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A Playbook for Investors: How to Shoot, Score, Win

April 26, 2013

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

Basketball TipoffMiami Heat’s LeBron James has reportedly stopped tweeting during the NBA Playoffs to fully concentrate on winning a second straight title. Giving up his smartphone certainly shows commitment and dedication to success, because most people can’t give up their social connections for an hour.

It’s not only the athletes that become singularly focused on a win. Basketball fans are a dedicated group as well, especially here in San Antonio, where spectators are known to be quite fanatical about their team.

So, in the competitive spirit of the NBA playoff season, I’ve gathered a series of plays that investors can use to shoot, score and win during this year’s market. I’m happy to say they include all the elements of an exciting game, including a comeback kid, an upset and an underdog.

1. Root for Meritocracy

America is known as the land of opportunity because the nation was founded on meritocracy that rewards talents and achievements over lineage or birth position. America is the original comeback kid, inspiring many countries, as meritocracy encourages innovation, promotes competition and creates jobs. It’s what made the U.S. the strongest nation in the world, and this essential American belief is embedded so deep within all U.S. citizens, it’s like oxygen. Americans inhale and exhale it on a daily basis, but rarely focus on its vitality.

Throw open the windows at the White House because the president seems to need more of this fresh air. As shown in his recent budget proposal accompanied by a discouraging choice of words, President Barack Obama seems intent to restrain the all-American concept of self-sufficiency and success.

The sporting equivalent of the President's proposalOne detail in his 244-page document proposes that the government “Prohibit Individuals from Accumulating Over $3 Million in Tax-Preferred Retirement Accounts.” This idea is un-American, as it discourages the very idea of meritocracy by imposing restraints on financial success.

His proposal aims to discourage those who gain “substantially more than is needed to fund reasonable levels of retirement saving” dictating that the government knows better than you how much you should strive to accumulate for your lifetime savings.

Let’s relate this idea of limiting success to sporting accomplishments. LeBron James is the youngest player in the NBA to score 20,000 points and has been substantially rewarded for his outstanding talents. With a salary of $17 million (plus millions in endorsements), “King James” makes considerably more than the throngs of fans who enjoy watching him excel on the court.

The sporting equivalent of the president’s proposal for a superstar like James is to require a 100-pound knapsack be strapped to his back to restrain him from performing to his full potential and scoring more than a “reasonable level” of points.

I believe, in sports and in business, our leaders should encourage meritocracy, not mediocrity.

Play: Root for meritocracy by telling your representatives in Washington to continue supporting retirement plans that encourage and incentivize savers and investors.

2. Student, 1; Professors, 0

University of Massachusetts Amherst graduate student Thomas Herndon became the winning underdog after he recently discovered that Harvard professors Carmen Reinhart and Ken Rogoff had erred in their famous “Growth in a Time of Debt.” When trying to recreate their research, Herndon discovered that the professors left out five countries when they calculated the average GDP growth in countries that had high public debt.

Since the global recession began, the document became the foundation and the slam dunk reason for governments to enforce austerity cuts. “EU commissioner Olli Rehn and influential U.S. Republican politician Paul Ryan have both quoted a 90 percent debt-to-GDP limit to support their austerity strategies,” says the BBC article about the student.

Regardless of the error, the research remains valid, as high levels of debt can hinder a country’s growth. But calling the data into question provides a platform for the European Union to lessen austerity measures and delay the inevitable, adding the EU to the huddle of central banks in the U.S. and Japan that will keep the printing presses warm to stimulate their economies and devalue their currencies.

Play: For investors, the important takeaway is that the student’s find results in a reinforced defensive play for gold.

3. Sidelined by low yield, central banks go for the equity play

We recently discussed how central banks have been buying gold after years of being a net seller. Specifically, emerging markets central banks are looking to diversify away from the U.S. dollar and the euro.

Now, central banks, which guard $11 trillion in foreign-exchange reserves, are making adjustments to their strategy and going for the equity play. According to a survey done by Central Banking Publications, among 60 central bankers, almost half see the need to add risk to their portfolio, and “23 percent said they own shares or plan to buy them” within the next five years, says Bloomberg News.

One superstar player of equities is Bank of Japan, which indicated that by 2014 investments in equities will “more than double.” The Bank of Korea started buying Chinese companies in 2012, “increasing its equity investments to about $18.6 billion, or 5.7 percent of the total,” reports Bloomberg.

These central bankers are moving to equities in an attempt to increase their potential yield in their portfolios in the face of negative real interest rates. Bloomberg says that while central banks have held government debt in the past, “when bond yields are below inflation in many countries [this reliance on fixed-income] risks allowing the value of reserves to decline.”

In addition, central banks are likely attracted by the dividend payouts, many of which are higher than bond yields. Dividends, along with buybacks, have been driving the U.S. market higher. As you can see below, the more companies pay out in dividends and the more they buy back additional shares, the higher stocks have climbed.

Dividends and Buybacks on S&P 500 Stocks
click to enlarge

Play: Take a tip from central banks to get your money off the bench and into the equity game.

All great athletes have their own recipe for success, but they all share this idea: They play to win. I hope these tips inspired you to think like an athlete so that you can shoot, score and win for your portfolio.

A Balanced Approach—10 Industries(PSPFX)

Index Summary

  • The major market indices moved higher this week. The Dow Jones Industrial Average rose 1.13 percent. The S&P 500 Stock Index moved higher by 1.74 percent, while the Nasdaq Composite gained 2.28 percent. The Russell 2000 small capitalization index rose 2.49 percent this week.
  • The Hang Seng Composite rose 2.29 percent; Taiwan gained 1.15 percent while the KOSPI advanced 1.98 percent.
  • The 10-year Treasury bond yield fell four basis points this week, to 1.66 percent.

Domestic Equity Market

The S&P 500 bounced back this week after suffering its worst losses of the year last week. Cyclicals rose this week and noncyclical areas were the laggards, which is a change from recent trends. We potentially could be at an inflection point, as defensive areas such as telecom, staples, healthcare and utilities have outperformed by a wide margin in recent months and mean reversion may kick in as expectations got too lofty for defensives and too gloomy for cyclicals.

Domestic Equity Market - U.S. Global Investors
click to enlarge

Strengths

  • The energy sector was the leader this week in a broad-based rebound. Outperformers included Newfield Exploration and Halliburton, which rose 11.7 and 9.0 percent, respectively, this week. Both companies responded positively to earnings announcements.
  • The materials sector was not far behind as index heavyweights in the chemical space outperformed, such as Dow Chemical, Du Pont and LyondellBasell. All three companies reported earnings this week.
  • Netflix was the best performer this week rising by nearly 32 percent. The companies earnings report was very well received as the company gained 2 million domestic subscribers and 1 million international subscribers.

Weaknesses

  • The telecom services sector was the worst performer this week as AT&T fell 3.2 percent for the week on slowing revenue growth concerns and a reduction in its stock buyback program to ensure its credit rating.
  • The consumer staples sector also fell as Proctor & Gamble, Clorox and Safeway all had disappointing earnings reports.
  • Edwards Lifesciences was the worst performer in the S&P 500 this week, declining 22.8 percent as the company missed quarterly earnings expectations and lowered full year earnings and revenue forecast.

Opportunity

  • The market is climbing that proverbial wall of worry and just shakes off any bad news.
  • Global central banks are literally pulling out all the stops in an attempt to ignite economic growth.

Threat

  • A market consolidation wouldn’t be a surprise after a strong start to the year.
  • We remain in the middle of earnings reporting season and key names to watch next week are Mastercard and Visa which should provide good color on global economic activity. Pfizer, Merck and CVS Caremark also will be of interest, as any missteps from perceived defensive areas have been punished by the market this past week.

Looking for a short-duration bond fund (NEARX)

The Economy and Bond Market

Treasury yields fell this week as a weaker-than-expected first quarter GDP report reinforced the view that the Federal Reserve will not scale back its quantitative easing (QE) program anytime soon. The 10-year Treasury fell to the lowest levels of the year, as seen in the chart below.


click to enlarge

Strengths

  • New home sales rose 1.5 percent in March and new home prices rose 3 percent year-over-year.
  • University of Michigan Confidence Index rose from the preliminary estimate earlier in April and may be an early indicator of a positive change in sentiment.
  • The U.K. economy grew 0.3 percent in the first quarter, better than expectations for no growth, as the country avoided a triple-dip recession.

Weaknesses

  • The HSBC Flash Manufacturing PMI for China unexpectedly fell in April. Chinese policy makers appear prepared to weather some slowdown in growth in an effort to cure imbalances in the economy.
  • Durable goods orders in March fell 5.7 percent. Excluding volatile transportation, durable goods orders fell 1.4 percent. The manufacturing sector is off to a weak start for 2013.
  • The German Ifo Institute business sentiment index fell for the second straight month and breaks the trend of improving sentiment in one of Europe’s key markets.

Opportunity

  • The Fed continues to remain committed to an extremely accommodative policy.
  • Key global central bankers are still in easing mode such as the European Central Bank (ECB), Bank of England and the Bank of Japan. The Bank of Japan in particular is aggressively easing.

Threat

  • Inflation in some corners of the globe is getting the attention of policy makers and may be an early indicator for the rest of the world.
  • Trade and/or currency wars cannot be ruled out which may cause unintended consequences and volatility in the financial markets.
Frank Talk Insight for Investors
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April 24, 2013
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Four Important Facts to Remember About Gold
A Blog by Frank Holmes, C.E.O. and Chief Investment Officer

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

Gold Market

For the week, spot gold closed at $1,462.09 up $58.24 per ounce, or 4.15 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, rose 3.15 percent. The U.S. Trade-Weighted Dollar Index lost 0.30 percent for the week.

Strengths

  • On Friday last week, the Chinese Gold & Silver Society in Hong Kong reported it had sold out of all of its spot gold and placed orders to Switzerland four times larger than normal to keep up with demand. On Monday, the U.S. Mint suspended sales of its smallest American Eagle gold coin after it sold off all of its inventory. The surge in gold demand in Turkey is causing delays in coin deliveries by the Istanbul-based mint, while Standard Chartered Plc said its gold shipments to India last week exceeded the previous record by 20 percent.
  • Gold is not in a bubble according to Commerzbank’s strategists. Their latest chart plots gold starting in 2002 together with crude oil starting in 1998 and tech stocks from 1990. In their discussion they note that immediately following their record highs, both tech stocks and oil went on a sharp decline. Within nine months, tech stocks had halved in price, while it took only three months for oil to lose half its price. The picture for gold does not resemble these two events; after 19 months from its peak, gold has fallen only about 25 percent. A comparison between the current situation in gold and the former bubbles is superfluous at best, in their opinion.

Gold shows no sign of a bubble compared to tech and oil bubbles
click to enlarge

  • Alamos Gold reported its first-quarter 2013 results earlier in the week to the delight of many mining analysts. The company beat analysts’ expectations on both top and bottom line, and grew its production to 55,000 ounces of gold from 40,500 ounces in the same quarter last year. Furthermore, the company is currently boasting an 8.76 percent free cash flow yield. A company with strong free cash flow yield can build its business through paying off debt, making acquisitions, or returning money to shareholders. In this case, the company announced a stock repurchase of 10 percent of its float over the next 12 months. Even though the company trades at a premium to most junior producers, its low cost profile, cash generation and self-funding capabilities, as well as its discipline in returning capital to shareholders fit our growth at a reasonable price (GARP) model rightly.

Weaknesses

  • Following the atrocious sell-off in commodities that caused so much market chaos last week, commodity funds lost 1.3 percent of total assets under management to redemptions; precious metals funds alone recorded $2.3 billion in outflows. That is 11 straight weeks of outflows from precious metals funds, the longest streak on record according to BofA Merrill Lynch strategist Michael Hartnett.
  • Harmony Gold reported an underground fire at its Phakisa mine which left one employee dead and led to a halt at two operations that account for 19 percent of its output. The last official report stated the cause of the fire is still unknown and the efforts to extinguish the underground blaze are ongoing.
  • Technical analysts have resumed the calls on gold to fall further following the price recovery over the last week. It looks like gold has broken below the trend line from the 2008 low in Auerbach Grayson’s modeling. Its belief is that gold can fall to $1,150 based on a purely technical analysis. While we commonly use this type of analysis as part of our investment recommendations, we believe conclusions stemming from these studies must be backed by adequate fundamental analysis. As of late, we believe the majority of the technical analysis commentaries calling for gold falling further do not have convincing fundamental support.

Opportunities

  • The Swiss Peoples Party launched an initiative to prevent the Swiss National Bank from selling any of its gold reserves and to force it to hold at least 20 percent of its assets in the precious metal. The initiative has gathered the required 100,000 signatures necessary for a national referendum, the government said last week. At the end of 2012, the SNB’s gold reserves represented around 10 percent of its total assets.
  • Barrick Gold’s shareholders openly criticized the firm’s executive compensation arrangements at the company’s annual general meeting in Toronto on Wednesday. The criticism was exacerbated by the board’s decision to pay $17 million to newly appointed co-chairman John Thornton. The company lost more than $10 billion of its market capitalization in 2012 and has lost nearly 50 percent of its market capitalization so far this year. Despite the fact that the compensation vote is non-binding, we welcome this type of shareholder activism and its intention of tackling a problem that has become endemic in the gold mining industry.
  • On May 11, the Colombian government will revert to the previous mining code under which most current mining licenses were granted. The move comes as the constitutional court failed to revalidate the new mining code proposed in 2011. The government will now have to decide whether it stays with the old code, which proved friendly to foreign investment and saw exponential growth in the domestic mining industry, or drafts a new code and takes it through the legislative process. While we admit this process will bring some political uncertainty to the sector in the short term, we see an opportunity for the government to allow mining companies to operate under the old code while it drafts a proper, well-documented mining code to be implemented prospectively. The move may also prove vital to unlocking the moratorium on mining licenses the central government has had in place since 2011.

Threats

  • U.S. inflation may appear low for historical standards at 1.5 percent, but this is not stopping it from eroding citizens’ real wealth. On Friday, the yields of U.S. Treasuries up to the seven-year term closed below the inflation rate, which is effectively the same as paying the government to accept your loan. This is especially worrisome for savings and pensions that will barely, if at all, struggle to offer positive real returns. But the story is also affecting workers, as the Wall Street Journal reports wages are rising at a rate of 0.5 percent a year, much lower than the pace of inflation. In times like this, investments in hard assets, and especially in gold, could be beneficial for their inflation protection features.
  • Political instability has returned to the young nation of Kyrgyzstan as local nationalists threaten to return to the streets to topple yet another government unless Prime Minister Zhantoro Satybaldiyev agrees to expropriate Centerra Gold’s Kumtor gold mine. The nation’s parliament has set a June 1 deadline to renegotiate or repudiate the 2009 agreement under which Centerra is operating the mine. The company currently pays a 14 percent gross revenue royalty to the country, which in 2011 accounted for 12 percent of the country’s GDP. Despite the strong pressures by the nationalists, the office of the Prime Minister remains committed to resolving the issue without dashing the country’s hopes of attracting more foreign direct investment.
  • Kitco contributor and leading precious metals commenter David Levenstein notes in his last piece that it has become abundantly clear that the price decline in gold last week was engineered by speculative action on the futures market of Comex. Furthermore, he commented on how this artificial manipulation of paper gold has nothing to do with the physical market, which is skyrocketing. Eventually, this will lead to a major dislocation in the price of the physical and the price of the paper markets, with the risk being that some issuers of paper gold will not be able to deliver the promised bullion.

What's driving gold companies? Read the special gold report

Energy and Natural Resources Market

Central Banks Net Gold Buyers
click to enlarge

Strengths

  • Crude oil prices reversed a three week down trend and gained over 5 percent week-on-week on bullish U.S. inventory data.
  • World industrial production, a key driver of commodity prices, rose by 0.5 percent month-on-month in February, according to data released on Thursday by research firm CPB. This was the fastest pace of expansion since the same month of 2012, with growth in all regions except Latin America.
  • China imported 32.17 million tons of iron ore from Australia in March, up 12 percent year-on-year and up 27.5 percent from February, according to data released by the General Administration of Customs. Australia remained the top supplier of iron ore to China, accounting for 50 percent of total imports in March, compared with 45 percent in February.
  • Central banks bought the most gold since 1964 last year just before the collapse in prices into a bear market underscored investors’ weakening faith in the world’s traditional store of value. Nations from Colombia to Greece to South Africa bought gold as prices rose for an 11th year in 2011, highlighting the reversal of a three-decade-long bout of selling that diminished the world’s biggest bullion hoard by 19 percent. The World Gold Council says they added 534.6 metric tons to reserves in 2012, the most in almost a half century, and expects purchases of 450 to 550 tons this year, valued now at as much as $25.3 billion.

Weaknesses

  • Natural gas fell 6 percent from a 52-week high last week to settle at $4.15 per mmbtu as milder weather cut demand.
  • Base metal prices came under pressure earlier this week as weaker than expected PMI GDP releases weighed on sentiment.

Opportunities

  • Diesel prices are surging in the U.S. Midwest as farmers prepare to plant a record amount of crops this season, eating into below-average fuel supplies. Farmers may sow 174.4 million acres of corn and soybeans this year, boosting output by 30 percent, the Agriculture Department forecast. Midwest prices are at the highest seasonal premium to the Gulf Coast since 2007. The Energy Information Administration estimated agricultural distillate fuel use will rise 5.1 percent in 2013 to the most since 2010. Demand for fuel to run tractors and combines is growing as the U.S. attempts to recover from last year’s drought, the worst since the 1930s. At the same time, refinery maintenance may limit local production, pushing prices higher to entice suppliers to ship diesel north by pipeline from the Gulf Coast rather than send it abroad.
  • South Africa needs to lure almost 100 billion rand ($11 billion) of investment in new coal mines to meet demand from electricity generators and prevent a repeat of 2008’s blackouts, the nation’s largest power producer said. Eskom Holdings SOC Ltd., supplier of 95 percent of South African power, sees an annual shortfall of as much as 40 million metric tons from 2018 after securing 80 percent of requirements for the next five years, it said in a presentation to lawmakers. “There is enough coal,” Eskom Chief Executive Officer Brian Dames told lawmakers today in Cape Town. Still, “it’s very important that we see new investment happening.”

Threats

  • Caterpillar cut its 2013 forecast and lowered “significantly” its outlook for demand from commodities producers, Bloomberg reported. “We remain very positive on the mining industry for the long-term but it’s clear 2013 is going be a challenge for our mining business,” CFO Brad Halverson said in a video on the company’s website. The lower 2013 outlook reflects a sales decline of about 50 percent from last year for traditional Caterpillar machines used in mining and a drop of about 15 percent for sales of machines from the Bucyrus acquisition, Oberhelman said in the statement.
  • The Financial Times reported that the cost of Japanese energy imports is spiraling higher as the yen weakens, prompting warnings about the consequences of Japan’s war on deflation. Japan relies on imports of crude oil, coal and liquefied natural gas for almost all of its energy needs, a dependency that has become particularly acute since the 2011 Fukushima disaster, which led to the closure of most of its nuclear power plants. With Japanese industry struggling to compete with U.S. rivals that have access to cheap shale gas, the government is looking for ways to secure affordable energy supplies. But Mr. Abe’s unorthodox economic policy, which has resulted in steep falls in the value of the yen, is instead raising the cost of imports. “The increase in energy prices is like a body blow to the economy. You don’t feel the pain until some time later, but then it hurts a great deal,” said Bob Takai, general manager for energy at Sumitomo, one of Japan’s largest commodity trading houses.

Explore Emerging Europe

China Region Fund - USCOX  •  Emerging Europe Fund - EUROX
Global Emerging Markets Fund - GEMFX

Emerging Markets


Strengths

  • The Hang Seng Index was up 2.43 percent this week, driven by better than expected first-quarter earnings announcements from H-share banks, IPP, auto, telecom, home appliances and property developers. Investors also may have been encouraged by attractive valuations of H-share stocks in general.
  • Domestic airlines in China booked a combined profit of more than Rmb 500 million, compared with a loss of Rmb 130 million a year earlier.
  • The Philippines cut the Special Deposit Account (SDA) rate by 50 basis points to 2 percent, while keeping the overnight benchmark rate and lending rate unchanged at 3.5 percent and 5.5 percent, respectively. This is the third-consecutive SDA rate reduction to help credit expansion. The Philippines stock market, PCOMP Index, established another milestone on Monday as it closed above the 7,000 mark. The stock market is also supported by higher GDP growth, growing remittance, growing business process outsourcing, double-digit earning growth, high-loan growth, private public partnership projects, loosening monetary policy, merger and acquisition activities, and rising assets under management of local funds. However, the popular stocks are no longer cheap.
  • Hong Kong exports grew 11.2 percent in March, versus the consensus of 9.3 percent. Total exports to Asia grew by 15.8 percent on a year-over-year basis. While exports to the U.S. grew by a modest 0.4 percent, exports to the U.K. and Germany fell by 26.6 percent and 14.7 percent, respectively, showing weak markets in developed countries.
  • Korea’s first-quarter real GDP grew 0.9 percent quarter-over-quarter and 1.5 percent year-over-year, stronger than market expectations of 0.7 and 1.4 percent, respectively. Manufacturing, construction and services sectors expanded sequentially.
  • Thailand’s March exports rose 4.55 percent versus the consensus of 2.34 percent, and better than a 5.83 percent drop for the previous month.
  • S&P upgraded the rating of Colombia’s sovereign debt from BBB- to BBB. Deutsche Bank reports the rating change is justified by an improved sovereign creditworthiness, explained by a stronger fiscal profile, deeper capital markets and favorable long-term prospects. The rating agency also commented on potential future upgrades as peace negotiations progress could result in significant decreases in violence, as well as improved security. This new rating places the country in line with its peers Brazil, Mexico and Peru. The news is expected to increase foreign direct investment into the country.
  • Turkey continues to be a magnet for foreign direct investment. The country’s appeal was reiterated this week when in a surprising move, Texas-based Airport Development Corporation (ADC) and airport operator Houston Airport System (HAS) announced a joint bid for the New Istanbul Airport project to be tendered on May 3. ADC and HAS were responsible for the Ferenc Lizst Airport in Budapest, as well as the Lester B. Pearson Airport in Toronto. The bid for the 7 billion euros project will be submitted jointly with an unspecified Turkish partner.

Weaknesses

  • HSBC’s April China flash PMI was 50.5 versus the market estimate of 51.5, indicating the economic growth recovery is in process, but is weak.
  • The China Banking Regulatory Commission’s (CBRC) chairman Shang Fulin was quoted as saying non-performing loans will keep rising, but hidden loans are expected to pose a much bigger challenge for banks.
  • The Taiwan March industrial output posted a 3.28 percent decrease in March due to a downside surprise in export orders of negative 6.6 percent year-over-year. March commerce sales were weak as well, at negative 0.7 percent.
  • The Brazilian central bank came short of market expectations of a 50 basis point increase in the lending rate at its April meeting. Central bank chief Alexandre Tombini announced a 25 basis point increase to the SELIC rate, which did not satisfy analysts who remain highly concerned with March inflation breaking through the tolerance ceiling of 6.5 percent. Analysts are now focusing on the central bank’s policy meeting in May for the additional 25 basis point increase, while carefully monitoring for a spill-over economic slowdown effect on the already ailing economy.
  • In Hungary it appears the Viktor Orban-induced record central bank rate cuts are no match for the weakening Hungarian labor market. Despite limited success on the PMI front, the Hungarian economy has begun to show stronger signs of European weakness contagion. Industrial production was down 1.1 percent, economic confidence dropped by 21.7 points, and the unemployment rate reached 11.8 percent, just shy of its all-time high in March 2010.

Opportunities

Recovery of investor confidence in China strong and resilient
click to enlarge

  • As shown in the graph above, Chinese investors are actively opening new accounts, which might indicate those investors’ intentions of bottom-fishing in the A-share market. The Shanghai Stock Exchange Composite Index is currently priced at multiples that are at its historical lows.
  • Venezuelan President Nicolas Maduro announced Tuesday his decision to name National Assembly representative Calixto Ortega in charge d’affairs for Venezuela in the United States. The head of state said that the Venezuelan government wants to have the best possible relations with all governments around the world, including the United States. We believe the new appointment opens the opportunity to improve communications and trade relations among the two countries, while at the same time helping to heal the diplomatic relations that have been strained since 2008.
  • Poland is likely to continue the monetary easing it started during the last quarter of 2012. The weak monthly activity data for March, a recent downward revision of the 2012 fourth-quarter GDP, as well as the weakening of growth expectations in Germany and the eurozone, have led analysts to suggest a 25 to 50 basis point cut during the monetary policy committee meeting next month. The chart below shows how the last 50 basis point cut in March finally aligned the Polish sovereign 10-year yield performance with the performance of its emerging market counterparts. We expect a May cut to provide more support to the economy and lead Poland to outperform its peers.

Cutting rates lowers bond yields in Poland
click to enlarge

Threats

  • China is ending its 20-year cycle of fast growth, which is characterized by manufacturing expansion, international trade growth, and infrastructure build-up. While China will maintain an annualized GDP growth rate of 7 percent, the transition of a growth model toward value-added manufacturing, consumption and services can have many uncertainties for the equity market.
  • On Wednesday, Mexican president Pena Nieto suspended the presentation of his financial reform to congress, citing differences with opposition parties. The office of the president noted a new negotiation phase would improve communication with other parties and reinforce the Pact for Mexico coalition. However, the truth behind the matter, according to Deutsche Bank, is not related to the reform itself, but rather to a corruption scandal tarnishing the political campaign ahead of the Veracruz state election next July where opposition parties have accused Pena Nieto’s government of using fiscal spending for electoral purposes. The impasse is likely to be resolved, but it will certainly strain relations within the coalition, cause political casualties, and involve greater execution risks and delays on the reform front.
  • With the country struggling to rein in inflation and revive the economy, Russian president Vladimir Putin said he may limit rises in gas and power tariffs to 6 percent, instead of the previously planned 9 to 10 percent. The news is negative for state-owned gas company Gazprom and the Federal Grid Company (FSK), because the lower tariff growth would negatively affect margins and profitability. Furthermore, Putin implied that the Russian Federation will not cut rates to revive the economy; instead he will pressure banks to lower their lending rates, which he considers overexaggerated. The move will compress the banks’ net interest margins and erode their profitability.

Share Holder Report

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(%)
Oil Futures 93.00 +4.99 +5.67%
Gold Futures 1,453.60 +58.00 +4.16%
XAU 106.31 +3.42 +3.32%
S&P Energy 570.34 +17.78 +3.22%
S&P Basic Materials 244.86 +7.21 +3.03%
S&P/TSX Canadian Gold Index 197.60 +5.76 +3.00%
Russell 2000 935.25 +22.75 +2.49%
Hang Seng Composite Index 3,103.44 +69.53 +2.29%
Nasdaq 3,279.26 +73.21 +2.28%
Korean KOSPI Index 1,944.56 +37.81 +1.98%
S&P 500 1,582.24 +26.99 +1.74%
DJIA 14,712.55 +165.04 +1.13%
10-Yr Treasury Bond 1.66 -0.04 -2.46%
Natural Gas Futures 4.15 -0.26 -5.81%

Monthly Performance
Index Close Monthly
Change($)
Monthly
Change(%)
Natural Gas Futures 4.15 +0.08 +2.06%
DJIA 14,712.55 +186.39 +1.28%
S&P 500 1,582.24 +19.39 +1.24%
Nasdaq 3,279.26 +22.74 +0.70%
S&P Basic Materials 244.86 -1.39 -0.56%
Russell 2000 935.25 -14.99 -1.58%
Korean KOSPI Index 1,944.56 -48.88 -2.45%
S&P Energy 570.34 -15.47 -2.64%
Oil Futures 93.00 -3.58 -3.71%
Gold Futures 1,453.60 -153.60 -9.56%
10-Yr Treasury Bond 1.66 -0.18 -9.86%
Hang Seng Composite Index 3,103.44 -332.01 -14.83%
XAU 106.31 -30.30 -22.18%
S&P/TSX Canadian Gold Index 197.60 -58.43 -22.82%

Quarterly Performance
Index Close Quarterly
Change($)
Quarterly
Change(%)
Natural Gas Futures 4.15 +0.71 +20.56%
DJIA 14,712.55 +816.57 +5.88%
S&P 500 1,582.24 +79.28 +5.27%
Nasdaq 3,279.26 +129.55 +4.11%
Russell 2000 935.25 +30.01 +3.32%
Korean KOSPI Index 1,944.56 -2.13 -0.11%
S&P Energy 570.34 -2.92 -0.51%
S&P Basic Materials 244.86 -6.28 -2.50%
Oil Futures 93.00 -2.88 -3.00%
Hang Seng Composite Index 3,103.44 -146.80 -4.52%
Gold Futures 1,453.60 -207.30 -12.48%
10-Yr Treasury Bond 1.66 -0.29 -14.67%
XAU 106.31 -44.51 -29.51%
S&P/TSX Canadian Gold Index 197.60 -83.21 -29.63%

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.

An investment in a money market fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

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. 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.

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. Each 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. Bond funds are subject to interest-rate risk; their value declines as interest rates rise. The tax free funds 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.

Past performance does not guarantee future results.

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

Holdings as a percentage of net assets as of 3/31/13:

Newfield Exploration Co.: 0.0%
Halliburton Co.: 0.0%
The Dow Chemical Company: 0.0%
E.I. du Pont de Nemours and Company: 0.0%
LyondellBasell Industries: All American Equity Fund, 1.09%; Global Resources Fund, 1.21%
Netflix, Inc.: 0.0%
AT&T, Inc.: All American Equity Fund, 1.43%
Proctor & Gamble Co.: 0.0%
The Clorox Company: 0.0%
Safeway, Inc.: All American Equity Fund, 1.14%
Edwards Lifesciences Corp.: 0.0%
Mastercard, Inc.: All American Equity Fund, 4.38%; Holmes Growth Fund, 3.98%
Visa, Inc.: 0.0%
Pfizer, Inc.: MegaTrends Fund, 2.10%
Merck & Co., Inc.: MegaTrends Fund, 2.01%
CVS Caremark Corp.: 0.0%
Alamos Gold, Inc.: Global Resources Fund: 0.96%; Gold and Precious Metals Fund, 1.90%; World Precious Minerals Fund, 1.95%
Harmony Gold Mining Co. Ltd: Gold and Precious Metals Fund, 2.04%; World Precious Minerals Fund, 1.59%
Barrick Gold Corp.: Global Resources Fund: 2.03%; Gold and Precious Metals Fund, 2.61%; World Precious Minerals Fund, 0.73%
Centerra Gold, Inc.: Gold and Precious Metals Fund, 1.73%; World Precious Minerals Fund, 0.94%
Eskom Holdings SOC Ltd: 0.0%
Caterpillar, Inc.: 0.0%
Sumitomo Mitsui Financial Group, Inc.: 0.0%
Gazprom: Emerging Europe Fund, 3.71%

*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 S&P BARRA Growth Index is a capitalization-weighted index of all stocks in the S&P 500 that have high price-to-book ratios.
The S&P BARRA Value Index is a capitalization-weighted index of all stocks in the S&P 500 that have low price-to-book ratios.
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 MSCI Russia Index is a free-float weighted equity index developed in 1994 to track major equities traded in the Russian market.
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 Bloomberg Gold Bear/Bull Sentiment Indicator charts the percent of respondents in a weekly Bloomberg News survey of traders, investors, and analysts predicting gold prices will rise the following week. The number of participants in the survey, which is completed every Friday, may vary.
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 S&P/TSX Global Gold Index is an international benchmark tracking the world's leading gold companies with the intent to provide an investable representative index of publicly-traded international gold companies.
The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining. The HUI Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years.
The University of Michigan Confidence Index is a survey of consumer confidence conducted by the University of Michigan. The report, released on the tenth of each month, gives a snapshot of whether or not consumers are willing to spend money.
The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
The German Ifo Business Climate Index is based on 7,000 monthly survey responses of firms in manufacturing, construction, wholesaling and retailing. The firms are asked to give their assessments of the current business situation and their expectations for the next six months.
The Hang Seng Index is a capitalization-weighted index of 33 companies that represent approximately 70 percent of the total market capitalization of The Stock Exchange of Hong Kong.
The Philippine Stock Exchange PSEi Index (PCOMP) is a capitalization-weighted index composed of stocks representative of the Industrial, Properties, Services,Holding Firms, Financial and Mining & Oil Sectors of the PSE.
The Shanghai Stock Exchange Composite Index is a capitalization-weighted index that tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange.

Net Asset Value
as of 09/15/2014

Global Resources Fund PSPFX $9.54 0.02 Gold and Precious Metals Fund USERX $6.85 0.04 World Precious Minerals Fund UNWPX $6.49 0.06 China Region Fund USCOX $8.15 -0.12 Emerging Europe Fund EUROX $7.89 0.03 All American Equity Fund GBTFX $33.21 -0.15 Holmes Macro Trends Fund MEGAX $23.86 -0.24 Near-Term Tax Free Fund NEARX $2.25 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change