U.S. Global Investors Searching for Opportunities, Managing Risk

Transcription

1 U.S. Global Investors Searching for Opportunities, Managing Risk On On the the Ground in in Emerging Markets: Our First-Hand Look at at Opportunities Frank E. Holmes CEO and Chief Investment Officer John Derrick, CFA Director of Research Jack Dzierwa Global Strategist Tim Steinle, CFA Portfolio Manager Romeo Dator, CFA Portfolio Manager November Cambodia

2 Fund Recognition Investment leadership results in performance Winner of 26 Lipper Fund Awards and certificates since

3 Today s Presenters Frank Holmes John Derrick Jack Dzierwa Tim Steinle Romeo Dator 3

4 We Cannot Direct the Wind But We Can Adjust the Sails 4

5 Multidisciplinary Focus *SWOT analysis (Strength, Weakness, Opportunity, Threat). Alpha is a measure of the difference between a fund s actual returns and its expected performance, given its level of risk as measured by beta. 5

6 Cycles Where are we on the Kuznets Cycle 20-year Emerging Market Cycle That Drives Commodity Demand Presidential Election Cycle 4-Year Cycle Seasonal Cycle Commodity and Stock Market Patterns 6

7 Presidential Election Cycle The Black Swan Source: Bloomberg 7

8 Oil Seasonality Annual Cycle Source: Moore Research Center, Inc. 8

9 Convergence and Unexpected Consequences 9

10 Deleveraging Impact on EM Currencies The stronger U.S. dollar has had a major impact on EM currencies in the last 6 to 8 weeks, particularly those with large current account deficits and gross external debt. Source: FactSet, Morgan Stanley Research 10

11 U.S. Dollar Asian crisis Russian Crisis & LT Capital Derivatives Crisis Source: Bloomberg, U.S. Global Research 11

12 MSCI Asia Pacific Ex Japan Asian crisis Russian Crisis & LT Capital Derivatives Crisis Source: Bloomberg, U.S. Global Research 12

13 Emerging Market Equity Flows Average down and consider being a contrarian Source: Emerging Portfolio Fund Research. Both US and non-us domiciled funds. All Dedicated EM: GEM, Asia ex JP, LatAm, EMEA. Data as of Oct 15th 13

14 Crude Oil Asian crisis Russian Crisis & LT Capital Derivatives Crisis Source: Bloomberg, U.S. Global Research 14

15 Gold Asian crisis Russian Crisis & LT Capital Derivatives Crisis Source: Bloomberg, U.S. Global Research 15

16 S&P 500 Year-Over-Year Change and Rotation Asian crisis Russian Crisis & LT Capital Derivatives Crisis Source: Bloomberg, U.S. Global Research 16

17 S&P Day Change Rotation Asian crisis Russian Crisis & LT Capital Derivatives Crisis Source: Bloomberg, U.S. Global Research 17

18 Government Policy Model Precursor for Change 18

19 G7 Countries 19

20 E7 Countries 20

21 Monetary Policy Source: Bloomberg 21

22 Oil Consumption Source: BP, BCA Research 22

23 Oil Price Cost Curve Marginal Cost $70 Cash Cost $40 ROCE=Return on Capital Employed Source: Credit Suisse 23

24 Oil vs E7 Money Supply Growth 24

25 Copper vs E7 Money Supply Growth 25

26 Mexico s Oil Production Decline Source: UBS, Pemex 26

27 Total Exports to U.S. as Share of GDP, % Source: Haver Analytics, Morgan Stanley Research. Last 12 months as of Aug,

28 EM Countries Share of Total Exports, % 28

29 Export Growth Aggregate For Top MSCI EM Countries Source: Haver Analytics, Morgan Stanley Research. Includes: Korea, Taiwan, China, Brazil, Russia, South Africa, India, Mexico, Malaysia, Israel, Poland, Turkey, Chile, Indonesia, Thailand. Data as of Aug,

30 Diversification In Exports; Combined Weakness In U.S. and EU Challenges EM Growth EM countries are trading more with each other: intra-em exports have risen from 37% to 48% since Exports to the U.S. are now just 18% of the total. Trade diversification leaves EM well placed to withstand a further slowdown in U.S. growth, but not U.S. and EU combined. Source: Morgan Stanley Research 30

31 Russia Correlations with Dollar and Oil Source: Bloomberg, U.S. Global Research 31

32 Russia s Oil Output Growth Declines Source: UBS, Reuters 32

33 Mismatch Between Oil Reserves and Economic Systems (Proven Reserves vs. Level of Access) Source: PIRA 33

34 GDP Per Capita Growth Rates Needed to Reach US$6,600 CAGR=Compounded Annual Growth Rate 34

35 GDP Per Capita Growth Trajectories 35

36 MSCI EM-Index Target Scenarios, US$ Return Source: Morgan Stanley Research, Global Emerging Markets Equity Strategy estimates 36

37 Key Long Run Drivers of EM GDP Growth Are Likely Intact Adoption of market economy & modern technology Urbanization / low household leverage High savings and investment Improved government fiscal positions Reduced reliance on exports to DM Transition to EM led global economy Source: Morgan Stanley Research 37

38 Where We Search for Opportunity: Eastern Europe 38

39 Where We Search for Opportunity: China Region 39

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45 Europe 45

46 Central Asia 46

47 Southeast Asia 47

48 Disclosure Please consider carefully the fund s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting or by calling US-FUNDS ( ). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc. Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. The Eastern European Fund invests more than 25% of its investments in companies principally engaged in the oil & gas and banking industries. In particular, the fund will invest at least 25% of its net assets in the following industries: energy equipment and services; oil, gas and consumable fuels; and commercial banking. However, the fund will not invest more than 50% of its net assets in any one of those 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. 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.all opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The MSCI Asia ex-japan Index is a free float-adjusted, capitalization-weighted index measuring the performance of all stock markets of China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand, India and Pakistan. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. Although Lipper makes reasonable efforts to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Lipper. Users acknowledge that they have not relied upon any warranty, condition, guarantee, or representation made by Lipper. Any use of the data for analyzing, managing, or trading financial instruments is at the user's own risk. This is not an offer to buy or sell securities

49 Disclosure Holdings in the Global MegaTrends Fund, Eastern European Fund and Global Emerging Markets Fund as a percentage of net assets as of 9/30/08: TNK-BP (0.00%); Societe Generale (0.00%). Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility