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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.

Look for these European Stocks to Exert a Lot of Horsepower
August 30, 2013

The Wall Street Journal recently published an article, “Emerging Europe is a Haven in Selloff,” highlighting the region’s recent success in “rising above the storm” that other developing markets have not been able to avoid.

Dark clouds have been swirling around emerging markets, with the MSCI Emerging Markets Index falling about 12 percent on a year-to-date basis.

We’ve been expecting a bounce in Europe’s emerging markets for some time now. In the Investor Alert a few weeks ago, we talked about how the area has lagged over the past five years. Since July 2008, the MSCI Emerging Market Eastern Europe Index has persistently underperformed the overall emerging market index.

Emerging Europe Lagged Global Emerging Markets Last 5 Years
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This underperformance happened seemingly through no fault of their own. As we’ve discussed, Eastern Europe has been an area of strength, with a rising middle class, low unemployment and a relatively strong economy. Rather, companies in these countries have suffered “guilt by association” due to their proximity to their Western neighbors.

Eastern Europe is very export dependent on developed Europe. More than 80 percent of Czech and Hungarian exports and about 50 percent of Polish and Turkish goods head to Western Europe.

So with economic data in Europe turning positive, many investors including our team are “betting that Western Europe's return to growth after a year-and-a-half-long recession will fuel demand for cars, appliances and other goods manufactured in Eastern Europe,” says the WSJ.

This could be a powerful engine to set emerging Europe on a huge upward trajectory, closing the performance gap and even outperforming its peers.

Additional research suggests stocks in emerging Europe could exert even more horsepower.

According to Bank of America Merrill Lynch, stocks in the European Union area historically outperformed when U.S. interest rates rose. Over the last 40 years during periods of rising rates in the U.S., European stocks took a hit up to six months prior to the Federal Reserve raising rates. However, six and 12 months after the Fed began its rate increases, European equities have taken off.

European Equities Outperformed When Fed Raises Rates
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With the likelihood for rising rates and an improving Europe in our future, this research makes a strong case that emerging European companies will be experiencing a “growth by association.” We believe the Emerging Europe Fund (EUROX) is poised to benefit. Find out why.

Read More about Emerging Europe

 

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.

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. Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk.

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.

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 above, you will be directed to a third-party website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for their content.

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 Emerging Markets Eastern European Index (Russia at 30 percent market-cap weighted) is a capitalization-weighted index that monitors the performance of emerging market stocks from all countries that make up the Eastern European Region.

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A Surprising Way to Play a Europe Rally
August 12, 2013
Europe's Back in the Limelight

U.S. Global’s Portfolio Manager Tim Steinle is usually soft-spoken and mild mannered, so our ears perked up when he recently belted out "Europe is Rocking!"

After a lengthy period of stagnant growth and lackluster results, the gradual crescendo of improving economic data that’s been coming out of Europe lately certainly commands attention.

As our resident expert of the European economy, Tim has been listing several economic indicators that were turning positive during the investment team’s morning meetings. While our entire team keeps track of the economic data and political policies of all the developed G-7 and emerging E-7 countries in the world, Tim keeps his finger on the pulse of European countries at all times in his hunt for outsized opportunities for the Emerging Europe Fund (EUROX).

I previously shared how economic releases have been beating expectations, as shown in the eurozone’s spiking Citigroup Economic Surprise Index. GDP is recovering too, with expectations that the year-over-year growth rate will significantly improve over the next year and a half.

Positive surprises and improving economic growth aren’t the only indications that the region’s economy is becoming healthier. Manufacturing appears to be on the mend. The latest reading of the purchasing manager’s index (PMI) was at a two-year high and topped the 50-mark. This indication of expansion hasn’t happened since July 2011. And, the PMI in Europe expanded at a faster pace than estimated.

Economic confidence in the region has also been rising. In July, it reached a 15-month high. Generally, when sentiment turns positive, businesses invest more and consumers spend more. We believe this improving confidence will potentially spur positive third-quarter economic growth and help the eurozone to exit its recession.

European Consumer confidence on the Rise
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Fiscal Drag Moving Out of Europe
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The area’s fiscal situation isn’t in dire straights as it has been. According to BCA Research, structural deficits peaked four years ago. As a result, during the 2009 to 2012 period, the biggest fiscal drags as a percent of potential GDP were concentrated in Europe, namely in Greece, Portugal, Spain and Ireland, four of the five members of the group formerly known as the PIIGS. Fiscal drag happens when a government’s net fiscal position doesn’t cover the desired net savings of the private economy.

Looking ahead at the 2012 to 2015 period, the largest fiscal drags are expected to be in other areas of the world. Based on data from the European Central Bank, “the government credit impulse is improving, which should help to lift the euro area economy out of its ‘endless recession,’” says BCA.

It's no wonder Tim is cheering Europe on, as these economic data points have important implications for global investors.

Consider the area’s PMI, which Morgan Stanley Research found to be a six-month leading indicator of earnings-per-share (EPS). While the EPS for European stocks has remained relatively flat over recent months, it’s expected to follow PMI and move up.

PMI Leading indicator for European Earnings-Per-Share
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Here's another reason to look at the area: Europe has low valuations compared to the rest of the world. Take a look at the normalized price-to-earnings (P/E) ratio, which is trading at "close to a record valuation low," according to Morgan Stanley Research. Compared to U.S. stocks and world equities, European stocks are trading at a significant discount.

Europe is trading Close to Record Low Based on Normalized Price-to-Earnings
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So as countries including Germany, France and Italy recover, we have solid reasons to believe their eastern counterparts will enjoy a boost as well.


Take the CE3, which are the Czech Republic, Hungary and Poland. These countries are integral to the supply chain in Europe and dependent on domestic demand as well as its export growth.

We aren’t the only ones pounding the table for emerging European countries. Credit Suisse came out with a report recently with a bold headline, “Going Overweight Europe = Bullish CE3.” The report makes a case for the Czech Republic, Hungary and Poland as the countries have “cheap markets, cheap currencies, which are commodity importers and are not overheating,” says Credit Suisse.

The firm cites numerous positive data, including the CE3’s lead indicators moving together with Germany, an improving outlook for employment, recovering real retail sales, wage growth, and regional credit growth.

Stay tuned for Europe’s much-anticipated return to the limelight. But before Europe plays before a sold-out crowd, you might want to get your portfolio a front row seat.

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 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 Citi Economic Surprise Index is a measure that tries to capture how well the data is coming in relative to economic expectations. 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 MSCI Europe Index is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. The MSCI USA Index is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in the U.S. The MSCI World Index is a capitalization weighted index that monitors the performance of stocks from around the world.

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Cleaner, Greener China
August 7, 2013

Did you know that energy use in China is estimated to be double that of the United States by 2040? Assuming world GDP rises 3.6 percent per year, energy use around the globe will expand 56 percent between 2010 and 2040, according to the U.S. Energy Information Administration. Half of this increase is attributed to China and India.

You can see below that by 2040, China’s energy consumption may grow to 220 quadrillion British thermal units, while U.S. energy consumption remains nearly flat, growing to an estimated 107 quadrillion British thermal units.


click to enlarge

China’s rapidly increasing middle class and more residents moving to urban areas are two driving factors of this skyrocketing energy consumption. According to McKinsey & Company, “by 2020, an additional 300 million Chinese will become urban residents, who consume as much as four times more energy and two-and-a-half times more water per capita than rural Chinese do.”

To address the environmental issues that come with this tremendous growth, China’s leaders have been focusing on moving toward a cleaner, greener lifestyle. For example, China is trying to double the share of natural gas in its energy mix to 10 percent by 2020 from less than 5 percent now, according to The Wall Street Journal.

See how much vehicle emissions comprise of Beijing’s total air pollution in this recent post.

Our portfolio manager of the China Region Fund (USCOX), Michael Ding, witnessed this boom in natural gas consumption on his recent trip to China. Michael saw a significant number of vehicles, mainly taxis and long-haul trucks, fueled by liquefied natural gas (LNG).

Additionally, he saw several tanker trucks used to transport LNG on his travels through Shanxi Province. Many of these trucks were owned by Enric, which holds more than 80 percent of the market share of LNG tanks.

Michael snapped this photo during his visit to China, showing an LNG tanker truck with the Enric logo printed on the side.According to Michael, Enric stock is currently facing short-term headwinds. This is due to misunderstanding of the natural gas price hike at wellheads announced by the National Development and Reform Commission in July, which the market fears may negatively affect LNG consumption. Michael believes this price increase may actually spur natural gas development and production to meet growing demand, therefore, increasing consumption.

Because we believe that policy is a precursor to change, the government’s focus on clean energy use should propel companies focused on this “green” theme, such as Enric.

See other potential opportunities for the China Region Fund.

Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by clicking here 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.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Holdings in the China Region Fund as a percentage of net assets as of 6/30/2013: CIMC Enric Holdings Ltd 1.31%.

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Accessing Myanmar’s Growth
July 5, 2013

The Golden Shwedago Pagoda, the Holiest Buddhist Shrine in MyanmarDid you know that in the first half of the last century, Myanmar had twice the GDP per capita of China? What a difference a few decades and government policies make, as China is ten-fold the size of Myanmar today, according to UBS Research.

The change in wealth between the two nations is a prime example of how government policies can have a tremendous effect on a country’s growth.

Now, after the West temporarily lifted its sanctions against investment in Myanmar last year, global investors have been rushing in to gain access to this fertile land. Multinational companies such as Coca-Cola and Unilever are eager to get their products in the hands of its 55 million residents.
Over the next decade, these two firms will be spending $1 billion, reports the Wall Street Journal.

This is an exciting development for global companies looking to expand their reach, but investors don’t necessarily have to buy multinational businesses to access this untapped growth.

Many companies located in Southeast Asia have plans in place to expand into Myanmar, according to our China Region Fund (USCOX) portfolio manager Michael Ding. Businesses in Thailand have a geographic advantage and companies in Indonesia benefit from the growing economy. Michael says this theme is embedded in the fund, as about 10 percent of the portfolio has an indirect route to Myanmar’s growth.

This is an exciting area of the world these days, as the geopolitical and economic organization called the Association of Southeast Asian Nations (ASEAN) prepares to become one market by 2015. The association was formed in 1967, comprising original members Indonesia, Malaysia, the Philippines, Singapore, Thailand and Brunei (otherwise known as ASEAN-6), with Cambodia, Laos, Myanmar and Vietnam becoming later additions (i.e., CLMV).

ASEAN Member Countries
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The ASEAN area offers a treasure trove of strengths for investors, including solid demographic trends, an aspirational middle class, strong fiscal and monetary policies, and government support for greater integration, free trade and political stability among the area’s countries.

As a group, ASEAN has the third-largest population in the world, after China and India. China and India each have a population of about 1.3 billion people; the ASEAN countries collectively have nearly 600 million. This is about 100 million more people than the 27 countries in the European Union.

ASEAN Population vs. Trade Partner Countries/Regions
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Indonesia makes up 40 percent of this number, with a population of 250 million. The Philippines is the second-largest ASEAN country, with 105 million and Vietnam is the third largest, with 92 million.

Together, Indonesia, the Philippines and Vietnam comprise two-thirds of the ASEAN population and GDP, according to Bank of America Merrill Lynch (BofA-ML).

ASEAN’s residents are young, too—37 percent are, on average, under 20. The mean age is 30 years, which is significantly lower than Japan’s 44 years.

And a young population translates to a growing labor force. Looking at people aged 15 to 64, the countries that comprise the ASEAN will grow 1.4 percent annually over the next 10 years, “increasing by 56 million people to 444 million,” says CLSA. By contrast, Japan’s workforce is expected to decline 1 percent each year.

Growing Labor force in the ASEAN Area
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Urbanization levels are currently low compared to developed areas of the world, which offers potential for infrastructure buildout and increasing domestic consumption. Only 45 percent of people in Southeast Asia live in an urban area, compared to 78 percent for developed markets. Only 20 percent of Cambodian residents live in an urban area; the urbanization rate in Vietnam, Myanmar, Thailand and Laos is around 30 percent, with the rate of urbanization rising quicker in many of these ASEAN countries compared to developed countries. 

Urbanization Remains Low in Southeast Asia
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But perhaps ASEAN’s most important strength is the steps the group is taking to encourage trade and improve infrastructure, including roads, railways, airports and ports, to support cross-border cooperation. One of the steps included removing tariff barriers. According to BofA-ML, “ASEAN-6 has achieved zero tariffs for 99 percent of goods and CLMV 0-5 percent tariffs for 98 percent of goods.”

This integration is beginning to have an affect on intra-regional trade and investment, with the share of intra-ASEAN trade rising to about one-quarter of total trade in 2010, “up from 22.4 percent in 2002,” says BofA-ML.

One of the many companies that is poised to benefit from increased domestic wealth and greater trade is Airports of Thailand (AOT). The company handles about 85 percent of Thailand’s air traffic, making it a “near-monopoly” and the “main beneficiary of higher demand for air travel,” says CLSA. With the implementation of regional economic integration, we expect there to be greater trade, a greater flow of people and goods, “supporting more traffic growth into and out of Thailand.”

Watch the video below to see Michael discuss this discovery when he recently traveled to Thailand:

More about the ASEAN area:

 

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.

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.

Holdings in the China Region Fund as a percentage of net assets as of 3/31/2013: Airports of Thailand 0.00%; Coca Cola 0.00%; PepsiCo Inc. 0.00%; Unilever  0.00%

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Traveling in Turkey
June 27, 2013

In recent weeks, protests in Turkey have made headline news, with the instability transferring to the local stock market. Since the riots began around June 3, the Borsa Istanbul Stock Exchange National 100 Index has declined 11.9 percent.

Portfolio Manager Tim Steinle was traveling in Turkey recently and has a slightly different take on the situation than mainstream U.S. news. He says that while volatility may continue in the short-term, it is unlikely to pose a threat to the market in the long run.

He says that many people have analyzed the country’s protests from an “Arab Spring” perspective, but this may be a flawed comparison. The demonstrations seem to resemble the Russian protests ahead of Putin’s reelection last year, which were voicing opposition to the suppression of political freedom. The “Arab Spring” included mass protests against authoritarian states whose citizens are poverty stricken and are prepared to unleash serious violence, for they really have nothing to lose.

In the case of Turkey, the protesters are relatively prosperous members of the middle class with jobs and rising purchasing power. To us, this means the current situation in Turkey likely won’t last.

As such, the fundamental valuation metrics have not changed and Turkish equities appear to be undervalued at current levels, extending a new opportunity to add exposure to the country.

Turkish stocks still attractive after the selloff

In our latest Shareholder Report, we focus on the long-term drivers of Turkey’s growing economic strength unlike other areas of the world where high debt reigns. Download your copy today.

Shareholder Report 2013 volume 2

The Istanbul Stock Exchange National 100 Index (XU100) is a capitalization-weighted index composed of National Market companies except investment trusts. 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.

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Net Asset Value
as of 11/24/2017

Global Resources Fund PSPFX $6.07 0.10 Gold and Precious Metals Fund USERX $7.39 0.03 World Precious Minerals Fund UNWPX $5.78 0.02 China Region Fund USCOX $11.95 -0.23 Emerging Europe Fund EUROX $7.07 -0.02 All American Equity Fund GBTFX $24.08 0.02 Holmes Macro Trends Fund MEGAX $21.36 No Change Near-Term Tax Free Fund NEARX $2.21 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change