U.S. Global Investors CEO discusses GROW

Author: USGI
Date Posted: March 20, 2014 Read time: 4 min

Rebalancing of Russell indexes has impact on trading, share price

SAN ANTONIO–June 30, 2010Frank Holmes, chief executive officer at U.S. Global Investors, Inc. (NASDAQ: GROW), a boutique registered investment advisory firm specializing in natural resources and emerging markets, says the annual rebalancing of the Russell 2000 and Russell 3000 stock indexes and other external factors have impacted the company’s publicly traded stock’s price volatility and volume this month.

Each June, the Russell indexes are reconstituted based on market cap as of the last trading day in May. Profitability, return on equity, free cash flow, balance-sheet debt and other important measures of corporate health play no role in determining membership in these indexes. Due to a decline in market capitalization, U.S. Global is no longer part of the Russell 2000 and Russell 3000 as of June 25, 2010.

"A number of index funds have to mirror the Russell indexes, so they have to own the companies in those indexes," says Mr. Holmes. "When a stock is no longer part of these indexes, these funds have to sell that stock, and this tends to be a short-term event. We believe this accounts for why GROW’s trading volume on June 25 was more than 15 times the average daily volume.

"There is a lot of negative sentiment and fear in the marketplace, and this is impacting consumer and investor confidence," Mr. Holmes says. "Financials in particular have been battered since mid-April, when regulators filed charges against Goldman Sachs. Since then, the S&P 500 has lost $1.5 trillion in market cap. The S&P 1500 financials stocks are down more than 18 percent during that period and have lost more than $300 billion in market cap in the past quarter."

GROW had been a component of the two indexes since June 2007, and it remains a component of the Russell Microcap Index.

"A company’s fundamentals are not relevant to the decision by the funds indexed to the Russell 2000 and 3000," Mr. Holmes says. "So it didn’t matter to them that GROW has posted five straight quarters in which revenue and per-share earnings have either increased from or equaled the sequential quarter. It also didn’t matter that, unlike the majority of our peers, we have no debt and pay monthly dividends.

 "Our focus on running a lean and flexible operation paid off for us during the 2008-09 financial crisis – we leverage our intellectual capital, not our balance sheet," say Mr. Holmes. "Our mutual funds are focused on attractive sectors like gold, commodities and emerging markets, and looking at the long term, I believe we are well-positioned to benefit from the ongoing global growth trend."

About U.S. Global Investors, Inc.

U.S. Global Investors, Inc. (www.usfunds.com) is a registered investment adviser that focuses on profitable niche markets around the world. Headquartered in San Antonio, Texas, the company provides advisory, transfer agency and other services to U.S. Global Investors Funds and other clients.

With an average of $2.6 billion in assets under management for the quarter ended March 31, 2010, U.S. Global Investors manages domestic and offshore funds offering a variety of investment options, from emerging markets to money markets.

U.S. Global Investors routinely posts corporate filings and other important information on the company’s website, www.usfunds.com.

This news release may include certain "forward-looking statements" including statements relating to revenues, expenses, and expectations regarding market conditions. These statements involve certain risks and uncertainties. There can be no assurance that such statements will prove accurate and actual results and future events could differ materially from those anticipated in such statements. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Russell 2000 Growth Index is constructed to provide a comprehensive and unbiased barometer of the small-cap growth market. The Russell 3000 Index consists of the 3,000 largest U.S. companies as determined by total market capitalization. The S&P 1500 (Supercomposite) Financials Index is a capitalization-weighted index of the financial stocks within the S&P 1500 Composite Index.