Third Quarter 2016

During the third quarter, the Global Resources Fund outperformed its benchmark, the S&P Global Natural Resources Index, by 746 basis points. Strong performance was due to an overweight position in gold equities and junior natural resource companies. See complete fund performance here.

Past performance does not guarantee future results. 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.

Strengths

  • The fund's overweight position and stock selection in junior natural resource companies were the major positive contributors to the fund's performance.
  • The fund's underweight position and stock selection in the integrated oil sector 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 Klondex Mines, Gran Colombia Gold and Chart Industries.

Weaknesses

  • An underweight position in bulk material stocks had the largest negative contribution to the fund this quarter. This underperformance was mitigated by stock selection in the sector.
  • The fund's relatively high cash holdings throughout the quarter had a negative contribution to the fund's performance.
  • Atwood Oceanics, Turquoise Hill Resources and Doray Minerals were among the fund's most significant laggards this quarter.

Opportunities

  • Macquarie Research has revised its 2016 metals demand expectations for the market higher to reflect improved conditions in China. The research firm's real demand expectations for major industrial metals have all increased. Macquarie's analysts argue that 2016 has not been a stellar year by any measure, but has posted decent growth that surprised most proponents of the China "Armageddon scenario." Moreover, the authors believe China's fixed-asset-injection push will be supportive of demand over the coming months.
  • A surprising inflation report may spur a new bid for gold. Consumer prices as measured by core inflation rose 2.3 percent in August over the last year, topping analysts' expectations and sending real yields deeper into negative territory. The August reading is the highest since September 2008, and the 10th straight reading above the Federal Reserve's 2 percent target.
  • Major miners should see peak excess cash flows in 2017-2020, according to Morgan Stanley. The bank's Metals & Mining team shows that at current spot commodity prices, miners' post-dividend cash flows are on track to be positive in 2016 for the first time in four years. The team predicts that by 2019-2020, excess cash should be approaching peak levels of $25-30 billion, implying considerable potential to increase dividends.

Threats

  • Global trade this year will grow at the slowest pace since the global financial crisis, warns the World Trade Organization. The WTO, as the agency is known, cut its forecast for the growth of exports and imports this year and next, and now foresees an increase of just 1.7 percent in 2016 and as little as 1.8 percent in 2017, having projected rises of 2.8 percent and 3.6 percent, respectively, in April.
  • China is set to curb spending on renewable energy after record boom. A Bloomberg report suggests China's spending on renewable energy will decline 11 percent next year as electricity demand stagnates along with slower GDP growth. China provides about a third of the global investment in renewable energy.
  • The crude oil glut is likely to extend into late 2017, says the International Energy Agency, which lowered its demand forecasts. Consumption growth sagged to a two-year low in the third quarter as demand faltered in China and India, while record output from OPEC's Gulf members is compounding the glut, according to the IEA. The agency trimmed projections for global oil demand next year by 200,000 barrels a day and reduced growth estimates for this year by 100,000 barrels a day, citing a deceleration in China and India as well as weaker growth in developed economies.

 

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.

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 9/30/2016: Klondex Mines Ltd. 8.89%, Gran Colombia Gold Corp. 10.10%, Chart Industries Inc. 1.34%, Atwood Oceanics Inc. 0.00%, Turquoise Hill Resources Ltd. 0.34%, Doray Minerals Ltd. 1.40%.

Net Asset Value
as of 12/09/2016

Global Resources Fund PSPFX $5.59 -0.01 Gold and Precious Metals Fund USERX $7.39 -0.15 World Precious Minerals Fund UNWPX $6.59 -0.11 China Region Fund USCOX $7.80 -0.06 Emerging Europe Fund EUROX $5.78 -0.03 All American Equity Fund GBTFX $23.94 0.08 Holmes Macro Trends Fund MEGAX $20.40 0.02 Near-Term Tax Free Fund NEARX $2.21 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change