More Sunshine, Less Stormy Weather Outlook 2013

Transcription

1 More Sunshine, Less Stormy Weather Outlook 2013 Frank Holmes, CEO and Chief Investment Officer US.FUNDS January

2 Go to To Sign Up for the Investor Alert Today Subscribe to the weekly, free e-newsletter at /subscribe And for advisors Subscribe to Advisor Alert at /AAsubscribe 2

3 U.S. Global Investors is Mobile Get Investor Alert and Frank Talk On the Go Visit 3

4 We Focus on Education at 43 MFEA STAR Awards for Excellence in Education 4

5 We Focus on Fund Performance at Investment leadership results in performance Winner of 29 Lipper performance awards, certificates and top rankings since 2000 (Four out of 13 U.S. Global Investors Funds received Lipper performance awards from 2005 to 2008, six out of 13 received certificates from 2000 to 2007, and two out of 13 received top rankings from 2009 to 2010.) 5

6 Fund Recognition: 4 Funds in the Top 4 Percent for 10-Year Period 6

7 Generating Alpha Performance and Results Oriented 7

8 Metaphor: Tipping Points, Melting Points H 2 O is Like Money Ice Turns to Water at 32º, but Still H 2 O 8

9 Chindia Rising Middle Class Source: padanisaa.blogspot.com 9

10 Government Policy Model Precursor for Change Ben Bernanke, Chairman of the Federal Reserve President Barack Obama 10

11 Emerging World Holds 50% of the Global Population, Just 22% of GDP 11

12 Are You Underweight? Energy & Basic Materials 15% of S&P

13 Global Resources Fund Outperformed ETFs 10 year Past performance is no guarantee of future results. 13

14 Warren Buffett vs. Gold Warren Buffett 14

15 Tech Stocks Lost More Than Lipper Gold Funds Combined 15

16 Two Stocks Lost $61 Billion, Almost as Much as Is Invested in SPDR Gold Shares (GLD) 16

17 17

18 Follow the Money Equities and Gold Have Outperformed Bonds 18

19 Long Term Bonds Seem Expensive, Overvalued and More Risky than Equities 19

20 Redemptions by Investors from Equity Funds to Bond Funds Appear Excessive and They Have Missed a Spectacular Stock Market Rebound 20

21 Presidential Election Cycle and the Power of Money 21

22 Follow the Money Gold Price Surged With Increase of U.S. Monetary Base 22

23 Follow the Money Global Liquidity Boom Good for Gold and Emerging Markets 23

24 Predicting Attractive Tops and Bottoms Easier in South Beach vs. Markets Priority Reading Money Magazine 24

25 Seasonality Fluctuations Appear Poised to Rebound XAU Gold Stock Index 25

26 U.S. Presidential Election Year is Traditionally a Weak Year XAU Gold Stock Index 26

27 Managing Expectations But 2013 Should Post Better Comebacks for Gold Stocks? Past performance does not guarantee future results. 27

28 Managing Expectations Year-over-Year Rolling Oscillator 28

29 Reasons for Active Management Gold and Silver Have Different Seasonal Patterns 29

30 More Sunshine, Less Stormy Weather 30

31 Follow the Money Quantitative Easing Ignites Market Rallies Ben Bernanke, Fed Chairman 31

32 Not Just the Fed: There s Been a Global Easing Cycle 32

33 Implications of Global Easing Policies Higher commodity prices Housing & auto rebound Fund flows into risky assets 33

34 Perpetual Global Central Bank Stimulus 34

35 Smart Money is Buying, so Follow the Money Goldman Sachs Estimates $200 Billion Flows Into Equities in 2013 $450 billion from corporations in form of buybacks and mergers & acquisitions but net outflows of $475 billion from retail investors 35

36 Money Flowing to Asian Emerging Markets 36

37 Price Reversal Chinese Stocks Undervalued Chinese Stocks Looking Like a Bargain October 22,

38 Money Supply Reversal 38

39 Good News U.S. Businesses and Households Are Deleveraging 39

40 Consumers Conquering Debt 40

41 Equities Remain Attractive Despite Low Bullish Sentiment 41

42 G7 Easy Money, Inflation in Check 42

43 E7 Emerging Markets Remain Attractive 43

44 E7 Emerging Market Equities Offer Attractive Valuations 44

45 Europe s Banks Need More Capital Postponed by Basel III Follow the Money 45

46 Follow the Money Unprecedented Cash Injections from Central Banks 46

47 Price Reversal China s PMI and IP 47

48 Record Oil Demand in China 48

49 Housing Major Price Reversal Good for Employment and Commodity Demand Collateral Stimulation Cars, Appliances 49

50 Construction Steel Stocks Experienced Deeper Drawdown in 2012 Opportunity for Restocking? 50

51 Prices of Spot Iron Ore in China and Shanghai Rebar Futures Have Edged Up on the Back of Better Economic Activity 51

52 Improving Copper Consumption in China Should Help Prices Chevy Volt 52

53 Uranium Production Not Enough to Meet Long-Term Demand 53

54 Gold Demand Drivers Elvis Presley 54

55 Gold Fundamentals Remain Strong With Central Bank Net Purchases 55

56 Central Banks Remain Net Buyers of Gold 56

57 Total Global Gold ETF Holdings 57

58 Driver: The Love Trade 58

59 Holidays Drive Gold Demand 59

60 Gold Love Trade Strong Correlation Between Rising Incomes and Gold Price 60

61 China s Increasing Jewelry Demand 61

62 Gold Stocks Underperform Bullion Source: Bloomberg 62

63 Bullion Has Outperformed Gold Stocks Over the Last Four Years 63

64 Managing Expectations: Promises Versus Delivery Tom Cruise, Jerry Maguire 64

65 Gold Producers Are Issuing Stock Options and Shares Faster Than They Are Growing Production, So Gold Leverage Is Harmed Tom Cruise, Jerry Maguire 65

66 Managing Expectations: Show Me the Money On a Per Share Basis Tom Cruise, Jerry Maguire 66

67 Gold Stock Costs Rise 67

68 Gold Grades Fall 68

69 Changes For Cash Taxes Per Ounce Of Production Over Time Interview with Ralph Aldis and Frank Holmes: Talking Gold Stocks November 30, 2012 Source: CIBC 69

70 The Replacement Cost for an Ounce Of Gold is $1500 with $1700 as a Sustainable Number (2012) 70

71 +3 Million Ounce Discoveries Becoming Scarce 71

72 CEO Leadership 72

73 Investors in Gold Equities Seek Leverage to the Gold Price 73

74 What Do We Mean by Leverage to the Gold Price? 74

75 Dividend Yields Continue to Underperform in a Yield-Hungry Environment 75

76 Recap: How Have Gold Stocks Performed? 76

77 Multiple Compression: How Long Before Revival? Baywatch 77

78 Life Cycle of a Resource Share 78

79 Exploration Spending Has Skyrocketed Without True Success At $9 billion/year plus replacement requirements of 90 Million oz/year a discovery cost of $100/oz is needed. This is low. 79

80 Reasons for Active Management Annual Rotation in Leadership 80

81 Managing Expectations Yearly Volatility The Math Standard Deviation (as of 12/31/12) based on 10-Year Data Rolling 1 Year NYSE Arca Gold BUGS Index (HUI) 35.3% WTI Crude Oil 35.2% MSCI Emerging Markets (MXEF) 31.2% S&P 500 Index (SPX) 18.2% Gold Bullion 14.0% 12-month rolling volatility of price action over 10 year period View the presentation Anticipate Before You Participate at 81

82 Card Counting Allowed Managing Expectations Anticipate Before You Participate Measuring Monthly Volatility Number of +10% Moves Number of -10% Moves Frequency of ±10% Moves NYSE Arca Gold BUGS Index (HUI) % WTI Crude Oil % MSCI Emerging Markets (MXEF) % Gold Bullion % S&P 500 Index (SPX) % Calculated over rolling 20-trading day periods. Based on approximately 2,550 total occurrences over the past 10 years as of 12/31/

83 Trying to Stop a Bull Market Has Risks 83

84 Gold Would Need to Be Much Higher to Cover U.S. Money Supply 84

85 Fear Trade: Aligning Gold Price to Bretton Woods II $46,000/oz? 85

86 Fund Performance 86

87 Disclosures 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. or by calling US-FUNDS ( ). 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. 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. The Eastern European Fund invests more than 25% 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. 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. 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% to 10% of your portfolio in these sectors. 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. 87

88 Disclosures 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 (if applicable) 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.) The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. 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 MSCI China Free Index is a capitalization weighted index that monitors the performance of stocks from the country of China. 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. The NAHB Housing Market Index is derived from a monthly survey, and gauges builder perceptions of current single-family home sales and sales expectations for the next six months, as well as rating traffic of prospective buyers. Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor. The Market Vectors Junior Gold Miners Index is a market-capitalizationweighted index. It covers the largest and most liquid companies that derive at least 50 percent from gold or silver mining or have properties to do so. 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 index benchmark value was at the close of trading on December 20, 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. Alpha is a measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha. 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. M1 Money Supply includes funds that are readily accessible for spending. M2 Money Supply is a broad measure of money supply that includes M1 in addition to all time-related deposits, savings deposits, and non-institutional money-market funds. 88

89 Disclosures Holdings in the Global Resources Fund, World Precious Minerals Fund, Gold and Precious Metals Fund and Eastern European Fund as a percentage of net assets as of 12/31/2012: Berkshire Hathaway 0.00%; Facebook 0.00%; Gold Fields (World Precious Minerals Fund 0.05%, Gold and Precious Metals Fund 0.04%); Groupon 0.00%; ishares Core Total US Bond 0.00%; SPDR Gold Shares (World Precious Minerals Fund 1.64%, Gold and Precious Metals Fund 2.70%). 89

90 Disclosures Investment Objective: The Global Resources Fund is an actively managed fund that takes a diversified approach to the natural resources sector by investing in energy and basic materials. The fund invests in companies involved in the exploration, production and processing of petroleum, natural gas, coal, alternative energies, chemicals, mining, iron and steel, and paper and forest products, and can invest in any part of the world. The Select Sector SPDR ETFs are passively managed funds that seek to replicate as closely as possible, before fees and expenses, the performance of the S&P 500 Index. Each Select Sector SPDR is an index fund that invests in a particular sector or group of industries represented by a specified Select Sector Index. The companies included in each Select Sector Index are selected on the basis of general industry classification from a universe of companies defined by the S&P 500 Index. Liquidity: The Global Resources Fund can be purchased or sold at a net asset value (NAV) determined at the end of each trading day. The Select Sector SPDR ETFs can be purchased or sold intraday. These purchases and redemptions may generate brokerage commissions and other charges not reflected in the ETF s published expense ratio. Safety/Fluctuations of principal/return: Loss of money is a risk of investing in the Global Resources Fund and the Select Sector SPDR ETFs. Shares of the three securities are subject to sudden fluctuations in value. The Energy Select Sector and Materials Select Sector SPDR Funds may also be subject to bid-ask premiums or discounts to net asset value (NAV) that could adversely affect a shareholder s actual returns. Tax features: The Global Resources Fund may make distributions that may be taxed as ordinary income or capital gains. Under current federal law, long-term capital gains for individual investors in the fund are taxed at a maximum rate of 15%. For the Energy Select Sector and Materials Select Sector SPDR Funds, long-term capital gain distributions will result from gains on the sale or exchange of capital assets held by a Fund for more than one year. Any long-term capital gains distributions you receive from a Fund are taxable as long-term capital gain regardless of how long you have owned your shares. Long-term capital gains are currently taxed at a maximum of 15%. Information provided here is neither tax nor legal advice and is general in nature. Federal and state laws and regulations are subject to change. 90