Share this page with your friends:

Print

Please note: The Frank Talk articles listed below contain historical material. The data provided was current at the time of publication. For current information regarding any of the funds mentioned in these presentations, please visit the appropriate fund performance page.

A Tale of Two Economies: Singapore and Cuba
March 26, 2015
A Victoria's Secret in the Toronto Pearson International Airport

It would be nearly impossible to find two world leaders in living memory whose influence is more inextricably linked to the countries they presided over than Cuba’s Fidel Castro and Singapore’s Lee Kuan Yew, who passed away this Monday at the age of 91.

You might find this hard to believe now, but in 1959—the year both leaders assumed power—Cuba was a much wealthier nation than Singapore. Whereas Singapore was little more than a sleepy former colonial trading and naval outpost with very few natural resources, Cuba enjoyed a thriving tourism industry and was rich in tobacco, sugar and coffee.

Fast forward about 55 years, and things couldn’t have reversed more dramatically, as you can see in the images below.

Cube in 1950, Singapore in 1950, Cuba today, Singapore today

The ever-widening divergence between the two nations serves as a textbook case study of a) the economic atrophy that’s indicative of Soviet-style communism, and b) the sky-is-the-limit prosperity that comes with the sort of American-style free market capitalism Lee introduced to Singapore.

Sound fiscal policy, a strong emphasis on free trade and competitive tax rates have transformed the Southeast Asian city-state from an impoverished third world country into a bustling metropolis and global financial hub that today rivals New York City, London and Switzerland. Between 1965 and 1990—the year he stepped down as prime minister—Lee grew Singapore’s per capita GDP a massive 2,800 percent, from $500 to $14,500.

Since then, its per capita GDP based on purchasing power parity (PPP) has caught up with and zoomed past America’s.

Lee Kuan Yew's Singapore Flourished while Fidel Castro's Cuba Floundered

Under Castro and his brother Raúl’s control, Cuba’s once-promising economy has deteriorated, private enterprise has all but been abolished and the poverty rate stands at 26 percent. According to the CIA’s World Factbook, “the average Cuban’s standard of living remains at a lower level than before the collapse of the Soviet Union.” Its government is currently facing bankruptcy. And among 11.3 million of Cuba’s inhabitants, only 5 million—less than 45 percent of the population—participate in the labor force.

Compare that to Singapore: Even though the island is home to a mere 5.4 million people, its labor force hovers above 3.4 million.

Singapore Had Third-Highest GDP Based on Purchasing Power Parity (PPP) Per Capita

Because of the free-market policies that Lee implemented, Singapore is ranked first in the world on the World Bank Group’s Ease of Doing Business list and, for the fourth consecutive year, ranked second on the World Economic Forum’s Global Competitiveness Report. The Heritage Foundation ranks the nation second on its 2015 Index of Economic Freedom, writing:

Sustained efforts to build a world-class financial center and further open its market to global commerce have led to advances in… economic freedoms, including financial freedom and investment freedom.

Cuba, meanwhile, comes in at number 177 on the Heritage Foundation’s list and is the “least free of 29 countries in the South and Central America/Caribbean region.” The Caribbean island-state doesn’t rank at all on the World Bank Group’s list, which includes 189 world economies.

Many successful international businesses have emerged and thrived in the Singapore that Lee created, the most notable being Singapore Airlines. Founded in 1947, the carrier has ascended to become one of the most profitable companies in the world. It’s been recognized as the world’s best airline countless times by dozens of groups and publications. Recently it appeared on Fortune’s Most Admired Companies list.

Singapore AIrlines

Xian Liang, portfolio manager of our China Region Fund (USCOX), notes that Lee’s key legacy is an emphasis on pragmatism and adaptability.

Lee was a great visionary indeed,” Xian says. “He achieved wonders, fast-tracking Singapore’s GDP growth to U.S. levels.

We at U.S. Global Investors honor the legacy of Lee Kuan Yew, founder of modern-day Singapore. He showed the world that when a country chooses to open its markets and foster a friendly business environment, strength and prosperity follow. Even on the other side of the globe, the American Dream lives on.

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.

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 Global Competitiveness Index, developed for the World Economic Forum, is used to assess competitiveness of nations. The Index is made up of over 113 variables, organized into 12 pillars, with each pillar representing an area considered as an important determinant of competitiveness: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication and innovation.

The Ease of Doing Business Index is an index created by the World Bank Group. Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.

The Index of Economic Freedom is an annual index and ranking created by The Heritage Foundation and The Wall Street Journal in 1995 to measure the degree of economic freedom in the world's nations.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the China Region Fund as a percentage of net assets as of 12/31/2014: Singapore Airlines 0.00%.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will 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.

Share “A Tale of Two Economies: Singapore and Cuba”

The Airline Industry Ascended to New Records in 2014
March 16, 2015

Just as the U.S. economy is in full-recovery mode, so too is the airline industry. It’s lately made an impressive about-face from only a decade ago and, in 2014, soared to several new benchmarks.

This industry is flying high again.

Airlines, Airplanes, Airline Industry Ascended to New Records in 2014, Jets

In 2014, a record 98 million passengers flew to foreign destinations on U.S. carriers. Meanwhile, 662 million traveled domestically by air, the highest number since 2007.

According to the U.S. Department of Transportation, the percentage of seats filled in 2014 climbed to 83.4 percent—another fresh record.

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.

Daily Available Seats on International-Bound U.S. Flights at an All-Time High
click to enlarge

And the success stories just keep on coming. Air travel in March and April is typically strong, but this season is expected to be the strongest since before the recession.

U.S. Airline Onboard passengers expected to be highest since 2007
click to enlarge

I often travel through Houston, and it’s a good case study to illustrate the boom in air travel demand, domestic as well as international. In 2014, the city’s two main airports, the 46-year-old George Bush Intercontinental Airport—it was renamed in 1997—and William P. Hobby Airport, both broke passenger traffic records that had been set in the previous year. Intercontinental saw an increase of 9.2 percent in international travelers and 3.6 percent in domestic fliers, while Hobby’s total traffic for the year rose to 11.9 million passengers—an all-time high for the fifth straight year.

All told, over 53 million people from around the globe passed through these two Houston airports. And yes, you guessed it—that’s another new record.

Waxing Wanderlust

Some of the key factors driving this unprecedented air travel demand are an expanding U.S. economy, rising personal incomes and the highest consumer confidence level since before the recession.

U.S. Consumer Confidence at Pre-Recession Levels
click to enlarge

In a recent poll, the travel website TripAdvisor surveyed 44,000 people around the world on a number of travel-related issues. Of the Americans who participated, 67 percent reported that they were planning an international trip for leisure, up from 50 percent last year.

TripAdvisor also wanted to find out where participants had been in the last 12 months, where they planned on going in the next 12 months and what their dream destination was. Although Australia topped the list of ideal vacation spots, followed closely by the U.S., less than 5 percent said they had actually made the trip down under.

On the other hand, about 20 percent of respondents, or close to 8,800 people, said they had visited the U.S. in the last year, while the same percentage of people said they would likely travel to the U.S. in the coming months. 

Top Destinations for International Travelers: Past and Future
click to enlarge

Air travel between the U.S. and China is expected to increase now that multi-entry visas for citizens of both countries have been extended from one year to 10 years. International flights out of China have already been trending steadily upwards for years, a result of a growing middle class. The visa policy revision should help ramp up Chinese outbound air travel even more.

Chinese Outbound Travelers Increasing Every Year
click to enlarge

As I pointed out last month, Chinese travelers are the world’s highest spenders while on vacation. The average Chinese visitor spends between $6,000 and $7,200 per trip to the U.S. The visa revision is welcome news not only for airlines such as Air China, which we own in our China Region Fund (UXCOX), but also hotels, restaurants, car rental companies and others in the travel and leisure services industry.

It should also be a tailwind to luxury retailers that are increasingly setting up shop in international airports.

The “Sixth Continent” and Luxury Shopping

For the first time in 2013, more than one billion people traveled internationally, prompting luxury brand executives to name this cohort “the sixth continent.” With there being such a huge surge in captive consumers, we are entering a golden age of luxury shopping opportunities in airports that might very well supplant tacky souvenir shops and cell phone accessory kiosks. In many airports around the globe, you’re now just as likely to pass by a Coach—which we own in our All American Equity Fund (GBTFX)— or a Tiffany & Co.—held in our Gold and Precious Metals Fund (USERX)—as you are a Cinnabon.

A Victoria's Secret in the Toronto Pearson International AirportAccording to retail consultancy firm Verdict Retail, sales in airport gift shops are expected to grow 73 percent between 2013 and 2019, at which point the entire global market will be worth an astounding $59 billion. Leading the way are beauty products and alcohol, as shoppers seek to avoid value-added taxes and duties.

Paris-based advertising firm JCDecaux, after conducting a study of people’s airport spending habits in eight countries, found that the three most frequently purchased types of merchandise were fashion items, cosmetics & high-end fragrances and general accessories. This is a clear sign that luxury shopping while travelers await their connecting flights is becoming more of the norm rather than the exception.

Focusing on Shareholders

It’s easy to forget that between 2005 and 2008, about 70 percent of the U.S. airline industry was operating under Chapter 11 bankruptcy protection, including leaders such as Delta Air Lines, which we hold in our Holmes Macro Trends Fund (MEGAX). The industry’s recent recovery is in lockstep with many other once-struggling industries that were forced to consolidate and restructure their businesses following the 2007-2008 financial crisis.

How things have changed since then. As I pointed out last month, airlines posted some of their best earnings ever last year. Many are now turning their attention toward making investors happy by paying dividends, boosting earnings per share and buying back their stock. According to SEC filings, 10 U.S. airlines—including Delta and Alaska Air, which we also own in MEGAX—are collectively paying down massive amounts of debt.

U.S. Airlines Tackling the Mountain of Debt
click to enlarge

A recent Goldman Sachs equity research report finds that “U.S. airline stocks are trading at comparatively attractive valuations relative to the S&P 500. The discount is 48 percent.” It adds: “Not only are the U.S. airlines generating more growth, we expect their cash returns on cash invested (CROCI) to improve the most in 2015,” compared to previous years.

It will be challenging indeed for the industry to meet these expectations. Last year, after all, was “unusually strong,” according to management consultancy firm Oliver Wyman. But airlines have so far charted a very promising course.

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.

Past performance does not guarantee future results.

Stock markets can be volatile and share prices can fluctuate in response to sector-related and other risks as described in the fund prospectus.

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.

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.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the China Region Fund, Gold and Precious Metals Fund, All American Equity Fund and Holmes Macro Trends Fund as a percentage of net assets as of 12/31/2014: Air China Ltd. 1.11% China Region Fund; Alaska Air Group, Inc. 1.29% Holmes Macro Trends Fund; Coach, Inc. 1.18% All American Equity Fund; Delta Air Lines, Inc. 1.28% Holmes Macro Trends Fund; Goldman Sachs Group, Inc. 0.00%; JCDecaux SA 0.00%; Tiffany & Co. 0.59% Gold and Precious Metals Fund; TripAdvisor LLC 0.00%.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will 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.

Share “The Airline Industry Ascended to New Records in 2014”

India the Best-Performing Emerging Market
March 3, 2015

India the Best-Performing Emerging Market - Happy Indian People

India had an incredible banner year. The world’s largest democracy, home to 1.25 billion people, was the best-performing emerging market in 2014, delivering over 29 percent. It was followed by the Philippines in second place and Indonesia in third.

This continues India’s story as an increasingly attractive market for global investors, a story which became even more pronounced with the May election of Prime Minister Narendra Modi, whom CLSA’s Asian market strategist Chris Wood has called “the most pro-business, pro-investment political leader in the world today.”

You can see how other emerging markets ranked in our Periodic Table of Emerging Markets, now available in its interactive version.

India the Best-Performing Emerging Market - Happy Indian People
click to view the interactive periodic table

Last year we saw a strong bifurcation between emerging markets in Asia and those in Eastern Europe and South America. Asian countries led the pack largely because they tend to be net importers of oil, and as such it came as a huge windfall for them when prices began to head off the cliff in the back half of the year.

Brent oil prices now stand just above $61 per barrel, down from $110 per barrel in July.

The following chart, last shared in October, shows which countries profit and which stumble when oil prices decline, based on 2013 data. With few exceptions, the results look similar to the periodic table: Asian countries on top, South American (and Russia) on bottom.

Asian Markets Benefit Most from Lower Oil Prices
click to enlarge

It should come as no surprise that Russia—weighed down not only by falling oil prices but also geopolitical turmoil, international sanctions and a shrinking currency—fell to last place in 2014. But since then we’ve seen the federation’s market turn up, and we’ve begun the process of gaining limited exposure to Russian equities.

“The situation is Ukraine is not pretty, but global investors understand it and are getting comfortable putting their money in Russia again because it’s inexpensive,” John Derrick, portfolio manager of our Emerging Europe Fund (EUROX), said during our recent webcast.

“The bad news has been priced in, and it looks as if the market is willing to move higher.”

Colombia had its second consecutive down year as a result of low oil prices and socialist-type policies—heavy punitive taxation and redistribution of wealth—that have led to an anti-business environment.

Hungary tumbled pretty sharply because of its government’s siding with Russia on several issues. It’s moved much closer to the federation than the rest of Europe and staunchly opposes the international sanctions.

As for India, it continues to impress. Year-to-date, the S&P BSE SENSEX has returned over 6 percent, compared to the S&P 500 Index’s 2.3 percent.

You can read more about India in the digital version of our newly-released Shareholder Report.

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.

Past performance does not guarantee future results.

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% 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.

The S&P BSE SENSEX Index is a free-float market-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Share “India the Best-Performing Emerging Market”

Africa Could Mine Its Way to Prosperity if It Addressed Instability
February 17, 2015

Last week I attended the Investing in African Mining Indaba in Cape Town, South Africa, as both a presenter and a student seeking opportunities. One of the highlights of the conference was former Prime Minister Tony Blair’s keynote address, during which he offered some crucial advice to African governments: To attract and foster a robust mining sector, a commitment to fiscal stability must be made.

Goods Trade with Africa in 2013

Since 2009, Blair has run the Africa Governance Initiative, which counsels leaders in countries such as Rwanda, Sierra Leone, Liberia, Guinea and others.

Simply put, without fiscal stability and predictability in taxation, capital will be unwilling to flow into any country—African or otherwise—for exploration and production. If a government changes its tax policy every three years or so, that instability discourages the inflow of financing. This is bad for Africa.

“The mining sector remains absolutely vital for Africa’s future,” Blair said, “and even with the sharp declines in [commodity] prices, there are tremendous opportunities and there will be, no doubt, an adjustment and reshaping of the face of mining within Africa over these next few years.”

I shared the following map last week, but it’s worth showing again, as it supports Blair’s point. Central and Southern Africa, especially, are extremely commodity-rich and maintain a large global share of important metals and minerals such as platinum, diamonds and gold.

In 2014, China Channeled Over $100 Billion into 156 Countries and Regions Around the Globe
click to enlarge

Fiscal instability is also bad for investors in Africa. If foreign investment is not respected by a government, if it is punitively taxed or arbitrarily confiscated, further investment will not flow into that country. Politically, African nations need to recognize that seemingly faceless investment institutions represent real people’s hard earned dollars.

In Zambia, for example, a huge 12 percent of the country’s GDP comes from mining, an industry that employs 10 percent of all Zambians. Yet its government has increased, rather than cut or at least eased, restrictive royalty taxes on mines. In the case of open pit mines, royalties were raised from 6 percent to a crippling 20 percent.

Speaking to Reuters, a mining industry spokesperson speculated: “Mining companies are not going to put another dollar in [Zambia]” if the government continues to be unreliable.

Less Friction, Fewer Disruptions

This is proof positive of what I frequently say: Government policy is a precursor to change. In the example above, the tax policy is leading to change that could very well hurt Zambia’s economy. With mining being such a strong contributor to its GDP, it seems the government would want to make it easier, not more challenging and costly, for international producers to conduct business there.

The less friction and fewer disruptions there are, the easier it is for money to flow.

But Zambia’s isn’t the only African government that’s placing roadblocks in front of miners. The Democratic Republic of Congo is in the early stages of hiking royalties on mines and revising its mining code. And in his recent State of the Nation Address, South African President Jacob Zuma announced that foreigners could no longer own land in the country, which raises the question of what implications, if any, this might have on U.S. and Canadian companies that own and operate South African mines. Zuma’s announcement comes at a time when persistent electricity shortages have stymied mining activity and rumblings of a miners’ strike similar to the one last year that brought platinum and palladium production to a five-month halt are intensifying.    

At the same time, many governments in Africa are waking up to see that they’re going to have to provide the sort of stability and consistency Prime Minister Blair outlined if they hope to attract the capital necessary to fund and develop their mining opportunities.

Miners Giving Back

A strong mining sector doesn’t just benefit the native country, either. It’s a global good that benefits all. In another presentation at the African Mining Indaba, Terry Heymann of the World Gold Council convincingly showed that the economic output of the global gold mining sector far exceeds the collective aid budget of world governments. Gold mining, he said, created and moved as much as $47.3 billion to suppliers, businesses and communities in 2013, compared to governments’ $37.4 billion.

Many gold mining companies take a more direct approach to helping the communities in the countries they operate in, including Randgold Resources, which works primarily in Mali. In an interview during the African Mining Indaba, CEO Mark Bristow detailed his company’s involvement in the fight against Ebola and other epidemics that have hit the West African country:

Our doctors, the Randgold doctors, run a technical committee meeting every day where we coordinate with the [Malian] health authorities, and we help manage the deployment of energy. Now that we’ve eradicated the second [Ebola] outbreak, our big focus is on prevention and education.
Goods Trade with Africa in 2013

Bristow explained that the company had sponsored the development of an educational film about Ebola, before highlighting other company achievements:

We were part of the Neglected Tropical Disease Initiative rollout… We’re very big on the AIDS programs around the country. We brought the malaria incident rate around our mines down by more than four times.

Because Randgold is the largest employer in Mali, Bristow suggested, he feels a moral obligation to partner with his host country and make it a healthier, safer place to live and work.

During the same interview, he insisted that Randgold, which we hold in our Gold and Precious Metals Fund (USERX) and World Precious Minerals Fund (UNWPX), has a “solid five years ahead of us,” citing the fact that the company holds no debt and managed to replace all the ounces it mined in 2014 at $1,000 long-term gold price. It also increased its dividend 20 percent.

Despite bullion’s price hovering just above the relatively low $1,230 range, Randgold has delivered 16 percent year-to-date.

This is in line with gold mining stocks in both the NYSE Arca Gold Miners Index and FTSE Gold Mines Index, which are outperforming the return on bullion.

Gold-Mining-Stocks-Outperforming-Bullion-Year-to-Date
click to enlarge

As I mentioned back in July, when mining stocks do well, bullion has tended to follow suit. This also shows that producers are successfully adjusting to a $1,200-per-ounce environment by scaling back on capital spending, selling off assets, putting exploration on hold and engaging in mergers and acquisitions—which in the past has signaled that a bottom in spot prices might be reached. B2Gold Corp. closed on its deal to buy Papillon Resources in October; we learned in November that Osisko Gold Royalties is taking over Virginia Mines; and last month it was announced that Goldcorp would be purchasing Probe Mines.

Weak Currencies, Low Fuel Prices

Speaking with Kitco News’s Daniela Cambone during last Monday’s Gold Game Film, I commented on some of the macro events aiding gold mining companies such as Randgold:

Mark Bristow has just hit the ball out of the park. He benefits from a weak Mali currency and he benefits from a weak euro because everything is priced in euros. He’s also benefited from weak oil prices.

Indeed, many miners not operating in the U.S. are the beneficiaries of a weak local currency. The West African CFA franc, Mali’s currency, is off 20 percent; the South African rand, 40 percent; the Canadian dollar, 15 percent.

Low energy prices are also helping gold producers, just as they’re helping companies in other industries, airlines especially. In most cases, fuel accounts for between 20 and 30 percent of gold miners’ total operating costs. Because Brent oil is currently priced around $60 per barrel, gold producers are seeing significant savings.

The Gold Demand

This Thursday marks the Chinese New Year, a traditional occasion for gold gift-giving. Chinese demand for the yellow metal was strong in 2014, as 800 tonnes flowed into the country. Over half of the global gold demand, in fact, was driven by the world’s two largest markets, China and India.

Chinese-and-Indian-Growth-Has-Spurred-Market-Infrastructure-Development
click to enlarge

Historically low real interest rates are also driving investors into gold and gold stocks. As I told Daniela:

When you look at real interest rates out of the G7 and G10 countries, the only one with a modest increase is the U.S. dollar. Any time you get this negative real interest rate scenario, gold starts to rally in those countries’ currencies. Now what’s really dynamite is the gold mining companies like Goldcorp, which pays a dividend higher than a 5-year government bond.

Emerging Markets Webcast

Make sure to join us during our webcast tomorrow, February 18. USGI Director of Research John Derrick, portfolio manager of our China Region Fund (USCOX) Xian Liang and I will be discussing reflationary measures in China and emerging Europe. Don’t miss it!

Time-Tested History of No Drama - Near-Term Tax Free Fund - U.S. Global Investors

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.

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.

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 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 500.0 at the close of trading on December 20, 2002.

The FTSE Gold Mines Index Series encompasses all gold mining companies that have a sustainable and attributable gold production of at least 300,000 ounces a year, and that derive 75% or more of their revenue from mined gold.

There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time. Note that stocks and Treasury bonds differ in investment objectives, costs and expenses, liquidity, safety, guarantees or insurance, fluctuation of principal or return, and tax features. A fund’s yield may differ from the average yield of dividend-paying stocks held by the fund.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Gold and Precious Metals Fund, World Precious Minerals Fund and China Region Fund as a percentage of net assets as of 12/31/2014: B2Gold Corp. 0.28% World Precious Minerals Fund; Goldcorp, Inc. 1.03% Gold and Precious Metals Fund; Osisko Gold Royalties 0.00%; Papillion Resources 0.00%; Probe Mines 0.00%; Randgold Resources Ltd. 2.30% Gold and Precious Metals Fund, 1.43% World Precious Minerals Fund; Virginia Mines, Inc. 1.14% Gold and Precious Metals Fund, 10.35% World Precious Minerals Fund.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will 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.

Share “Africa Could Mine Its Way to Prosperity if It Addressed Instability”

Global Airline Stocks Soaring, and Not Just Because of Low Oil Prices
February 12, 2015

The airline industry is notoriously competitive. There’s even an old joke: If you want to make a million dollars in the airline business, you need to start with two million.

That joke might have run its course, however, as carriers all over the globe have been posting some of the most impressive earnings in commercial aviation’s 100-year history.

Airplane flying through pink sunset. Jets. U.S. Global Investors.

Revenue growth in the U.S. was “unusually strong” in 2014, achieving the best margin performance in the past 10 years, according to management consulting firm Oliver Wyman. The Dow Jones U.S. Airlines Index grew more than 87 percent during the year, and we’ve seen global airline stocks, as measured by the NYSE Arca Global Airlines Index, gain significant ground since 2012 and reach all-time highs.

Global Airline Stocks Posting All-Time Highs - Jets - U.S. Global Investors
click to enlarge

Some investors might approach this rosy news with a dash of skepticism. Oil prices have fallen over 50 percent since the summer, after all, and conventional wisdom says that as soon as they start to rise again, airlines will be one of the first industries to be negatively affected.

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.

Additional Seating

It only makes fiscal sense. The more seats an airline has, the greater the likelihood is of generating more revenue in airfare. The decision to increase seat density has helped carriers significantly lower their cost per available seat mile (CASM).

With greater seat density, carriers have had improved success at meeting and surpassing their breakeven load factors, or the necessary number of filled seats for companies to recoup operating costs. Currently, the breakeven load factor for large domestic airlines is 79 percent, meaning around three quarters of all available seats on every flight need to be filled. According to the most recent data from the U.S. Bureau of Transportation Statistics, the load factor was an exceptional 85 percent in 2014, an increase of 1.2 percentage points from the previous year and 12 percentage points from 10 years ago.

As you can see, this has resulted in the industry’s best annual performance for the 10-year period:

Domestic Airline Load Factor Exceeds Breakeven Load Factor - Jets - U.S. Global Investors
click to enlarge

Ancillary Revenue

Another way carriers have managed to beat expectations is through ancillary, or non-ticket, fees. Baggage fees, priority boarding, Wi-Fi, on-board meals and other fees are increasingly responsible for making up a large chunk of airlines’ earnings, allowing them to remain profitable in a highly competitive industry.

According to airline consulting group IdeaWorks, global ancillary revenue for 2013 was $31.5 billion. That’s up from $2.45 billion in 2007, which is about what Delta alone—which we own in our Holmes Macro Trends Fund (MEGAX)—generated in 2013 from such fees.

More so than major network carriers, low-cost value carriers increasingly depend on non-ticket fees to stay in the air, if you compare ancillary revenue as a percentage of total revenue in 2007 and 2013:

Ancillary Revenue as a Percentage of Total Revenue
Annual Results - 2013 Annual Results - 2007
Spirit Airlines 38.4% Ryanair 16.2%
Wizz Air 34.9% Vueling 14.2%
Allegiant Air 32.6% Allegiant Air 12.8%
Jet2.com 27.7% Air Deccan 9.0%
Ryanair 24.8% easyJet 8.8%

A Growing Middle Class

Arguably the most important factor contributing to airlines’ recent uptrend is the emergence and expansion of the middle class in the developing world. Air travel demand is strongly correlated with improved incomes. Spots around the world where we’re seeing some of the greatest surges in middle class growth are Africa, China, India and Southeast Asia.

Suvanaphumi Airport, Bangkok, Thailand. U.S. Global Investors. Jets.

This has led to advancement in worldwide revenue passenger miles, or the number of miles flown by commercial airlines. The most recent annual data from the Bureau of Transportation Statistics shows that over 1.1 billion miles were spent in the air in 2013, a 3.6-percent increase over the previous year.

The Organization for Economic Cooperation and Development (OECD) estimates that the middle class could increase from 1.8 billion people in 2010 to 5 billion in 2030.

Owing to a developing middle class as well as increased seat density and non-ticket fees, airlines are expected to post a collective profit of around $25 billion this year, up from $20 billion in 2014, according to the International Air Transport Association.

Also helping margins expand are low oil prices, which have stayed below $55 per barrel since the end of December. But even when prices do begin to rise, the industry should be in a good position to fly through the turbulence. 

Webcast

Registration for our next webcast, scheduled for February 18, is now available! Director of Research John Derrick, portfolio manager of our China Region Fund (USCOX) Xian Liang and I will be discussing monetary easing policies in China and Emerging Europe.  Don’t miss it!

 

Sign me up for the webcast!

 

 

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.

Past performance does not guarantee future results.

Stock markets can be volatile and share prices can fluctuate in response to sector-related and other risks as described in the fund prospectus.

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 Dow Jones U.S. Airlines Index measures the performance of the portion of the airline industry which is listed in the U.S. equity market. Component companies primarily provide passenger air transport. Airports and airplane manufacturers are not included.

The NYSE Arca Global Airlines Index is a modified equal-dollar weighted Index designed to measure the performance of highly capitalized and liquid U.S. and international passenger airline companies identified as being in the airline industry and listed on developed and emerging global market exchanges.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Holmes Macro Trends Fund and China Region Fund as a percentage of net assets as of 12/31/2014: Delta Air Lines, Inc. 1.28% in Holmes Macro Trends Fund; Spirit Airlines 0.00%; Wizz Air 0.00%; Allegiant Air 0.00%; Jet2.com 0.00%; Ryanair 0.00%; Vueling 0.00%; Air Deccan 0.00%; easyJet 0.00%.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Share “Global Airline Stocks Soaring, and Not Just Because of Low Oil Prices”

Net Asset Value
as of 06/15/2018

Global Resources Fund PSPFX $5.83 -0.08 Gold and Precious Metals Fund USERX $7.61 -0.07 World Precious Minerals Fund UNWPX $3.89 -0.06 China Region Fund USCOX $11.80 -0.04 Emerging Europe Fund EUROX $6.72 -0.10 All American Equity Fund GBTFX $25.97 0.05 Holmes Macro Trends Fund MEGAX $20.22 No Change Near-Term Tax Free Fund NEARX $2.20 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change