Second Quarter 2021

The China fund lost 0.61% in the second quarter of 2021, underperforming its benchmark, the Hang Seng Composite, which gained 1.49%. See complete fund performance here.

The China fund underperformed its index by 2.10% mostly due to stocks selection in China and overweight Malaysia. Funds’ stock selection among Chinese food producers and overweight Malaysian medical glove makers had the most negative effect on fund’s performance.

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

  • On the country level, the fund’s overweight position in Singapore and South Korea had the most positive effect on the fund’s performance relative to the index. Shares of Singapore Exchange, which is not part of the Hang Seng Composite index, gained 13.5% in the second quarter. Singapore Exchange is attracting secondary listings. Some of the Chinese ADRs may be moving its listings from the Unites States into Singapore. In South Korea, overweight chemical company LG Chem Ltd. had the most positive effect on the fund’s performance. The company is benefiting from strong demand for electric car batteries.
  • On the industry level, the fund’s overweight position in consumer vehicles and parts had the most positive effect on the fund’s performance relative to the index. Share of BYD Company Limited gained more than 60% in the second quarter. China’s push to achieve technology self-sufficiency is a major policy catalyst for the electric vehicle maker, BYD Company.
  • The top three positive contributors were as follows:
    • BYD Company Limited, Chinese electric car maker, contributed positive 3% to the fund’s performance. Shares gained 60%. See the comment on BYD above.
    • Pop Mart International Group Limited, Chinese toy retailer contributed positive 0.74% to the fund’s performance.  Shares gained 17% in the second quarter as China announced new birth policy to allow to have three kids per family. Lower-tier cities may see higher birthrates than higher-tier cities due to lower child-rising costs in lower-tier cities.
    • CSPC Pharmaceutical Group Limited contributed positive 0.56 percent to the fund’s performance. Shares gained 28%. China officially announced the results of the fifth batch of centralized drug procurement in late-June 2021. 61 product varieties were selected with a 56% average price cut. CLSA research team says that the negative impact of price cuts from the ongoing centralised procurement will be offset by volume increases in generic drugs and a shift of focus to high-margin innovative drugs.

Weaknesses

  • On the country level, the fund’s stock selection in China and overweight Malaysia had the most negative effect on the fund’s performance relative to the index. In China, overweight internet retailers had the most negative effect on fund’s performance. Shares of Vipshop declined 32.5% and Pinduoduo Inc. lost 5.1%. China wants to increase regulations on large technology operators. The Chinese government imposed a large fine on Alibaba and the threat exists that measurers may come out effecting other internet giants. In Malaysia, fund’s overweight position in medical gloves producers did not work. Shares of Top Glove and Hartalega both declined as the pandemic situation is improving in many parts of the world.
  • On the industry level, the fund’s overweight position in food and tobacco production had the most negative effect in the fund’s performance relative to the index. Shares of China Feihe Limited, a baby formula maker, lost 18.5% in the second quarter. The company recorded most losses in June after Chairman Leng Youbin predicted the stakes to drop in powdered infant formula in the next year or two as many married women would avoid getting pregnant within six months of receiving COVID-19 vaccination. China also reported declining birthrates, with older generation gaining share.
  • The top three negative contributors were as follows:
    • Vipshops Holdings Ltd, online retailer contributed negative 1.45% to the fund’s performance. See comments of Vipshop above.
    • China Feihe Limited, baby formula maker contributed negative 1% to the fund’s performance.  See comments of China Feihe Limited above.
    • Yihai International, Chinese food producer and distributor contributed negative 0.90% to the fund’s performance.  Shares declined 31.5% in the second quarter due to weaker sales. Company increased market investments and spending on new brands as market competition has been rising.

Outlook

Last year, China was the only major economy to register a growth and in the first quarter of this year China’s economy grew by 18.3% compared to the same period of last year. In part, this strong growth was due to the low base in the first quarter of last year, as COVID-19 restrictions froze economic activities. Chain’s economy may expand 8% this year, but risks remain. Performance of Chinese equities will very much depend on government’s strategy to further regulate technology companies and tightening monetary policies. But given strong global demand, Chinese policymakers may not rush to reverse current policy settings. China is also seeing increased political tensions with Taiwan. Taiwan recalled all but one of its officials working in Hong Kong this quarter after it refused to have its officials sign a document recognizing Beijing’s one-China policy to renew their work visas. The last staff member is also expected to return to Taiwan next month when his visa expires. Hong Kong people who want to visit or apply to live in Taiwan will be able to do so online. Outside of China, Taiwan and South Korea have been reporting very strong exports supported by strong demand for technology equipment. On the COVID-19 front, in the second quarter, China said it had crossed administering more than one billion of vaccine shots and is planning to have 80% of the population vaccinated by the year end. According to FTVaccineTracker, 72.3 total doses per 100 residents have been given in China – still well behind Israel, the United Kingdom, and the United States. China is not open for tourism, only national citizens and foreign nationals with valid residence permits and certain special types of visas are allowed to enter. Once China opens its border it should further lift its economy and increase spending. However, some experts predict this won’t happen sooner than 2022.

 

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 CSI 300 is a capitalization-weighted stock market index designed to replicate the performance of 300 A-share stocks traded in the Shanghai and Shenzhen stock exchanges. 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 China Region Fund as a percentage of net assets as of 6/30/2021: LG Chem Ltd. 4.82%, BYD Co. Ltd. 7.21%, Pop Mart International Group Ltd. 0.00%, CSPC Pharmaceutical Group 0.00%, Vipshop Holdings Ltd. 2.94%, Pinduoduo Inc. 5.56%, Alibaba Group Holding Ltd. 1.16%, Top Glove Corp. Bhd 2.03%, Hartalega Holdings Bhd 1.80%, China Feihe Ltd. 3.80%, Yihai International Holding Ltd. 0.00%.

Standard Disclosure
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. Foreside Fund Services, LLC, Distributor. U.S. Global Investors is the investment adviser.

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.

 

Net Asset Value
as of 07/30/2021

Global Resources Fund PSPFX $6.54 -0.04 Gold and Precious Metals Fund USERX $13.16 No Change World Precious Minerals Fund UNWPX $5.03 -0.02 China Region Fund USCOX $8.82 -0.05 Emerging Europe Fund EUROX $6.65 -0.04 Global Luxury Goods Fund USLUX $24.30 -0.15 Near-Term Tax Free Fund NEARX $2.25 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change