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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.

Why It’s Hard to Ignore Russia
September 16, 2013

Tim Steinle at a pumping station in VyborgRussian President Vladimir Putin created a stir recently when he shared his thoughts with Americans in an op-ed printed in The New York Times. According to The Times, very few pieces written by heads of state have been published by the paper and very few received the attention Putin attracted.

But will the plea be influential? Will it change President Barack Obama’s or Americans’ opinion on the matter of Syria?

In recent years, Russia’s political stability and rule of law have been called into question, causing many investors to avoid the area. Yet, while Russia is a tough market to love and even easier to hate, the country is hard to ignore, says Tim Steinle, portfolio manager of the Emerging Europe Fund (EUROX).

While I was at Cambridge House’s Toronto Resource Investment Conference talking to investors about gold and resources, Tim was in San Antonio, Texas discussing his perspective on Russia on Canadian Business News Network with host Howard Green, Richard Jenkins from Black Creek Investment Management and John Hsu from John Hsu Capital Group. It was an insightful debate on finding opportunities in the sometimes challenging emerging countries of Russia, China and the Middle East.

Here is a summary of Tim’s perspective on the emerging Europe giant.

Q. A lot of big, sophisticated, institutional investors say it’s not worth the trouble to put your money in Russia. What do you say to them?

Since the Federal Reserve suggested ending its bond purchases, many emerging markets have suffered. Year-to-date through September 12, the MSCI Emerging Markets Index lost about 8.5 percent. Over the same time frame, Russian stocks have declined less than that, about 4 percent.

The Russian ruble also fared relatively well against emerging market currencies, as the country does not depend on external funding. Since the beginning of 2013 through today, the South African rand declined more than 14 percent, the Indian rupee lost 13 percent and the Brazilian real is down 10 percent. Comparably speaking, the Russian ruble looks stable.

Russian Ruble Fared Well Against Other Emerging Market Currencies
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Additionally, over the last 60 days, Brent crude oil increased about 15 percent, and a major oil-producing country such as Russia benefits from higher oil prices.

For these reasons, we believe people are taking another look at Russia.

Q: Novatek, an independent gas producer in Russia, is close to breaking the Gazprom monopoly on the gas export market. Will Gazprom fight that?  

Surprisingly, it hasn’t yet. What’s interesting is that the Russian MICEX Index is heavily populated by oil names, but these companies tend to carry a very heavy tax burden. They are basically all running to stand still, drilling to replace the decline from existing wells while net production remains flat.

The gas market is a different animal. Novatek is Russia’s largest independent gas producer and “one of the best-run global emerging market oil and gas companies,” says UBS. The company has grown its domestic market share in leaps and bounds to the tune of about 20 percent per annum. It has developed smaller fields where Gazprom has not been successful. In the last three years, Novatek doubled reserves and some of those fields were formerly Gazprom fields.

In addition, Novatek is venturing into an inherently profitable LNG project with China located on the Yamal peninsula. According to UBS, the Yamal project might be able to “unlock significant long-term production upside for Novatek, partially liberating it from its dependence on Gazprom’s pipeline network.”

The media has been focusing on China’s deals on an inland pipeline in Siberia with Gazprom, yet there’s a huge discrepancy in price. China wants to pay only $3 per million British Thermal Units (mBtu), but Russians want to charge $12 per mBtu.

While the Chinese want a stake in both areas, as well as some flexibility, Novatek is a clear winner so far. For the first time in Russian history, the Gazprom monopoly will be broken. This is a big deal for an independent company, as it allows Novatek to become “an energy player of genuine global standing,” says UBS.

Q. So, if you put your money in Russia, what about political stability?

A key to investing in Russia is to focus on domestic areas of the market that are profitable and growing. While China’s urbanization gets a lot of attention today, in the case of the Soviet Union, urbanization happened back in the thirties. Russia has a middle class and its GDP per capita is much higher than that in China.

Within domestic markets, one promising company is Mobile TeleSystems, which provides mobile and fixed line voice and data telecommunications services for Russian customers. So far this year, the stock has climbed 16 percent.

Russian internet companies, such as Yandex and Mail.Ru, have also done spectacularly well in 2013, significantly outperforming the overall Russian Index. While overall Russian stocks are down, Yandex, the “Google of Russia,” rose about 60 percent and Mail.Ru increased 20 percent.

Domestic Stocks Yandex MailRU Outperformed Russian Index
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Search engine company Yandex has seen success lately, as it’s been able to defend its 60 percent market share against Google, a fierce global competitor. And Mail.Ru, which is a Russian Internet company focused on social networks and gaming, currently captures about 96 percent of Russian Internet users on a monthly basis, and 74 percent on a daily basis, according to JP Morgan.

In addition, Mail.Ru may likely pay a 10 percent dividend on the proceeds of the Facebook sale, which it had successfully invested in prior to the IPO.

It’s a longer interview, but worth checking out. See the video clip now and then take a closer look at the Russian stocks in the Emerging Europe Fund (EUROX).

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 percent 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 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 MICEX Index is the real-time cap-weighted Russian composite index. It comprises 30 most liquid stocks of Russian largest and most developed companies from 10 main economy sectors. The MICEX Index was launched on September 22, 1997, base value 100. The MICEX Index is calculated and disseminated by the MICEX Stock Exchange, the main Russian stock exchange. The Russian Trading Systems Index is a capitalization-weighted index that is calculated in USD. The index is comprised of stocks traded on the Russian Trading System.

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 Emerging Europe Fund as a percentage of net assets as of 6/30/13: Facebook Inc., 0.00%; Gazprom, 3.06%; Google Inc., 0.00%; Mail.Ru Group Ltd., 2.19%, Mobile TeleSystems, 5.74%; NovaTek, 3.51%; Yandex, 3.50%.

Past performance does not guarantee future results.

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Start Bargain Hunting in Asian Stocks … Again?
September 12, 2013

If you compare the Asian stock market these days to prior years, it’s looking like “déjà vu” all over again, says Credit Suisse.

In one of its latest reports, Credit Suisse’s Asia Pacific Equity Research team compared this year’s daily price data of the MSCI All Country Asia ex-Japan Index to that from 2010 and 2012. What’s the common thread among these three years? Momentum of global growth bottomed each summer.

You can see below how today’s market is following a similar trend, hitting a low in the summer months. Yet, in 2010 and 2012, Asian stocks climbed significantly in the second half of the year.

Asian Stock Market Following Same Course as 2010 and 2012
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Could we see a rally this year? Chances are good, but keep in mind that the key difference in 2013 is the Federal Reserve’s talk of easing its monetary program, says Credit Suisse.

Looking at the data from the second half of 2010 and the second half of 2012, the firm finds the most promising areas were Asian cyclical stocks, which includes companies in the technology, consumer discretionary, energy, materials and industrials sectors, as well as companies in China and Korea.

Back in 2012, I highlighted research that showed how Chinese stocks were looking inexpensive compared to other emerging markets. I said that the negativity pendulum had swung too far and the market was due for a rally.

The rally was significant: From the beginning of June through the market peak in February 2013, the MSCI China Index rose about 27 percent.

Today, it looks like China is once more the place to dig for bargains. Among Asian equities, China and Korea are “still the two most undervalued markets in the region,” says Credit Suisse.

Here’s how the China Region Fund is poised to participate in this potential rally.

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 MSCI China Free Index is a capitalization weighted index that monitors the performance of stocks from the country of China. 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.

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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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Net Asset Value
as of 06/22/2018

Global Resources Fund PSPFX $5.81 0.12 Gold and Precious Metals Fund USERX $7.67 0.10 World Precious Minerals Fund UNWPX $3.87 0.08 China Region Fund USCOX $11.23 0.10 Emerging Europe Fund EUROX $6.74 0.09 All American Equity Fund GBTFX $25.78 0.01 Holmes Macro Trends Fund MEGAX $19.87 -0.05 Near-Term Tax Free Fund NEARX $2.20 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change