Show Me the Stocks, Not the Cash, Say Optimistic CEOs

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

In early March, I made the case that there’s no greater vote of confidence in a company’s growth prospects than when its top officers put some skin in the game and buy their own company stock. Among the examples I used were Warren Buffett, who owns millions of shares in Berkshire Hathaway; Elon Musk, who purchased over $100 million worth of Tesla stock in 2013; and myself, the largest shareholder of U.S. Global Investors.

Another example of how bullish an executive is on his own company is when he chooses to forego a base salary entirely and instead be compensated in company stock.

The most recent chief executive officer to receive such compensation is American Airline’s Doug Parker.

In a letter to employees, Parker wrote:

Going forward, I have asked our Board to restructure my compensation such that I will no longer receive a base salary or an annual bonus. Instead, all of my primary compensation will be paid in AAL stock. This stock will have to be earned over time, and will also have to be earned by performance. I believe this is the right way for my compensation to be set—at risk, based entirely on the results achieved, and in the same currency that our shareholders receive.

Parker has such confidence in his own company and the industry in general that he’s willing to place a huge portion of his financial security in its hands. This, along with American’s recent addition to the S&P 500 Index, should make investors’ ears perk up.

He’s not the only CEO who’s switched to stock.

Fellow airline executive Maurice J. Gallagher Jr. of Allegiant Air has also passed on cash, receiving a little over half a million dollars in stock and options in 2013 alone.

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The late, great Steve Jobs was famously paid $1 a year to serve as CEO of Apple—which we own in our
All American Equity Fund (GTBFX) and Holmes Macro Trends Fund (MEGAX)—taking his real payment in company shares. In February 2011, a few months before his death, it was reported that Jobs owned about 5.5 million shares in Apple stock, which at the time was worth a little over $2 billion.

Another notable example is Larry Ellison, co-founder and former CEO of computer technology company Oracle, also held in GBTFX. In 2013, Ellison was the most highly compensated CEO out of the 300 who were featured in the Wall Street Journal/Hay group CEO Compensation Study. During his final full year of work at Oracle, he received $67.3 million—nearly all of it in stock options.

Stock has been steadily growing in importance as a form of compensation for the most successful CEOs. Between 2009 and 2013, performance stock for those leading S&P 1500 Index companies rose 52 percent, the largest increase of any other type of payment. Compared to all other methods, in fact, performance stock is now the most-preferred, according to executive compensation consultancy firm Equilar.

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Stock isn’t just good for executives; it’s also good for shareholders.

In a 2010 study piece that appeared in the NYU Journal of Law & Business, Villanova University Business Law Professor Richard A. Booth writes that “stock options are indeed the best form of incentive compensation yet devised” for CEOs. His reasoning: “[I]t is the supposed duty of the directors and officers to maximize stockholder value. In practice, there are few situations in which that duty is enforced as a matter of law. Options fill the gap.”

Although options are a specific type of security, giving the holder the right to buy or sell shares at a later date, they’re used here as a proxy for the broader argument that stock helps executives better align their interests with shareholders’.

Despite Greece, Investors Still Bullish on Europe

You might have noticed that Greece has been in the headlines a lot lately.

Many global investors are anxious to see how the drama unfolds, as the beleaguered Mediterranean country, strapped for cash, is staring down billions of euros in upcoming bailout loan repayments, not to mention salaries and pensions. On May 12, Greece will owe the International Monetary Fund (IMF) 0.8 billion euros, and between the end of July and beginning of August, 7 billion euros in bond payments become due to the European Central Bank (ECB), according to Wood & Company.

Below you can see which countries would be impacted the most were Greece to default on its obligations. Although Germany holds the greatest amount of Greek debt—over 84 billion euros’ worth—Slovenia would be hurt the worst, as 4 percent of its GDP is tied up in the country’s debt.

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Rightfully so, investors are wondering about the implications of a so-called “Grexit” from the eurozone. We don’t expect this to happen, as it would be too great of an economic, political and psychological blow to Greece. The IMF takes the same position. To be clear, the country is indeed running out of cash, and it won’t be able to pay its pensioners and creditors without a deal.

But Greek and eurozone finance officials are currently negotiating on how to proceed with the debt repayments, with a tentative agreement to be reached this Sunday, and we’re optimistic that a deal can be struck.

Despite all of the negative press, global investors, including us, are increasingly bullish on both Greece and the eurozone in general. We closely monitor technical indicators such as credit default swap (CDS) spreads, moving averages and money flow, and we’ve seen some promising market moves lately. For instance, Greek banks’ five-day moving average just crossed above both the 20- and 60-day moving averages.

So far this year, investors have added $223 million to a Greek exchange-traded fund (ETF), with short interest on the product falling to its lowest level since April 2013.

Among 1,280 Bloomberg subscribers, 35 percent recently singled out the eurozone as the one market that will offer the best investment opportunities over the next year, an increase of 16 percentage points since January.

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This is all good news for our Emerging Europe Fund (EUROX). We recently added to our Greek position and are now equal-weighted with its benchmark, the MSCI EM Europe 10/40 Index.

To get a better handle on what’s happening in Greece, check out Visual Capitalist’s infographic on the subject.

USGI Portfolio Manager Ralph Aldis Named a TopGun

I’d like to close out the commentary today with some good news.Today we learned that Ralph Aldis, portfolio manager of our Gold and Precious Metals Fund (USERX) and World Precious Minerals Fund (UNWPX), was voted into the American Society of TopGun Investment Minds in the U.S. Metals and Mining category by capital markets performance measurement firm Brendan Wood International.

According to the firm’s press release, this honor recognizes investors considered to be “optimal leaders of thought in the industry during the past year.”

Of course, we already knew this about Ralph. As many of you know, the past three and a half years have been among some of the most challenging for metals and mining investing. But under Ralph’s expert management skills, USERX currently holds four stars overall from Morningstar, among 71 Equity Precious Metals funds as of 3/31/2015, based on risk-adjusted returns.

I would be remiss not to recognize all of the support behind Ralph and our other talented portfolio managers. We’re fortunate to have a dedicated team of world-class analysts who often work long hours into the evening researching both macro and micro economic trends and assisting in investment analysis. Ralph’s job would be near-impossible without their tireless efforts.

Congratulations, team!

	Overall/71
	3-Year/71
	5-Year/67
	10-Year/51

Morningstar ratings based on risk-adjusted return and number of funds
Category: Equity Precious Metals
Through: 3/31/2015

Morningstar Ratings are based on risk-adjusted return. The Morningstar Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and ten-year Morningstar Rating metrics. Past performance does not guarantee future results. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.)

Index Summary

• The major market indices finished lower this week.  The Dow Jones Industrial Average fell 0.31 percent. The S&P 500 Stock Index fell 0.44 percent, while the Nasdaq Composite fell 1.70 percent. The Russell 2000 small capitalization index fell 3.11 percent this week.
• The Hang Seng Composite gained 0.50 percent this week; while Taiwan fell 0.94 percent and the KOSPI fell 1.51 percent.
• The 10-year Treasury bond yield rose 20 basis points to 2.11 percent.

Domestic Equity Market

The S&P 500 ended the week lower, losing 0.44 percent amidst a volatile week that featured a Federal Reserve meeting, higher oil prices, and a retreat in the dollar.

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Strengths

• The materials sector was the best performer for the week, up 1.95 percent. This was largely on the back of a weakening dollar.
• Energy was the second-best performer, up 1.13 percent. The U.S. oil rig count fell to 679, the lowest level since September 2010. Crude oil prices rose to 2015 highs, with Brent climbing above $66 per barrel and West Texas Intermediate (WTI) approaching $60 per barrel.
• Genworth Financial was the best-performing stock in the S&P 500, rising 14.89 percent. On Wednesday, the company announced plans to divest some or all of its life insurance and retirement-income annuity operations.

Weaknesses

• Health care was the worst-performing sector, losing 2.29 percent for the week. The sector was pressured by biotechnology.

• The consumer discretionary sector was the second-worst performer, down 1.61 percent as the retreat of the dollar and gains in oil reduce the purchasing power of the consumer.

• Wynn Resorts was the worst-performing stock in the S&P 500, down 13.36 percent for the week. The company delivered a disappointing earnings report and announced a sharp dividend cut.  

Opportunities

• This week’s employment cost index results revealed stronger signs of wage inflation in the U.S. economy. These signs of broader reflation in the U.S. economy are bullish for equities moving forward.

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• The yield on 10-year U.S. treasuries jumped back above 2 percent this week. Decreasing demand for safe-haven assets is a positive sign of a U.S. economic recovery.

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• The dollar had a sharp pull back this week. While the greenback’s strength has been positive for certain industries that receive most of their revenue domestically, it has been negative for companies with a great deal of foreign exposure. As the dollar’s strength unwinds, certain cyclical industries such as industrials and energy should certainly benefit.

Threats

• The Conference Board’s Consumer Confidence Index weakened for the month of April. A decline in demand should be particularly concerning for certain discretionary retail stocks.

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• The Fed seems to have downplayed the recent weakness in the U.S. economy, leading many to believe a mid-year rate hike is still plausible. As such timing would be premature, this remains a threat to the U.S. recovery.

• Europe has received the honor of the best place to invest according to a Bloomberg survey of financial professionals. Replacing the U.S., European equities are already attracting a tremendous amount of fund flows due to its recent quantitative easing (QE) program.

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The Economy and Bond Market

The stock market ended a defensive week on an upbeat note. The S&P 500 gained 1.1 percent to narrow its weekly decline to 0.44 percent while the Nasdaq (+1.3 percent) outperformed slightly on Friday, but lost 1.7 percent for the week. The yield on the U.S. 10-year note saw a big move, rising to 2.11 percent.  Crude oil prices extended their substantial gains of recent weeks.

Strengths

• The number of Americans applying for first-time unemployment benefits tumbled to the lowest level in 15 years, a signal of broad health in the labor market. Initial jobless claims, a proxy for layoffs across the U.S. economy, fell by 34,000 to a seasonally adjusted 262,000 in the week ended April 25, the Labor Department said Thursday. That was the lowest level for initial claims since April 15, 2000.

• The latest Chicago Purchasing Manager’s Index from the Institute of Supply Management came in at 52.3, beating expectations. Economists had forecast the index to come in at 50.0, up from March’s 46.3 reading. The reading was the highest since January.

• Sweden’s central bank delivered an unscheduled interest rate cut and expanded its government bond purchase plan to push down the krona as it struggles to revive inflation. The repo rate was lowered to minus 0.25 percent from minus 0.1 percent. The bond-buying program will be expanded by 30 billion kronor ($3.4 billion), adding to the 10 billion kronor in purchases already made. The bank said it sees the repo rate at the current level until at least the second half of 2016. Policymakers are living up to a pledge to do whatever it takes to jolt the largest Nordic economy out of disinflation as they explicitly mentioned the currency as a reason to cut rates.

Weaknesses

• U.S. first-quarter GDP missed expectations and increased by a mere 0.2 percent vs. a 1 percent estimate (quarter-over-quarter, annualized). The Fed acknowledged the slowdown, although it deemed it transitory. It cited the harsh winter weather, tepid foreign demand, the decline in oil prices, and weaker global growth.

• The Conference Board’s consumer confidence index dropped to a four-month low of 95.2 in April, weaker than the most pessimistic forecast in a Bloomberg survey of economists.

• U.S. construction spending fell in March to a six-month low as outlays on private residential construction spending declined sharply, which could add to concerns about the economy’s ability to rebound strongly from the first-quarter’s soft patch. Construction spending slipped 0.6 percent, disappointing expectations of a 0.5 percent increase.

Opportunities

• Fixed-income flows out of the eurozone and Japan are accelerating as investors flee financial repression. The rebalancing should support bond prices in the other advanced economies, helping to compress the spreads of the “high yielders,” including Treasuries, relative to German bunds and Japanese government bonds.

• Real house prices have further upside, judging from the historical precedent of economies that emerge from financial crises and housing busts. Indeed, annual house price appreciation accelerated to 5.0 percent in February, according to the Case-Shiller home price index. This is an improvement over recent months, but still slower than rates recorded in 2013 and early 2014. Furthermore, home inventories are low by historical standards and more banks have eased rather than tightened mortgage lending standards for the past two consecutive quarters, based on the Fed Loan Officer Survey.
• Among advanced economies, the Reserve Bank of Australia (RBA) is the most likely central bank to ease policy further. The next RBA meeting will take place on Tuesday.

Threats

• How will the Treasury market react when the Fed signals the first rate hike? The elephant in the room is the massive divergence that still exists between market expectations for the fed funds rate and the Federal Open Market Committee’s (FOMC) median “dots.” Risk remains of a re-pricing of the Treasury curve when the FOMC begins lifting U.S. short-term interest rates.

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• The U.S. economy added fewer jobs than expected in March as poor weather, a stronger dollar and energy sector weakness impacted the pace of hiring. Total nonfarm payroll employment increased by just 126,000 in March, which was well below the 247,000 forecast. Nonfarm payrolls for April are released next week, with the consensus forecasting a gain of 225,000. A weak reading would cast further doubts on the anemic economy year-to-date.

• The Fed has adopted a new phone system that will provide it with maximum flexibility when it comes to policy. On Wednesday, the Fed held a phone call with members of the press to test a teleconference system that would allow it to hold impromptu press briefings. This option means, in theory, the Fed could take meaningful policy actions regardless of whether a formal press conference is scheduled after a particular meeting. Such actions could catch the market off guard, increasing volatility.

Gold Market

For the week, spot gold closed at $1,178.32 down $1.12 per ounce, or 0.09 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, gained 4.16 percent. The U.S. Trade-Weighted Dollar Index slide 1.82 percent for the week.

Strengths

• Gold traders turned bullish for the week on speculation that weaker U.S. data will prompt the Federal Reserve to delay raising interest rates.

• Gold is going through a series of push and pull, with the metal’s 30-day volatility near the highest in seven weeks. Prices on Monday surged 2.4 percent, the biggest gain since January 15. The move came a session after futures tumbled by the most since early March. Then on Tuesday gold held the biggest gain in almost three months before Federal Reserve policymakers began their meeting. On Thursday gold headed for the biggest two-day slump since October after a government report showed that application for U.S. jobless benefits declined to the lowest in 15 years. 

• Lake Shore Gold continues to intersect significant gold mineralization, extending its high grade core of 144 Gap Zone 50 meters west. In addition, drilling in untested areas intersected new zones of gold mineralization.

Weaknesses

• Barrick Gold’s first quarter results missed the mark with negative free cash flow of $200 million. Further, second quarter costs may actually go up before coming down as second half production is back-end loaded.

• Barrick investors opposed executive pay after CEO’s Thornton’s excessive raise at the annual shareholder meeting. The company plans to re-examine its executive compensation after shareholders expressed disapproval of the company’s policies for a second time in three years. Also, Yamana Gold saw a similar situation with more than 50 percent of its shareholders voting to reject the executive pay plan. Influential advisory firm Glass Lewis sided with shareholders, recommending to vote against the plan and citing a significant disconnect between pay and performance.

• Goldcorp reported first quarter earnings that missed analysts’ estimates after costs increased amidst falling gold prices.

Opportunities

• Newmont reported strong first quarter results, with significant cost improvements and solid production across the assets driving earnings beat. The company was upgraded to outperform by Credit Suisse.

• The European Central Bank’s (ECB) 1 trillion-euro quantitative easing program has fueled appetite for EU stocks and the euros needed to buy them. This poses a threat to the dollar’s rally and has the potential to reverse its trend. Bloomberg’s Fear and Greed histogram flipped to the red in the week ending April 24, the first time since March 2014. This is an indicator that measures buying strength versus selling strength and is used to determine reversal points in a prevailing trend. A weaker dollar would be a positive catalyst for gold.

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• The International Monetary Fund (IMF) will be holding a meeting in May which will start to discuss formally any revisions to the composition of the Special Drawing Rights (SDR). A second meeting will be held in October which will confirm any new changes and the revised SDR basket will come into operation on January 1, 2016. If the yuan is to form part of the new SDR, then the announcement of its unpegging from the dollar would have to take place prior to the October announcement. With the speculation that China has been building its gold reserves to a much more substantial level, this would be a positive development for the metal. On another note, while the price of gold has fluctuated in a narrow range this year, top gold mining stocks have actually seen impressive gains, perhaps anticipating an expected lift in the gold price. Even so, gold equities remain undervalued relative to the spot price.

Threats

• As of March 2015, net free credit stood at a new record low vs. the prior record from August 2014. This measure of cash to meet margin calls remains at an extreme level, below the February 2000 low. If the U.S. equity market drops and triggers margin calls, investors do not have cash in their accounts and would be forced to sell stocks or get cash from other sources to meet the margin calls. This would exacerbate an equity market sell-off. 

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• According to Bank of America, the effects from the plunge in oil prices and rapid appreciation of the dollar are serving as a bigger drag to growth than what had been anticipated. Consequently, the long awaited pick-up in growth remains a forecast.

• According to various sources, JP Morgan has accumulated more than 55 million ounces of physical silver. Over the past few years, the company has been voraciously buying up the metal and added more than 8 million ounces during the past couple of weeks alone. One reason for this could be that JP Morgan sees a potential stock market collapse ahead with a consequent surge in gold and silver prices. Another speculation is that JP Morgan has been holding a short market corner in COMEX silver futures which has depressed prices artificially, allowing them to buy physical silver at sharply declining prices.

Energy and Natural Resources Market

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Strengths

• Oil and gas drilling stocks outperformed this week as crude prices continued to look increasingly constructive. The S&P Supercomposite Oil & Gas Drilling Index closed up 11 percent this week.
• Metals and mining stocks rallied this week as base metal prices, particularly copper prices, gained momentum. The S&P/TSX Capped Diversified Metals and Mining Index was up 10 percent this week.
• Construction materials stocks broke out this week, continuing the sharp rally they began early February following strong earnings reports. The S&P Supercomposite Construction Materials Index rose 3 percent this week.

Weaknesses

• Construction engineering stocks underperformed as certain companies missed earnings estimates. Specifically, Flour Corp. missed its earnings per share and revenue growth estimates. The S&P Supercomposite Construction & Engineering Index fell 3 percent this week.
• Tanker stocks pulled back this week as signs of declining production growth dim demand in the industry. The Bloomberg Tanker Index fell 2 percent this week.
• Dry ships continued their extended depreciation this week as demand within the industry remains weak. The Bloomberg Dry Ships Index fell 2.5 percent this week.

Opportunities

• Commodities revived in April.  With the exception of agriculture, all other commodity sectors have posted positive returns over the past month.  The rebound in commodity index returns has been concentrated in the energy sector, where returns are up 16 percent since the end of March. As a result, this marks the most powerful rebound in sector returns for energy since May 2009, according to Deutsche Bank.

• Speculators are abandoning hedges on an oil exchange-traded fund at the fastest rate ever, convinced the commodity won’t be revisiting a six-year low from last month. The Chicago Board Options Exchange Crude Oil Volatility Index has plunged 31 percent in April, poised for its biggest monthly drop on record.
• Anglo American favors a listing of some South African platinum mines as the most likely route to divesting those assets, the mining group’s chief executive said on Friday. Platinum has been a problem for London and Johannesburg-listed Anglo American for some time, due to recurrent strikes and stubbornly weak prices. Anglo American Platinum has said that it would divest several assets, including some in Rustenburg, which was at the centre of a five-month strike last year.

Threats

• Wheat production in India, the world’s biggest grower after China, may tumble by the most in 12 years after heavy rains and hailstorms ravaged farms. The harvest will probably drop 8.3 percent to 87.9 million tons from a record 95.9 million tons a year earlier, said Rajnikant Rai, chief operating officer of the agriculture business at ITC Ltd., a cookie and flour maker and one of the biggest wheat buyers.
• Deadly bird flu swelled in the poultry industry in Minnesota and neighbouring Wisconsin amid speculation that winds may be carrying virus particles into facilities housing turkeys and chickens. “This is a catastrophe for both the turkey and the egg industries,” William Rehm, the president of Daybreak Foods Inc.
• Vladimir Putin is determined to make sure that Russians don’t run out of affordable bread, even if it means a few bankrupt farmers and a disrupted grain market. The country that last year was the fourth-largest wheat exporter is now taxing all overseas sales of the grain. Shipments dropped by more than half, and the loss of income is squeezing already thin profits for growers. While Putin’s move kept more wheat at home, farmers have cut back spending to stay solvent, including using less fertilizer and pesticide.  

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Emerging Markets

Strengths

• Russian equities outperformed this week as the central bank lowered the key rate 150 basis points to 12.5 percent. A reduction in the intolerably high borrowing costs for domestic companies should help with the economy’s recovery. The MICEX Index rose 0.34 percent this week.
• Greek stocks rebounded sharply this week as investors begin to see signs of improving negotiations between the government and other European officials. The Athens Stock Exchange General Index rose 8.05 percent this week.
• Hungarian equities continued to outperform as the country revised up its GDP forecast for 2015. The Economy Ministry expects the economy to grow 3.1 percent in 2015 instead of its prior forecast of 2.5 percent. The Budapest Stock Exchange Index was up 0.86 percent this week.

Weaknesses

• Indian equities continue to underperform as earnings releases disappoint. The S&P BSE SENSEX Index was down 1.55 percent this week.
• Indonesian stocks underperformed this week as growth in Foreign Direct Investment was weaker than expected. The Jakarta Stock Exchange Composite Index fell 6.42 percent this week.
• Philippine stocks pulled back this week after a strong run so far year to date. The Philippines Stock Exchange PSE Index closed down 2.92 percent this week.

Opportunities

• Emerging market currencies continued to make constructive gains following their rapid depreciation in the latter half of last year. With this trend still very much intact, there is plenty of upside to investing in emerging markets right now.

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• Greek banks, after experiencing significant depreciation due to the country’s political turmoil, are dirt cheap. On a price-to-earnings and price-to-book basis, the banks provide an enticing opportunity to increase Greek exposure in case the country’s financial situation begins to improve.

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• Being underweight China and overweight India heading into April has sabotaged performance for the average emerging market fund manager, as more investor-friendly policy sent Chinese H-share stocks surging whereas fears of retroactive taxation on foreigners pummeled Indian equities, in addition to relative valuation disparity. Going forward, probable short term pullbacks in Chinese equities could be viewed as reallocation opportunities for frustrated fund managers who missed the ongoing rally to minimize career risk, and therefore, help sustain the Chinese bull market.

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Threats

• China’s plan announced this week to cut import tariffs on consumer products in high demand, including cosmetics and apparel, as early as June should help narrow the price gap between mainland and Hong Kong, and weigh on investor sentiment towards Hong Kong retailers further.

• Despite both parties being determined to avoid a Greek exit from the eurozone, the uncertainty surrounding the negotiations between the Greek government and its European counterparts is certainly cause for concern.
• The lira continues to depreciate with little to no indication of a pause. With the central bank still under intense pressure to cut rates further, further weakness should be expected.

Leaders and Laggards

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% 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 March 31, 2015:
American Airlines: 0.00%
Berkshire Hathaway: 0.00%
Tesla: 0.00%
Allegiant Air: 0.00%
Oracle: All American Equity Fund, 1.00%
Genworth Financial: 0.00%
Wynn Resorts: 0.00%
Anglo American: 0.00%
ITC Ltd: 0.00%
Daybreak Foods: 0.00%
Lake Shore Gold Corp: Gold and Precious Metals Fund, 2.27%; World Precious Minerals Fund, 0.86%
Barrick Gold Corp: Gold and Precious Metals Fund, 0.06%; World Precious Minerals Fund, 0.06%
Yamana Gold: Gold and Precious Metals Fund, 0.87%; World Precious Minerals Fund, 0.23%
Goldcorp: 0.00%
Newmont Mining Corp: Gold and Precious Metals Fund, 1.10%; World Precious Minerals Fund, 0.06%
JP Morgan Chase: All American Equity Fund, 1.20%
Bank of American: 0.00%
Deutsche Bank: 0.00%

*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.

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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.
The MSCI Emerging Markets Europe 10/40 Index (Net Total Return) is a free float-adjusted market capitalization index that is designed to measure equity performance in the emerging market countries of Europe (Czech Republic, Greece, Hungary, Poland, Russia, and Turkey). The index is calculated on a net return basis (i.e., reflects the minimum possible dividend reinvestment after deduction of the maximum rate withholding tax). The index is periodically rebalanced relative to the constituents’ weights in the parent index.
The S&P 1500 Composite is a broad-based capitalization-weighted index of 1500 U.S. companies and is comprised of the S&P 400, S&P 500, and the S&P 600. The index was developed with a base value of 100 as of December 30, 1994.
The MICEX Index is the real-time cap-weighted Russian composite index. It comprises 30 most liquid stocks of Russian largest and most developed companies from 10 main economy sectors. The MICEX Index was launched on September 22, 1997, base value 100. The MICEX Index is calculated and disseminated by the MICEX Stock Exchange, the main Russian stock exchange.
The Athens Stock Exchange General Index is a capitalization-weighted index of Greek stocks listed on the Athens Stock Exchange.
The Budapest Stock Exchange Index is a capitalization-weighted index adjusted for free float. The index tracks the daily price-only performance of large, actively traded shares on the Budapest Stock Exchange.
The S&P Bombay Stock Exchange Sensitive Index (BSE SENSEX) is a free-float market-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange. Jakarta Stock Exchange Composite Index The Jakarta Stock Price Index is a modified capitalization-weighted index of all stocks listed on the regular board of the Indonesia Stock Exchange.
The Philippine Stock Exchange PSEi Index is composed of stocks representative of the industrial, properties, services, holding firms, financial and mining & oil sectors of the Philippines Stock Exchange. Conference Board Consumer Confidence Index is an indicator which measures consumer confidence in the economy.
The China Purchasing Managers’ Index, a gauge of nationwide manufacturing activity, is issued by the China Federation of Logistics & Purchasing and co-compiled by the National Bureau of Statistics.
The Case-Shiller Home Price Index track the pricing history of individual homes across 384 markets.
The employment cost index (ECI) is a quarterly economic series detailing the changes in the costs of labor for businesses in the United States economy.
S&P Supercomposite Oil & Gas Drilling Index is a capitalization-weighted index.
S&P/TSX Capped Diversified Metals and Mining Index is an index of companies engaged in diversified production or extraction of metals and minerals.
S&P Supercomposite Construction Materials Index is a capitalization-weighted index.
The S&P Supercomposite Construction & Engineering Index is a capitalization-weighted index.
The Bloomberg Tanker Index is an index of dirty tanker operating companies.
The Bloomberg Dry Ships Index is a capitalization weighted index. The index was developed with a base value of 100 as of December 31, 1998.
The Chicago Board Options Exchange (CBOE) Crude Oil Volatility Index measures the market’s expectation of 30-day volatility of crude oil prices by applying the VIX methodology to United States Oil Fund, LP options spanning a wide range of strike prices.