These Signs Point to an Airline Industry Secular Bull Market

Author: Frank Holmes
Date Posted: April 2, 2015 Read time: 38 min

Early last week I was in Melbourne, Austrailia, attending a conference for chief executives from all over the world. While there, I spoke with many of my peers about the airline industry, which is currently in a­ three-year bull run as measured by the S&P 500 Airlines Index.

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

These Signs Point to an Airline Industry Secular Bull Market

Early last week I was in Melbourne, Australia, attending a conference for chief executives from all over the world. While there, I spoke with many of my peers about the airline industry, which is currently in a­ three-year bull run as measured by the S&P 500 Airlines Index.


I was surprised to learn that several people incorrectly assumed that the airline industry is included in the consumer discretionary sector of the S&P 500 Index. It does seems as if it belongs there, along with travel, hospitality and leisure. But the industry actually qualifies as an industrial.


Regardless of which sector airlines belong in, the fleet has flown past both industrials and consumer discretionaries for the five-year period.

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Not only that, but airlines was the best-performing industry in industrials for the one-year, three-year and five-year periods.

Airlines: The Best-Performing Industry in the Industrials Sector
As of April 1, 2015
Percent Change
1-Year 3-Year 5-Year
Airlines +45% Airlines +288% Airlines +142%
Professional Services +21% Building Products +109% Road & Rail +134%
Commercial Services & Suppliers +19% Aerospace & Defense +75% Aerospace & Defense 93%

A misconception held among some investors is that airline stocks are outperforming right now only because fuel costs are down. Fuel, after all, accounted for about 30 percent of carriers’ operating costs in 2014. The implication, some believe, is that when oil prices begin to recover, airlines will be first to feel the pinch.


This isn’t necessarily the case. The industry is in a much more rational business environment than it was a decade ago. Over the last five years, fundamental changes have taken place, including consolidation, new sources of revenue, better fuel efficiency and additional seats, that have helped airlines excel even when oil is $100 per barrel or more.


In fact, airline stocks for the four industry leaders—United Airlines, Delta Air Lines, American Airlines and Southwest Airlines—began their recent ascent even before oil prices began to plummet 50 to 60 percent starting last summer.

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And because most airlines hedge their fuel, they’re still locked into $100-per-barrel oil prices and therefore haven’t yet felt the full benefits of lower fuel costs. American is one of the few that doesn’t hedge.

Airline research analyst Helane Becker of financial services firm Cowen Group writes:

American participates in 100 percent of the decline in jet fuel prices. The current per gallon price is $1.78, and American uses 4.4 billion gallons of jet fuel annually, so every $1 change in oil [saves the company] approximately $105 million per month.

Contributing to American’s diminishing operating costs is its purchase of dozens of new aircraft—99 delivered last year, 112 expected this year—that will replace older, less-fuel efficient jets. This should help the company save millions not only in jet fuel but also maintenance fees for many years to come.


It should also be noted that new baggage-tracking technology has led to a dramatic decrease in lost and mishandled luggage, helping airlines all over the globe save billions and keeping passengers happy as well. Even as the number of worldwide passengers has steadily increased year-over-year—exceeding a record three billion in 2013—there’s been a drop of 61 percent in missing bags since the peak in 2007. As a result, carriers save a collective $18 billion a year.

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Free Cash Flow

Often it’s not enough to look just at a company’s revenue for any given timeframe to determine its strength. A more precise metric is free cash flow, which tells you how much cash the company has in the bank after taxes and all operating expenses have been paid. In other words, it’s what the company is “free” to spend.


The higher a company’s free cash flow yield, the better. When the yield is higher, the company is more likely to plow that extra cash back into its growth or declare a dividend. American, for instance, began paying a dividend last summer; Alaska Airlines, the summer before last.


Last year, Delta announced a stock buyback plan worth $2 billion and a dividend increase of 50 percent. At this May’s Bank of America Merrill Lynch Industrials Conference, the company is expected to make a similar announcement—another buyback authorization and a possible dividend boost of 25 percent.


As you can see below, U.S. airlines’ free cash flow is expected to reach a record high this year and each subsequent year. Domestic carriers have never had this much cash potential on their hands—cash that can be used to grow and improve their businesses as well as reward shareholders. 

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If we look at individual companies’ free cash flow, three of them—Delta, Southwest and United Airlines—are expected to have yields above an impressive 10 percent in 2015.

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An airline industry report by J.P. Morgan stated today:

We believe in the persistence of cash flows and the presence of a good structural model. The sector has begun to show us their success instead of repeating “trust me”… [T]he cash is real, the margins are real, the buybacks are real.

In light of this success, some analysts are concerned that airlines, flush with cash for the first time in recent memory, will increase capacity too quickly and outpace demand.


Two main arguments can be made here. For one, the industry is highly correlated to a nation’s GDP, and carriers have historically avoided growing faster than the economy by too wide of a margin. The second argument has to do with what experts believe is an imminent pilot shortage in the U.S.

Pilot Shortage Ahead?

More sunshine, less stormy wheather

The Federal Aviation Administration (FAA) mandates that all pilots must retire at age 65, which should open up many commercial airliner positions over the coming years. But because the starting salary with a regional carrier is around $20,000 per year, fewer and fewer would-be aviators can justify the typical $50,000-a-year flight training, not to mention the required 1,500 hours of flight time before they can even be considered for a position.

You might be wondering why carriers aren’t able to make up the difference by recruiting more pilots out of the military. The reason is because a greater number of people are being trained now to fly drones than jets—and piloting a drone doesn’t count toward commercial flight hours.


This all might sound like troubling news, but it actually has the effect of encouraging discipline, reining in excessive spending and curbing carriers from growing too exuberantly. They can always increase seat capacity—to a certain extent, of course—but generally they’re not going to spend money needlessly on new aircraft if there are fewer people available to pilot them.


On behalf of everyone at U.S. Global Investors, I’d like to wish all of our readers, shareholders and investors a joyous and safe weekend.  Happy Passover! Happy Easter!

Read more about the airline industry:

  • Global Airline Stocks Soaring, and Not Just Because of Low Oil Prices
    Although it’s true that fuel is carriers’ top operating expense—they collectively spent $48 billion on fuel in 2013—there’s more to the industry’s recent bull run than the low price of oil. In fact, airlines are in a better position now to manage an increase in oil prices than they have been in recent memory, for a number of reasons.
  • The Airline Industry Ascended to New Records in 2014
    This year, the daily number of available seats for international-bound flights out of the U.S. will rise to an all-time high of over 350,000. That’s 20,000 more seats per day than were available just last year.
  • Why This Airline Just landed in the S&P 500 Index
    Joining rivals Southwest Airlines and Delta Air Lines, American Airlines is the newest member of the prestigious club for the nation’s largest companies by market capitalization. Not bad for a company that, only four years ago, found itself in bankruptcy court.

Joining rivals Southwest Airlines and Delta Air Lines, American Airlines is the newest member of the prestigious club for the nation’s largest companies by market capitalization. Not bad for a company that, only four years ago, found itself in bankruptcy court.

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Index Summary

  • The major market indices finished mixed this week.  The Dow Jones Industrial Average rose 0.29 percent. The S&P 500 Stock Index also gained 0.29 percent, while the Nasdaq Composite fell 0.09 percent. The Russell 2000 small capitalization index advanced 1.23 percent this week.
  • The Hang Seng Composite gained 4.49 percent this week; while Taiwan rose 1.02 percent and the KOSPI advanced 0.46 percent.
  • The 10-year Treasury bond yield fell 5 basis points to 1.91 percent.

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Domestic Equity Market

The S&P 500 moved modestly higher this week as more defensive areas of the market led the way. The interest rate-sensitive sectors were among the best performers as telecom services, utilities and financials were all strong performers this week. The healthcare sector was far and away the worst performer, taking a breather this week after consistently being the market leader for much of the past two years.

S&P 500 Economic Sectors
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  • The telecom services sector was the best performer this week, led by Windstream Holdings which announced plans for a real estate investment trust (REIT) spin-off. This was viewed positively by investors as that portion of the company’s business would garner a higher valuation.
  • The utility sector was also a strong performer as almost every utility stock in the S&P 500 rose this week as bond yields continue to fall and recent economic data points imply the Fed may stay on hold longer than currently expected. 
  • CarMax was the best performer in the S&P 500, rising 12.06 percent this week. On Thursday, the company reported earnings and revenues for the fourth quarter that beat consensus expectations, driving the shares higher.


  • The healthcare sector was the worst performing sector as biotech bellwethers got hit this week. Celgene, Biogen, Amgen and Alexion Pharmaceuticals were among the worst performers in the S&P 500 this week.  The biotech group has had a phenomenal run over the past few years but is beginning to look a little tired. 
  • The industrials sector was also weak this week as airlines stocks underperformed. While the positive secular story remains intact, some analysts have made cautious comments regarding the near-term performance outlook.
  • Macerich, a real estate investment trust (REIT) was among the worst performers in the S&P 500 this week as the company rejected an unsolicited bid by Simon Property to acquire the company. 


  • While the market is closed tomorrow for the Good Friday holiday, the government will release the March employment report. Nonfarm payrolls will be closely watched with current expectations for a gain of 245,000. Job data has generally been positive in recent months and a better than expected report could boost the market when Monday rolls around.
  • A strong dollar continues to benefit domestic consumers, maintaining an advantage for certain U.S.-focused retailers and consumer products.
  • The market ended the week on a positive note and the bull market just keeps moving forward.


  • The consumer appears confident, but recent data points indicate some unexpected conservatism that could weigh on growth prospects.
  • Biotechs have been market darlings, but may be showing their age; time will tell.
  • The Fed still appears to be on track for a late summer rate hike.

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The Economy and Bond Market

U.S. Treasury bond yields moved lower this week and have been declining for most of the past month. The Fed came across as more dovish than the market expected at the last Federal Open Market Committee (FOMC) meeting and data points since that time have tended to show an economy that is not as robust. The ISM manufacturing report this week is a good example, declining for five months in a row. While still in expansion territory, this report is definitely indicating a moderation in manufacturing activity.  

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  • Consumer confidence rose in March and is back near recent highs. An improved job market, lower gasoline prices and stronger housing data have all been factors.
  • Pending home sales rose 3.1 percent in February, well ahead of expectations and another data point indicating an improving housing market.
  • Chinese central bank officials indicated that there is room for additional monetary easing. China’s recent moves to ease monetary policy are a welcome addition to the global growth outlook.


  • The ISM manufacturing index fell again in March and has now declined for five months in a row. This is a bit of a worrisome development as it is indicating a moderation in manufacturing activity and may ultimately be one of the factors that keeps the Fed on hold in 2015.
  • The U.S. savings rate hit a two-year high in February. In the long run, this is likely a positive development; in the short term, it is a drag on growth.
  • Auto sales generally disappointed in March, which is another indicator that the consumer may be less inclined to spend.


  • European economic data is already on the mend and that should get an intermediate term boost as QE kicks in.
  • China remains in monetary easing mode and more stimulus is likely.
  • Even with the rally in yields this week, U.S. yields remain the highest in the developed world and funds will likely continue to flow into U.S. fixed income. 


  • One of the themes from the recent earnings season was that the strong U.S. dollar has negatively impacted the bottom lines and capital spending plans of companies, and this will likely be the case for the first quarter as well. This negative impact could be seen this week in weak manufacturing data.
  • The Fed seems almost determined to raise interest rates irrespective of the near-term economic performance, raising the risk of a policy error.
  • With a global easing cycle underway, global economic growth expectations have already started to improve, making it an easier decision for the Fed to possibly raise rates.

Frank Talk Insight for Investors

March 31, 2015

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A Blog by Frank Holmes, C.E.O. and Chief Investment Officer

Gold Market

For the week, spot gold closed at $1,201.97 up $3.22 per ounce, or 0.27 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, rose 0.59 percent. The U.S. Trade-Weighted Dollar Index gained 0.23 percent for the week.

Date Event Survey Actual Prior
Apr-2 U.S. Initial Jobless Claims 286K 268K 282K
Apr-3 U.S. Change in Nonfarm Payrolls 245K 295K
Apr-9 U.S. Initial Jobless Claims 268K


  • Gold jumped the most in two months on Wednesday topping $1,200 an ounce. The move came on the back of a report showing U.S. employers added 189,000 jobs in March, disappointing expectations of 225,000. This was the smallest gain in employment since January 2014, helping gold to end a three-session slump.
  • Chinese gold flows, as represented by withdrawals from the Shanghai Gold Exchange, will hit record levels for the first quarter of the year. Year-to-date withdrawals stood at 561.2 tonnes as of March 20. If this is indicative of the rest of the year, gold flows could reach 2,300 tonnes or more in 2015, a new record.
  • India’s gold imports jumped to 70 tonnes in March as wholesalers, manufacturers and jewelers replenished stockpiles in the run up to April’s Akshaya Tritiya festival. In other news, the Perth Mint said that sale of gold coins and minted bars rose to 34,260 ounces in March, up from 31,981 ounces the previous month.


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  • U.S. exchange-traded products backed by precious metals lost $1.5 billion in March. Janet Yellen’s signal that the Federal Reserve is in no hurry to raise U.S. interest rates failed to allure investors back to gold. Additionally, spot gold fell for a second month in March leading to a decline of slightly more than $1 for the first quarter.
  • Hedge funds are betting that gold’s recent rally won’t last and are holding a record short wager that prices will decline. Short holdings rose for a seventh straight week to 84,022 contracts, the highest since the data began in 2006.
  • Gold Fields gave its top executives a pay raise of 21 percent in 2014. The news came on the heels of what are expected to be difficult wage negotiations in April with labor unions in South Africa.


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  • A recent forecast by Goldman Sachs shows that 2015 will be the year when gold production peaks. This coincides with a 20-year development cycle from peak discovery, implying that there are only 20 years of known mineable gold reserves. Note how exploration spending has soared in the last five years but yielded few new discoveries. With exploration spending now in freefall, this should bode very well for future acquisitions for companies that are have already made a great discovery. Such companies include Pretium Resources, Eastmain Resources, Integra Gold, Roxgold and others which we own in the World Precious Minerals Fund (UNWPX).
  • According to Standard Chartered and Bank of America, gold will likely advance in 2015 even as the Federal Reserve raises interest rates, snapping two straight years of declines. The two banks forecast the price of gold to average between $1,300 and $1,320 per ounce in the final quarter of the year.
  • Metals Focus, a precious metals consultancy, predicted that 2015 could mark the end of the bear cycle for gold as demand looks “broadly balanced.” The group said a clearer turning point is becoming visible in 2016 as gold’s supply and demand fundamentals adjust to the new price reality and provide a more stable foundation.


  • Metals Focus qualified its 2015 prediction on gold by stating that the outlook for higher U.S. interest rates and a stronger U.S. dollar could push bullion down to as low as $1,080 per ounce.
  • Deutsche Bank sees gold remaining relatively supported into the second quarter, but is looking for a new phase of weakness to emerge as soon as the Federal Reserve starts to tighten monetary policy. Countering this, UBS says there is no longer the same firepower behind a move lower for gold, adding that any downside from here could well be contained.
  • Goldman Sachs earned back its place as the largest bank by commodities revenue as competitors including JPMorgan Chase scaled down or abandoned the raw materials business. However, Fed Governor Daniel Tarullo questioned whether Goldman Sachs should be allowed to own physical commodities, as the practice exposes the company to risks outside of traditional banking.

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Energy and Natural Resources Market


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  • Despite a slight decline in Brent crude oil this week, the S&P 500 Oil & Gas Exploration & Production Index led all natural resource industries with a 2.5 percent gain.  Diamondback Energy and Concho Resources both increased by 2.6 percent and 6.3 percent, respectively.
  • The Baltic Dry Freight Index breeched the 600 level for the first time since January.  This is in contrast to the price of iron ore, the freight benchmark’s primary commodity, which fell to a fresh decade low. 
  • The S&P 500 Utilities Index gained 2 percent this week as competing government bond yields pulled back from recent highs. 


  • The S&P Oil Refining & Marketing Index underperformed the natural resources complex in response to a narrowing of global refining differentials, which had been gaining strength in the first quarter.
  • The S&P Construction Materials Index declined 1.3 percent, as investor money flows rotated into the energy complex on strengthening fundamentals.
  • Railroad stocks continued to lag this week in response to disappointing quarterly earnings guidance and concern over freight rate acceleration in 2015.


  • Crude oil supply could decline faster than expected given slower drilling and completion activity as of late.  In the latest Energy Information Administration (EIA) Drilling Productivity Report, expectations are pointing to a March to April decline in oil production in the Bakken and the Eagle Ford shale plays.  Additionally, the weekly Department of Energy production report showed a decline in production by 56 thousand barrels.
  • Petrobras obtained $3.5 billion in loans from China, demonstrating its ability to raise capital, much of which will be deployed in deep water drilling projects.  Brazil’s president, Dilma Rousseff, said this week that Petrobras will take drastic measures to regain credibility and publish audited financial statements by the end of the month.


  • The price of Brent crude oil may decline over the short term following an agreement with Iran over the country’s nuclear development program.  Iran exports approximately 1 million barrels of crude oil per day, down from 2.5 million before sanctions were imposed in 2012, according to the International Energy Agency (IEA).
  • China’s petroleum demand growth will slow down, as China transitions toward a slower economy, but crude oil imports will continue to grow, said Chen Bo, president of China International United Petroleum and Chemicals Co. Ltd., a member of Sinopec.  China’s annual growth of petroleum consumption demand is estimated to decline to 2 percent per year between 2015 and 2020 and 1 percent per year between 2020 and 2030, Chen said at a recent China-Russia Oil and Gas conference.

Priming the Pump for Growth in Emerging Markets Now. Watch the Webcast on Demand

Emerging Markets



  • Russian equities outperformed this week as fourth-quarter GDP growth came in higher than expected. The Russian economy grew at 0.4 percent during the fourth quarter of 2014, higher than the widely-forecasted zero percent growth.
  • Brazilian stocks jumped this week after the government reassured investors that it is taking serious steps to reduce the fiscal deficit. Furthermore, President Rousseff emphasized the government’s intention to avoid intervening in currency markets in order to shore up the real.
  • Turkish GDP, which has been slowing for some time, ticked up during the fourth quarter of 2014. Year-over-year growth in the Turkish economy rose to 2.6 percent, higher than the forecasted 2.1 percent growth.


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  • The budget balance for Brazil’s central government widely underperformed expectations, coming in at a deficit of 7.4 billion real. Analysts forecasted a surplus of 0.2 billion real.
  • Russia’s manufacturing purchasing managers’ index (PMI) fell below the 50 mark to 48.1 for the week. With analysts forecasting a neutral 50 reading, the decline in the manufacturing PMI is seen as a negative sign for the Russian economy. Consumer confidence also dropped in Russia alongside February retail sales.
  • The yield on Greek 10-year government bonds rose to the highest point since June of 2013. With negotiations still underway regarding the debt talks, markets are becoming more anxious.


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  • Hungary’s manufacturing PMI climbed to 55.6 this week. With the residual benefits of the European Central Bank’s (ECB) bond purchasing program profiting Eastern European markets, Hungary could continue to be a relative outperformer.
  • The HSBC China Manufacturing PMI retreated below 50 this week. The movement adds further support to speculation that the country will continue to ease.
  • Korea’s consumer confidence slowed once again to 0.4 percent year-over-year. While widely expected by the central bank, the continued decline in inflation allows Korea more room to cut rates further. The country’s policy rate has declined substantially over the past couple of years in response to disinflationary pressures.


  • Russian markets remain vulnerable. In addition to the concerning manufacturing PMI reading released this week, Alexei Kudrin, the country’s former Finance Minister, stated that structural reforms were too late and the economy should be expected to stagnate for the next five years, at least.
  • With interest rates declining in many countries and the ECB starting its bond purchasing program, extremely low mortgage financing rates have fueled a surge in loans and consequentially, housing prices. The potential for cheap money to fuel asset bubbles, which is the dark side of monetary easing, should be monitored cautiously.
  • The U.S. dollar remains at elevated levels with no sign of a trend shift materializing yet. Therefore, the strong dollar risk remains for emerging markets.

Discover 9 Trends Across 19 Emerging Markets Over 10 Years

Leaders and Laggards


Weekly Performance
Index Close Weekly
DJIA 17,763.24 +50.58 +0.29%
S&P 500 2,066.96 +5.94 +0.29%
S&P Energy 567.79 +8.56 +1.53%
S&P Basic Materials 307.23 +1.89 +0.62%
Nasdaq 4,886.94 -4.28 -0.09%
Russell 2000 1,255.65 +15.24 +1.23%
Hang Seng Composite Index 3,521.81 +151.44 +4.49%
Korean KOSPI Index 2,029.07 +9.27 +0.46%
S&P/TSX Canadian Gold Index 162.16 +1.77 +1.10%
XAU 67.96 +0.23 +0.34%
Gold Futures 1,201.50 +0.80 +0.07%
Oil Futures 49.49 +0.62 +1.27%
Natural Gas Futures 2.71 +0.12 +4.63%
10-Yr Treasury Bond 1.91 -0.05 -2.75%


Monthly Performance
Index Close Monthly
DJIA 17,763.24 -440.13 -2.42%
S&P 500 2,066.96 -40.82 -1.94%
S&P Energy 567.79 -7.02 -1.22%
S&P Basic Materials 307.23 -15.58 -4.83%
Nasdaq 4,886.94 -92.96 -1.87%
Russell 2000 1,255.65 +20.89 +1.69%
Hang Seng Composite Index 3,521.81 -332.01 -14.83%
Korean KOSPI Index 2,029.07 +27.69 +1.38%
S&P/TSX Canadian Gold Index 162.16 -12.03 -6.91%
XAU 67.96 -5.85 -7.93%
Gold Futures 1,201.50 -3.90 -0.32%
Oil Futures 49.49 -1.03 -2.04%
Natural Gas Futures 2.71 -0.00 -0.07%
10-Yr Treasury Bond 1.91 -0.21 -10.00%


Quarterly Performance
Index Close Quarterly
DJIA 17,763.24 -69.75 -0.39%
S&P 500 2,066.96 +8.76 +0.43%
S&P Energy 567.79 -21.33 -3.62%
S&P Basic Materials 307.23 +1.41 +0.46%
Nasdaq 4,886.94 +160.13 +3.39%
Russell 2000 1,255.65 +56.85 +4.74%
Hang Seng Composite Index 3,521.81 +213.83 +6.46%
Korean KOSPI Index 2,029.07 +102.63 +5.33%
S&P/TSX Canadian Gold Index 162.16 +10.88 +7.19%
XAU 67.96 -2.55 -3.62%
Gold Futures 1,201.50 +13.90 +1.17%
Oil Futures 49.49 -3.20 -6.07%
Natural Gas Futures 2.71 -0.29 -9.76%
10-Yr Treasury Bond 1.91 -0.20 -9.62%

Please consider carefully a fund’s investment objectives, risks, charges and expenses.   For this and other important information, obtain a fund prospectus by visiting 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 in the U.S. Global Investors Funds as a percentage of net assets as of 12/31/2014:

United Continental Holdings, Inc.: 0.0%
Delta Air Lines, Inc.: Holmes Macro Trends Fund, 1.28%
American Airlines Group, Inc.: 0.0%
Southwest Airlines Co.: 0.0%
Alaska Air Group: Holmes Macro Trends Fund, 1.29%
JetBlue Airways Corp.: 0.0%
Allegiant Travel Co.: 0.0%
Hawaiian Holdings, Inc.: 0.0%
Virgin America, Inc.: 0.0%
Windstream Holdings, Inc.: 0.0%
CarMax, Inc.: 0.0%
Celgene Corp.: Holmes Macro Trends Fund, 1.93%
Biogen Idec, Inc.: Holmes Macro Trends Fund, 2.20%
Amgen, Inc.: 0.0%
Alexion Pharmaceuticals, Inc.: Holmes Macro Trends Fund, 2.40%
The Macerich Co.: 0.0%
Simon Property Group, Inc.: 0.0%
Gold Fields Ltd: Gold and Precious Metals Fund, 1.51%; World Precious Minerals Fund, 0.36%
Pretium Resources, Inc.: World Precious Minerals Fund, 3.35%
Eastmain Resources, Inc.: World Precious Minerals Fund, 0.29%
Integra Gold Corp.: World Precious Minerals Fund, 0.40%
Roxgold, Inc.: World Precious Minerals Fund, 1.60%
Diamondback Energy, Inc.: 0.0%
Concho Resources, Inc.: 0.0%
Petrobras: 0.0%

*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.
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The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange.
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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 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.
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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 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 S&P 500 Airlines Index is a capitalization-weighted index.
The ISM manufacturing composite index is a diffusion index calculated from five of the eight sub-components of a monthly survey of purchasing managers at roughly 300 manufacturing firms from 21 industries in all 50 states.
The S&P 500 Oil & Gas Exploration & Production Index is a capitalization-weighted Index. The index is comprised of six stocks whose primary function is exploring for natural gas and oil resources on land or at sea.
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 S&P Oil & Gas Refining and Marketing Index tracks the market performance of downstream oil and gas companies.
The S&P Construction Materials Index is a capitalization-weighted index.
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.