing is quickly closing.  

Weaknesses

  • Housing has clearly slowed, with housing starts now down more than 5 percent from a year ago. Homebuilder sentiment also declined for the third month in a row.
  • Chinese economic data disappointed with March industrial production slowing to 8.8 percent year-over-year and first-quarter GDP growth of 7.4 percent on a year-over-year basis. There was some concern that sequential growth was only 5.6 percent which may make it difficult to reach the government targeted growth of 7.5 percent for the full year.
  • The market sold off this week, which may just be noise, but the underlying economic data appears to be getting stronger and the risk is that the selloff continues.

Opportunities

  • The Fed has reiterated its intention to not raise interest rates before economic data supports that decision, not based on a timeline.
  • The President of the European Central Bank (ECB), Mario Draghi, suggested the ECB may ease monetary policy in response to the strong euro.
  • There are many moving parts to the taper decision and while the Fed began the process, it is very possible that tapering could be delayed if the economy stumbles.

Threats

  • In addition to the inherent difficulties in exiting the QE program and the potential for a misstep, there is also the potential for miscommunication from the Fed with the recent change in Fed leadership.  
  • Trade and/or currency “wars” cannot be ruled out which may cause unintended consequences and volatility in the financial markets.
  • China remains a wildcard for economic recovery and the economy has shown some cracks in recent months. This is similar to how last year started and China found its footing. Something similar needs to happen this time around.

Time to Mine for Gold Mining Opportunities?

World Precious Minerals Fund - UNWPX • Gold and Precious Metals Fund - USERX

Gold Market

For the week, spot gold closed at $1,295.00, down $23.42 per ounce, or -1.78 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, lost 2.67 percent. The U.S. Trade-Weighted Dollar Index gained 0.52 percent for the week.

Strengths

  • Gold demand in China is expected to rise about 25 percent in the next four years as the country’s increasing population gets wealthier, according to the World Gold Council. In the next six years, China’s middle class is expected to grow from 200 million people to 500 million people.  Historically, China has a cultural affinity for gold, and when combined with an increasingly-affluent population and a supportive government, there is significant room for the market to grow further.
  • Glencore Xstrata announced Sunday it has sold the Las Bambas copper mine to a Chinese consortium led by MMG Limited in a $5.85 billion cash deal, one of China’s largest mining acquisitions in recent years. The Chinese government refused to approve the merger between Glencore and Xstrata unless Las Bambas was sold to Chinese companies. China believes in copper, which is encouraging for the global copper-mining industry.
  • Mandalay Resources reported first-quarter results, and was raised to “strong buy” from “outperform” at Raymond James by equity analyst Chris Thompson. Mandalay has a healthy dividend of 3.4 percent, providing investors down-side protection. Thompson also likes recently revised resources, which are accretive to net asset value (NAV). Recent production results indicate the company is on track to reach 2014 output of 3.0 to 3.2 million ounces of silver, 60,000 to 70,000 ounces of gold, and 3,000 to 3,300 tonnes of antimony.

Weaknesses

  • Weak economic data out of China set a negative tone in the gold market for Tuesday’s trading session. The People’s Bank of China (PBOC) reported money supply growth decelerated to 12.1 percent year-over-year in March, a historic low, from 13.3 percent year-over-year in February.  First-quarter GDP was reported at 7.4, which is the lowest growth in six consecutive quarters. Industrial production was reported at 8.8 percent versus Bloomberg’s expectation of 9 percent in a recent survey.
  • The World Gold Council also noted that China’s gold jewelry demand in 2014 may not be as strong as last year, considering the price weakness seen in 2013. However, the demand outlook for 2015 to 2017 appears to be rosier than this year, especially given the expected increase in consumer real income and purchasing power.
  • India’s general election has negatively impacted gold trade in the country. Gold traders in India are used to cash transactions when buying and selling gold. With the election code of conduct in force, traders face severe restrictions on carrying physical cash in large denominations. According to Hasmukh Bafna, President of the Gold Chains & Jewellery Welfare Association, business has dropped by 70 to 80 percent since the first week in March.

Opportunities

  • We may see inflation moving higher, according to David Rosenberg, Chief Economist & Strategist at Gluskin Sheff. In a recent “Breakfast with Dave” publication, he wrote that no inflation seems to be the widespread consensus these days, but with the likes of coffee, orange juice, platinum and palladium prices hitting new highs, it may not be the case. The University of Michigan inflation expectation is at a seven-month high of 3 percent, and the current U.S. 10-year Treasury note is at 2.6 percent. This represents 39 basis points, a negative real rate when benchmarked against the inflation expectation metric. The metric is driven by shoppers who are more accurately in tune with pricing than most economists, especially the model-driven central bankers. According to a recent publication from the International Strategy & Investment (ISI) research team, inflation has likely bottomed. Commodity prices have been in a narrow-to-sideways pattern for the past three years, with a slight upside breakout recently.
  • Recent data shows that Russia has now overtaken the U.S. to become the world’s second-largest gold producer behind China. Consider the following comments on the new ranking from Xinhua, an official government news agency in China, which states that perhaps it is a good time for a befuddled world to start considering a de-Americanized world. Key among its prospects are: (1) the creation of a new international reserve currency to replace the present reliance of the U.S. dollar, (2) a self-serving Washington has abused its superpower status and introduced even more chaos in the world by shifting financial risks overseas, and (3) such alarming days when destinies of others are in the hands of a hypocritical nation. 

China Will Need to Continue Gold-Buying to Catch Up to U.S. Gold Holdings
click to enlarge

  • China is now thought to hold 2,716 tonnes of gold, while the U.S. holds 8,812 tonnes. China would still need ten years for its gold holdings to catch up to the U.S., suggesting strong gold demand from China. With Russia on the offensive again, it too has the capacity to push oil prices higher, boost its revenue and purchase additional gold beyond domestic production.
  • Palladium prices rose to the highest since 2011 on concerns that supply may be restricted due to escalating tensions over Ukraine and three months of strikes in South Africa.  While interest in Standard Bank’s African Palladium ETF was flat at 66,000 ounces, Absa’s NewPall was up sharply last week from 32,000 ounces to 148,800 ounces. Palladium ETFs are likely to continue attracting significant inflows in the coming weeks, raising the prospects for even higher prices.

Threats

  • Due to India’s severe restrictions on carrying physical cash in large denominations which were imposed on gold traders during the elections, several jewelers have stopped business until the elections are over. This low gold demand is expected to continue until the middle of May.
  • The U.S. Court Appeals for the District of Colombia Circuit ruled that the U.S. Securities and Exchange Commission’s conflict minerals disclosure requirements are unconstitutional and remanded the matter to the district court for further consideration.  Companies have already invested significant time and money into addressing this issue. The process is now in review and could entail new changes in the regulations, imposing additional cost burdens.
  • On April 15, the price of gold dropped $25.35 or 1.91 percent. This was the one-year anniversary of the exact same day in 2013 when gold plunged the most in 33 years amid record-high trading. Goldman Sachs reiterated its forecast for the metal to end the year at $1,050 an ounce.

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Energy and Natural Resources Market

 

2012 and 2013
click to enlarge

Strengths

  • Brent crude oil, the global benchmark, climbed to a six-week high near $110 a barrel on concerns that the escalating crisis in Ukraine will disrupt energy supplies.
  • The U.S. benchmark steel price continues to rise as hot rolled coil gained $15 per ton to $669 a ton.  Also, the quarter-to-date average of $662/ton is above the prior quarter and the fourth quarter of 2013.
  • Palladium rose to a three-year high this week on supply concerns as tensions continue in the Ukraine.  Russia accounted for 40 percent of world palladium production while South Africa accounted for 37 percent in 2013.  Spot palladium prices rose to $815 an ounce during the week, the highest since August 2011.
  • The price of nickel continued its run this week, reaching $18,000 a metric ton in London for the first time in more than a year as the threat of sanctions against Russia and Indonesia’s ore export ban raise further supply concerns.

Weaknesses

  • The price of natural gas declined by approximately 2 percent this week on forecasts for mild weather that would limit demand for the heating fuel and also increase the pace of refilling storage levels from a decade low.
  • The Toronto Globe and Mail reports, “As much of last year’s record crop sits unsold, financially stretched Western Canadian grain farmers are scrambling to secure funding for the coming planting season. Every spring, farmers must pay for seed, fertilizer and other goods to get on with the next cycle of crops. But that’s proving difficult for many this year, amid a rail backlog that has prevented much of last year’s crop from getting to market and bringing in badly needed cash.”

Opportunities

  • Renewable energy's share of world electricity generation continued its steady climb last year despite a 14 percent drop in investments to $214.4 billion, according to a new report released this week produced by the Frankfurt School-UNEP Collaborating Centre for Climate and Sustainable Energy Finance.  Globally, renewables excluding large hydro accounted for 43.6 percent of newly installed generating capacity in 2013.
  • Osaka Gas is looking to buy a stake in at least one U.S. shale gas project to help supply fuel to the Freeport LNG project in Texas, a company official said. Japanese gas and power utilities have been looking for ways to cut fuel costs after their LNG imports and payments rose to record levels last year due to the shutdown of the country's nuclear reactors.
  • Vale’s CEO remains optimistic on the Chinese economy on record steel output, despite first-quarter growth being the slowest in 18 months. He expects China’s 2014 steel output to reach 820-850 million tonnes, an increase of 9 percent year-over-year.

Threats

  • U.S. banks including Goldman Sachs should be banned from owning commodities businesses, according to a report to the Federal Reserve from Senators Sherrod Brown and Elizabeth Warren.  The Democratic Senators from Ohio and Massachusetts said in a letter to the Fed yesterday that “These activities pose significant safety and soundness, legal and reputational risks to the institutions.”  The Fed yesterday concluded a comment period on risks posed by bank ownership and trading of commodities, and the possible benefits of imposing additional capital standards on such activities. The Fed announced on January 14 that it was seeking comment on curtailing banks’ involvement in the physical commodities business and other non-banking activity.
  • South Africa’s Association of Mineworkers Construction Union (AMCU) has asked for funds from the government and the public to help striking members in the platinum sector. The workers have gone nearly three months without pay.
Frank Talk Insight for Investors
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April 15, 2014
Tick, Tock, Tax Time
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April 14, 2014
We’re Shuffling the Cards on Our European Play
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April 10, 2014
What India’s 815 Million Voters Have on Their Minds
A Blog by Frank Holmes, C.E.O. and Chief Investment Officer

China Region Fund - USCOX  •  Emerging Europe Fund - EUROX

Emerging Markets

Strengths

  • In Indonesia, despite lower-than-expected election results for leading presidential candidate Joko Widodo’s party, the Indonesian stock market managed to stabilize this week along with the rupiah. Investors remain hopeful that a coalition government led by Joko Widodo will help reform the country’s economic policies for the better.
  • The Turkish equity market has been one of the best performing markets globally, up 10 percent year-to-date. The market is supported by a stabilized lira after interest rate increases last year and municipal elections in March reaffirmed the popularity of the current government.
  • Greece, which was unable to borrow for the last four years, recently raised 3 billion euros by selling a five-year bond with a 4.75 percent coupon. International investors accounted for almost 90 percent of the offering. Greece has also been re-categorized as an emerging market since last November.

Weaknesses

  • Brazil's consumer price index (CPI) grew last month, marking the biggest increase in inflation during March in eleven years. The price increase calls into question the effectiveness of the central bank's efforts to control inflation, and could potentially create problems for President Dilma Rousseff's reelection campaign.
  • China’s March industrial production and first-quarter fixed asset investment growth came in weaker than expected at 8.8 percent and 17.6 percent, respectively. This reflects weaker activity in exports and the property sector, as well as slower credit expansion.  The 7.4 percent GDP growth in the first quarter, albeit slightly better than the estimated 7.3 percent, marked the slowest pace since September 2012.
  • The impact of poor governance, along with rent seeking by the state and controlling shareholders, has led to the underperformance of Russian share prices versus the oil price since the start of 2010.

Russian Share Prices Underperform Oil Price on Poor Governance
click to enlarge

Opportunities

  • The labor market data released in Poland this week was a positive surprise.  Wages were expected to correct by 4 percent versus the previous month’s strong reading, yet the figure shot up to 4.8 percent year-over-year.  If the wage growth stays close to 5 percent (with inflation closer to zero), it could mean solid support for domestic demand.
  • Alibaba Group Holding will file papers next week for its initial public offering (IPO) in the U.S. The offering of the Chinese Internet retailer could be worth more than $16 billion, making it the biggest technology IPO.
  • Recent share price correction in Macau-based casino operators may prove a temporary setback for an otherwise multi-year growth uptrend.  Secular industry transition remains intact towards a more profitable mass-market customer base from the high-rolling VIP clientele. China’s recent announcement of the Hong Kong, Shanghai mutual market access program may invite more interest from mainland Chinese investors who currently cannot participate in Macau stocks. 

Secular Transition Towards mass market Clientele to Enhance Macau Casino Profitability
click to enlarge

Threats

  • The International Monetary Fund (IMF) has scaled back its forecast for world economic growth to 3.6 percent from January’s 3.7 percent.  A cooling off of emerging-market expansion along with weakness in Japan has become a drag on global growth, warned the IMF.
  • Volatility in Hong Kong-traded Chinese equities may increase going forward because of the overhang associated with potentially rising debt defaults and maturity schedules for wealth-management products peaking in the second half of the year. Additionally, there are no consistent government policy solutions in sight.
  • MSCI made an announcement this week regarding whether or not the current classification of Russia as an emerging market is still appropriate.  According to one Deutsche Bank strategist, Russia may appear to be a mainstream emerging market in terms of GDP per capita and quantifiable liquidity, but this classification ignores real drivers of risk, namely sovereign and corporate governance.

Value of Russian Companies from Minority Investments Faling Since 2006
click to enlarge

Join me in Turkey for the opportunity of a lifetime.

Leaders and Laggards

The tables show the weekly, monthly and quarterly performance statistics of major equity and commodity market benchmarks of our family of funds.

Weekly Performance
Index Close Weekly
Change($)
Weekly
Change(%)
S&P Energy 679.12 +30.32 +4.67%
10-Yr Treasury Bond 2.72 +0.10 +3.66%
S&P Basic Materials 299.50 +9.08 +3.13%
S&P 500 1,864.85 +49.16 +2.71%
Natural Gas Futures 4.74 +0.12 +2.51%
Nasdaq 4,095.52 +95.78 +2.39%
DJIA 16,408.54 +381.79 +2.38%
Russell 2000 1,137.90 +26.46 +2.38%
Oil Futures 104.49 +0.75 +0.72%
Korean KOSPI Index 1,992.05 -5.39 -0.27%
Hang Seng Composite Index 3,151.39 -37.13 -1.16%
Gold Futures 1,295.00 -24.00 -1.82%
S&P/TSX Canadian Gold Index 180.24 -3.95 -2.14%
XAU 90.18 -2.37 -2.56%
 
Monthly Performance
Index Close Monthly
Change($)
Monthly
Change(%)
S&P Energy 679.12 +46.11 +7.28%
Oil Futures 104.49 +6.41 +6.54%
Natural Gas Futures 4.74 +0.20 +4.41%
Korean KOSPI Index 1,992.05 +64.52 +3.35%
10-Yr Treasury Bond 2.72 +0.03 +1.08%
DJIA 16,408.54 +161.32 +0.99%
S&P Basic Materials 299.50 +1.87 +0.63%
S&P 500 1,864.85 +6.02 +0.32%
Russell 2000 1,137.90 -50.33 -4.24%
Nasdaq 4,095.52 -184.43 -4.31%
Gold Futures 1,295.00 -78.10 -5.69%
XAU 90.18 -12.73 -12.37%
S&P/TSX Canadian Gold Index 180.24 -25.88 -12.56%
Hang Seng Composite Index 3,151.39 -332.01 -14.83%
 
Quarterly Performance
Index Close Quarterly
Change($)
Quarterly
Change(%)
Oil Futures 104.49 +10.53 +11.21%
Natural Gas Futures 4.74 +0.35 +8.08%
S&P Energy 679.12 +44.16 +6.95%
S&P/TSX Canadian Gold Index 180.24 +8.98 +5.24%
Gold Futures 1,295.00 +53.80 +4.33%
S&P Basic Materials 299.50 +9.08 +3.13%
Korean KOSPI Index 1,992.05 +34.73 +1.77%
S&P 500 1,864.85 +18.96 +1.03%
XAU 90.18 +0.33 +0.37%
DJIA 16,408.54 -8.47 -0.05%
Hang Seng Composite Index 3,151.39 -52.87 -1.65%
Nasdaq 4,095.52 -123.17 -2.92%
Russell 2000 1,137.90 -35.24 -3.00%
10-Yr Treasury Bond 2.72 -0.12 -4.22%

Please consider carefully a 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.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

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.

The Emerging Europe Fund invests more than 25 percent of its investments in companies principally engaged in the oil & gas or banking industries. The risk of concentrating investments in this group of industries will make the fund more susceptible to risk in these industries than funds which do not concentrate their investments in an industry and may make the fund’s performance more volatile.

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.

Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5 percent to 10 percent of your portfolio in these sectors.

Bond funds are subject to interest-rate risk; their value declines as interest rates rise. Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well. The Near-Term Tax Free Fund may invest up to 20 percent of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. The Near-Term Tax Free Fund may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer.

Investing in real estate securities involves risks including the potential loss of principal resulting from changes in property value, interest rates, taxes and changes in regulatory requirements.

Past performance does not guarantee future results.

Some link(s) above may be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

These market comments were compiled using Bloomberg and Reuters financial news.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings as a percentage of net assets as of 3/31/14:

Pacific Rubiales Energy Corp.: Global Resources Fund, 0.25%
Valero Energy Corp.: Global Resources Fund, 0.29%
Schlumberger Ltd: Global Resources Fund, 3.46%
EOG Resources, Inc.: Global Resources Fund, 2.37%
Halliburton Co.: All American Equity Fund, 1.18%; Global Resources Fund, 1.87%
Textron, Inc.: 0.0%
Ingersoll-Rand plc: All American Equity Fund, 0.93%
Kansas City Southern: 0.0%
Micron Technology, Inc.: 0.0%
SanDisk Corp.: 0.0%
UnitedHealth Group, Inc.: 0.0%
Best Buy Co., Inc.: 0.0%
Intuitive Surgical, Inc.: 0.0%
Apple, Inc.: 0.0%
Facebook, Inc.: All American Equity Fund, 1.55%; Holmes Macro Trends Fund, 1.68%
Amazon.com, Inc.: 0.0%
Starbucks Corp.: 0.0%
QUALCOMM, Inc.: All American Equity Fund, 2.70%; Holmes Macro Trends Fund, 1.73%
Glencore Xstrata plc: 0.0%
MMG Limited: 0.0%
Mandalay Resources Corp.: Global Resources Fund, 0.89%; Gold and Precious Metals Fund, 1.77%; World Precious Minerals Fund, 1.37%
Osaka Gas: 0.0%
Vale SA: 0.0%
The Goldman Sachs Group, Inc.: 0.0%

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.
The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks.
The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
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 Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver.
The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.
The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks.
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 S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500.
The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period.
The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500.
The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500.
The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500.
The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500.
The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500.
The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500.
The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver.
The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns.

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Net Asset Value
as of 04/22/2014

Global Resources Fund PSPFX $9.82 0.06 Gold and Precious Metals Fund USERX $6.59 0.08 World Precious Minerals Fund UNWPX $6.32 0.06 China Region Fund USCOX $8.05 0.02 Emerging Europe Fund EUROX $8.13 0.02 All American Equity Fund GBTFX $32.40 0.30 Holmes Macro Trends Fund MEGAX $23.74 0.34 Near-Term Tax Free Fund NEARX $2.25 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change