December 2015

During the fourth quarter, the Global Resources Fund outperformed its benchmark, the S&P Global Natural Resources Index, by 310 basis points. Strong performance was due in part to allocations to domestic U.S. resource stocks, an underweight position in base metals and an overweight position in agribusiness companies. See complete fund performance here.  

Strengths

  • Superior stock selections in the junior mining and agribusiness industries were the major positive contributors to the fund’s performance.
  • The fund’s underweight in base metal stocks and overweight in the refining space had a positive contribution to the fund relative to the benchmark this quarter.
  • Holdings that were among the fund’s best contributors to performance included Gran Colombia Gold, Sunridge Gold and Tyson Foods.

Weaknesses

  • An underweight position in integrated oil & gas, together with an overweight in the precious metals subsector, had the largest negative contribution to the fund this quarter.
  • The fund’s relatively high cash holdings throughout the quarter had a negative contribution to the fund’s performance.
  • Rio Tinto, Sealed Air and BNK Petroleum were among the fund’s most significant laggards this quarter.

Opportunities

  • The seasonality of commodity investing suggests that such investors will have the wind at their sail for the next four months. According to a study published by VTB Capital, over the past 20 years the Bloomberg Commodity Index has posted strong rallies in the first four months of the year. The report goes on to suggest that despite the ongoing negative investor sentiment toward the sector, there is reason to believe the seasonal pattern will play again in 2016.
  • Ten trillion dollars is the level of investment needed by 2040 to supply the oil and gas market, according to OPEC’s World Oil Outlook for 2015. OPEC expects global oil demand to reach 110 million barrels per day in 2040, a volume that current fields could not come even close to supplying. As a result, the organization believes investments of $10 trillion will be necessary to ensure adequate infrastructure and supply.
  • Based on latest estimates, the total short exposure in commodities has reached $200 billion. This unprecedented buildup in fund shorts has created a major headwind for commodity prices in the short term. However, when considering the size of total managed long commodity assets, which has declined to about $200 billion, very close to the total commodity shorts, any partial unwinding of the short trade should bode well for commodities during 2016.

Threats

  • Iron ore prices may dip into the $20 range in 2016 before rallying to end the year higher, according to a recent report by Capital Economics. The report suggests prices will initially drop as more low cost supplies help majors expand their market share. Following this initial response, higher cost production will be cut, aiding a price rebound into year-end.
  • The Baltic Dry Freight Index, the shipping benchmark that serves as a bellwether for global trade and economic activity, fell to an all-time low in November 2015. The record low suggests China’s demand for commodities continues a downward trend.
  • The global manufacturing purchasing manager’s index (PMI) slipped back to 50.9 in December 2015, crossing below its three-month moving average of 51.1 as output, exports and new orders all eased lower. China, India, Brazil and Russia all reported PMIs below 50 as manufacturing output in emerging markets remains in contraction. With PMIs having shown to be among the best predictive tools for commodity prices, the outlook for the first few months of the year has turned more challenging.

Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. For a portion of periods, the fund had expense limitations, without which returns would have been lower. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any direct fees described in the fund's prospectus (e.g., short-term trading fees of 0.05%) which, if applicable, would lower your total returns. Performance quoted for periods of one year or less is cumulative and not annualized. Obtain performance data current to the most recent month-end here or by calling 1-800-US-FUNDS.

The S&P Global Natural Resources Index includes 90 of the largest publicly-traded companies in natural resources and commodities businesses that meet specific investability requirements, offering investors diversified, liquid and investable equity exposure across 3 primary commodity-related sectors: Agribusiness, Energy, and Metals & Mining. The Baltic Dry Freight Index is an economic indicator that portrays an assessed price of moving major raw materials by sea as compiled by the London-based Baltic Exchange. The Bloomberg Commodity Index is made up of 22 exchange-traded futures on physical commodities. The index represents 20 commodities, which are weighted to account for economic significance and market liquidity. 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.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Global Resources Fund as a percentage of net assets as of 12/31/2015: Gran Colombia Gold Corp. 7.08%, Sunridge Gold Corp. 2.24%, Tyson Foods Inc. 3.01%, Rio Tinto PLC 2.03%, Sealed Air Corp. 0.71%, BNK Petroleum Inc. 0.39%.

Net Asset Value
as of 02/12/2016

Global Resources Fund PSPFX $4.50 0.06 Gold and Precious Metals Fund USERX $6.25 0.13 World Precious Minerals Fund UNWPX $4.41 0.06 China Region Fund USCOX $6.29 0.01 Emerging Europe Fund EUROX $4.83 0.03 All American Equity Fund GBTFX $21.76 0.46 Holmes Macro Trends Fund MEGAX $16.05 0.16 Near-Term Tax Free Fund NEARX $2.27 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.01 No Change