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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.

Clearing Up CNBC's Haze
May 13, 2015

Yesterday on CNBC, I was asked about my investment firm’s previous investment in Uranium One, “Were you in a position to benefit from approval of this deal at the same time that you were writing checks to the Clinton Foundation?” 

My answer was clear. I said, “No.”

It would be unusual for any Chief Investment Officer to recall from memory the specific dates of ownership of an individual security among thousands of investments over a decade-long time period. I was not asked to provide this detailed information in advance. Nevertheless, while I was being bombarded with questions from three different anchors, what I said was absolutely correct:  U.S. Global Investors invested in Uranium One early and sold it long before the events in question by CNBC and other media sources. The graphic that CNBC showed on-screen during my interview included a single, incomplete factoid.

These are the facts and the timeline:

  • U.S. Global Investors, a firm that specializes in commodities and natural resources, first invested in Uranium One’s predecessor, UrAsia Energy Ltd. in 2005.
  • UrAsia was acquired by Uranium One in 2007.
  • U.S. Global Investors sold all positions in Uranium One in 2007.
  • U.S. Global Investors did not hold any positions in Uranium One in 2008, 2009 or 2010, the year the Uranium One acquisition by ARMZ was approved by the Committee on Foreign Investment in the United States.
  • U.S. Global Investors re-invested in the company in the first quarter of 2011 and sold all positions before the end of the second quarter of 2011. We exited the position when uranium prices began to decline after news of the Japanese nuclear tragedy.
  • As one can see from the charts below, our investments in uranium reflect the historical price movements of the heavy metal.

Uranium Oxide Price per Pound
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Uranium Oxide Price per Pound
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When I give educational workshops to investors I always talk about the importance of gratitude. Giving back to those less fortunate is how I demonstrate gratitude. Gratitude is the single driving force behind U.S. Global’s charitable contributions.  We have a long history of charitable contributions to many organizations. The Clinton Foundation is only one on a long and varied list.

As I said during my appearance on CNBC, our donations to Clinton charitable organizations and our investments in Uranium One are separate events. One has nothing to do with the other. Any claims to the contrary are not only offensive, but patently false.

Anyone can access public filings of our fund holdings and can confirm the facts for themselves. https://www.sec.gov/edgar/searchedgar/mutualsearch.htm

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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.

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Why This Airline Just Landed in the S&P 500 Index
March 23, 2015

For the first time in its 84-year history, American Airlines was cleared for landing in the S&P 500 Index.

Joining rivals Southwest Airlines and Delta Air Lines, the once-beleaguered carrier is the newest member of the prestigious club for the nation’s largest companies by market capitalization.

Not bad for a company that, only four years ago, found itself in bankruptcy court.

S&P 500 Economic Sectors

But in a classic Cinderella-story transformation, American succeeded at charting a new course for itself. In 2013 it merged with U.S. Airways, making it the biggest airline group in the world. The company now has a market cap of nearly $37 billion and controls 627 active jets in its fleet.

American’s ascension is a perfect reflection of the now-robust airline industry as a whole. As recently as a decade ago, about 70 percent of U.S. carriers were operating under Chapter 11 bankruptcy protection. Fast forward to 2014, and the industry saw its most profitable year ever. To generate more revenue and save money, airlines have aggressively implemented new policies in the last few years, including adding additional seats on aircraft, streamlining operations and focusing on fuel-efficiency measures.

American Airlines stock is already up more than 51 percent for the 12-month period, compared to the S&P 500’s 14 percent, and is currently trading close to all-time highs. Its inclusion in the S&P 500 should further help its stock price climb higher, as many funds that track the index will now be compelled to purchase shares.

American Airlines Joins Southwest and Delta in the S&P 500 Index
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Low oil prices have benefited American more so than some of its competitors, as the carrier didn’t buy derivatives on fuel and was therefore not locked into higher prices before they began to tumble last summer.

Many analysts predict that the next airline to join the S&P could be United Continental.

Dollar Overbought, Gold Oversold

In a recent Frank Talk I revisited the relationship between the U.S. dollar and gold. For the ninth straight month, the greenback has strengthened, which has weighed heavily on the yellow metal. The inverse relationship between the two is key to understanding the Fear Trade.

As I discussed in the blog post, the dollar is extended—the greatest standard deviation in a decade—and it appears due for a correction.

Gold vs Dollar 3-Month Percent Change Oscillator
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Conversely, the gold selloff is overdone and looking for a rally.

Next week we’ll be looking out for the latest consumer price index (CPI), or inflationary number. It’s important to be aware of this number because the inflation rate has a large influence on gold prices.

The weekend before last I presented at the Investment U conference in St. Petersburg, Florida, where I had the pleasure of hearing Oxford Club’s natural resources strategist, Sean Brodrick, speak. He reminded his audience why so many investors see gold as a safe haven, saying that, unlike the dollar, “gold will never go to zero.”

As always, I advocate that 10 percent of your portfolio consist of gold: 5 percent in bullion and 5 percent in gold stocks, then rebalance every year.

Munis Still Make Sense

Safety is part of the reason why the municipal bond market is today worth $3.65 trillion. To determine just how safe munis have been for investors, Moody’s looked at more than 54,000 municipal bond issuers and 5,600 high-yield corporate bond issuers between 1970 and 2011. What they found is that only 71 muni issuers defaulted, whereas corporate bond defaults for the period rose to more than 1,800.

What’s more, even lower-rated munis have historically had better credit quality than high-rated corporate bonds. In a similar study, Moody’s reported that since 1970, “adequate” Baa-rated munis have had a default rate of 0.30 percent. But of the corporate bonds that received the highest, “extremely strong” rating, 0.50 percent failed to meet their obligations.

Munis had a stellar 2014, delivering positive returns all 12 months of the year. This helped the asset class outperform both corporate bonds and high-yield corporate bonds.

Munis Delivered Better Returns Than Corporate Bonds in 2014
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A Victoria's Secret in the Toronto Pearson International AirportRightfully so, many bond investors are concerned of what might happen to their holdings when the Federal Reserve decides to raise rates, which could happen sometime this year. When interest rates rise, bond prices drop. For this reason, the bond market reacted positively to Fed Chair Janet Yellen’s announcement last Wednesday that a rate hike wouldn’t occur just yet. Short-term munis are where investors want to be when rates inevitably increase.

Recently we’ve also seen a spike in bond yields. John Derrick, portfolio manager of our Near-Term Tax Free Fund (NEARX), has prudently put fund assets to work, using the following oscillator, among other tools, to determine the most opportune times to deploy capital.

Note that we’re using the two-year Treasury as a proxy for interest rate moves. Munis have tended to track these macro trends.

ROlling 100 Day Percent Change Oscillator: 2-Year Treasury Yield
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NEARX has delivered 20 straight years of positive growth in a variety of interest rate environments. Out of 25,000 equity and bond funds, only 30 have done this. Since 1999—the first year he began managing the fund—John has achieved this rare feat by picking only investment-grade munis with short-term maturities. Short-term bonds are less sensitive to rate increases than longer-term bonds that are locked into rates for greater periods of time.

In Various Interes Rate Environments, NEARX Has Had 20 Straight Years of Positive Returns
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To learn more about what municipal bonds can do for your portfolio, check out our latest infographic. Remember to share with your friends!

Why Investing in Short-Term Municipal Bonds Makes Sense Now

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.

Total Annualized Returns as of 12/31/2014
  One-Year Five-Year Ten-Year Gross Expense Ratio Expense Cap
Near-Term Tax Free Fund 3.07% 2.64% 2.98% 1.21% 0.45%

Expense ratio as stated in the most recent prospectus. The expense cap is a contractual limit through December 31, 2015, for the Near-Term Tax Free Fund, on total fund operating expenses (exclusive of acquired fund fees and expenses, extraordinary expenses, taxes, brokerage commissions and interest). Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. For a portion of periods, the fund had expense limitations, without which returns would have been lower. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any direct fees described in the fund’s prospectus which, if applicable, would lower your total returns. Performance quoted for periods of one year or less is cumulative and not annualized. Obtain performance data current to the most recent month-end at www.usfunds.com or 1-800-US-FUNDS.

Bond funds are subject to interest-rate risk; their value declines as interest rates rise. Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local income taxes, and if applicable, may subject certain investors to the Alternative Minimum Tax as well. The Near-Term Tax Free Fund may invest up to 20% of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes. The Near-Term Tax Free Fund may be exposed to risks related to a concentration of investments in a particular state or geographic area. These investments present risks resulting from changes in economic conditions of the region or issuer.

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

The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals.  The weights of components are based on consumer spending patterns.

The S&P Municipal Bond Index is a broad, market value-weighted index that seeks to measure the performance of the U.S. municipal bond market.

The Bloomberg USD High Yield Corporate Bond Index is a rules-based, market-value weighted index engineered to measure publicly issued non-investment grade USD fixed-rate, taxable, corporate bonds. To be included in the index, a security must have a minimum par amount of 250MM.

The Bloomberg U.S. Corporate Bond Index is a rules-based market-value weighted index engineered to measure the investment grade, fixed-rate, taxable, corporate bond market. It includes USD-denominated securities publicly issued by U.S. and non-U.S. corporate issuers. To be included in the index, a security must have a minimum par amount of 250MM.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Near-Term Tax Free Fund as a percentage of net assets as of 12/31/2014: American Airlines 0.00%, Southwest Airlines Co. 0.00%, Delta Air Lines, Inc. 0.00%, United Continental Holdings, Inc. 0.00%.

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.

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.

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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
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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
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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
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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
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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
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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
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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.

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Skin-in-the-Game Investing: Why It Matters
March 9, 2015

To be successful in business and investing you've got to have skin in the game, a stake in the company. Warren Buffett

Seven hundred forty million dollars.

That’s how much Bill Gross has reportedly invested of his own cash into the bond fund he manages at Janus Capital Group. The billionaire bond king—who unexpectedly left Pacific Investment Management Company, or PIMCO, in September after a clash with senior management—now owns a little over half of the $1.45 billion fund.

This is likely the most extreme case to be found of a portfolio manager investing in his own fund—or “eating his own cooking”—but it’s certainly not the only one.

Bond-King-Bill-Gross-invested-740-million-in-fund-janusJackson Park Capital money manager Greg Jackson also has millions personally tied up in one of his firm’s funds. He likes to tell investors that when they go shopping for a fund, one of the decisive factors should be whether the manager invests in it himself. This shows that the manager has faith and conviction in the product.

“If I were a shareholder, that would give me pause [if the manager weren’t invested],” Jackson says. “Why is the fund good enough for me but not good enough for them?”

“A recent Wall Street Journal article takes the advice even further: “In the end, knowing that the manager has skin in the game isn’t the sole reason to choose a fund, but it makes sense as a basic criterion or a tiebreaker for selecting between two funds.”

Following this line of thought, Jackson is attracted to companies whose CEOs, officers and other corporate insiders are bullish on their own stock.

“You care a lot more if there’s skin in the game,” Jackson says.

This sentiment is shared by Catalyst Funds portfolio manager David Miller, who even designed a fund that seeks to invest only in companies whose officers are buying shares of their own stock on the open market.

“There are some strong correlations between what the insiders are doing, where the stock is going and its future thereafter,” Miller explains. “They know whether there are going to be earnings or if a company will be acquired. You can also see what they are actually doing with their own personal funds.”

Take Elon Musk, founder and CEO of Tesla Motors.  On May 30, 2013, Musk purchased over $100 million worth of his own company’s stock. Since then, it’s climbed more than 100 percent, compared to the S&P 500 Index’s return of 27 percent.

CEO Elon Musk Purchased $100 Million in Tesla Stock on May 30 2013
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You do the math of how much Musk has made on his investment.

Consider also Warren Buffett. Writing in the Berkshire Hathaway owner’s manual, Buffett reassures shareholders that “most of our directors have a major portion of their net worth invested in the company. We eat our own cooking.”

Speaking of Buffett, his annual letters to shareholders are always a treat, full of wit and wisdom that only someone of his brilliance and investing experience can articulate. The fiftieth anniversary letter was just released, which you can read here.

More recently, 89-year-old entrepreneur and philanthropist Alfred Mann altruistically put up $1 billion of his own capital to keep afloat his company MannKind, which manufacturers the groundbreaking Afrezza, an insulin treatment that diabetics inhale instead of inject. Mann is also involved with Second Sight Medical, which IPO’d in November. The company makes and sells advanced retinal implants that restore partial vision to the blind.

In October of last year, the Financial Times wrote: “Equity investors like to see that the chief executives of the companies in which they invest have a decent shareholding; they like to see remuneration packages that include lots of stock compensation.”    

Simply put, any kind of insider buying is typically a good sign. As Investopedia explains:

Executives can talk all they want, but the best vote of confidence is putting one’s own money on the line just like outside investors!

Walking the Walk

USGI's Portfolio Managers Have Skin in the GameAt U.S. Global Investors, we not only share this philosophy but also practice it. Like Gross, Musk and Buffett, we have skin in the game, an expression that Buffett is often credited with coining.

More to the point, whenever one of our portfolio managers receives a performance bonus, half of it he gets in cash while the other half goes directly into the fund he manages.

As for myself, I’m invested in all nine of our funds, the most significant position being in our Near-Term Tax Free Fund (NEARX). On top of that, I’m also a U.S. Global Investors (GROW) shareholder. The information in the chart to the right is taken from our statement of additional information (SAI), and reflects that every one of our funds has at least $50,000 in portfolio management ownership.  

I believe it’s absolutely essential for our investment team, officers and I to have some skin in the game, to eat our own cooking, to feel the pinch when a fund disappoints and the exhilaration when it outperforms. Because we face the very same risks and rewards that our investors do, we’re motivated and incentivized to exert greater care and effort into the management of our funds.

And let’s be clear. Manager ownership is so much more than a symbolic gesture of faith in the product and empathy for the investor. Indeed, there’s empirical proof that such funds have tended to outperform those that have no manager investment, based on studies conducted by Morningstar, Capital Group and others.

Back in 2008, Morningstar’s Director of Fund Research, Russel Kinnel, set out to determine what percentage of managers nationwide owned a portion of their own funds. The results, as he described them, were “staggering":

Looking at the data, the figures that jump off the page are those where no one invested a dime. At U.S. stock funds, 47 percent report no manager ownership. And it gets worse from there. Fully 61 percent of foreign-stock funds have no ownership, 66 percent of taxable bond funds have no ownership, 71 percent of balanced funds put up goose eggs, and 80 percent of muni funds lack ownership.

At U.S. Global Investors, we eat our own cookingEighty percent! Of muni funds! I think it’s worth repeating that my largest position is in our firm’s muni bond fund, which has delivered 20 straight years of positive growth. Out of 25,000 equity and bond funds, only 30—NEARX among them—have been able to achieve such a feat.

Granted, the Morningstar data is seven years old, but it’s “staggering” nonetheless. Since 2005—three years prior to the study—the Securities and Exchange Commission (SEC) has required investment firms to disclose manager ownership in their annual SAIs. Given this level of transparency, you’d think more firms would encourage their managers to put some skin in the game.

Because putting your own money on the line usually fosters a greater sense of urgency and commitment to performance.

Kinnel reiterated the benefits of manager investment in a January 2015 interview:

We looked at ownership levels from five years ago and then performance over the ensuing five years to test out whether you would have had improved results if you had chosen along the lines of manager ownership, and it looks like you would have.

Below you can watch Kinnel’s entire interview with Morningstar.

If you missed my conversation with star portfolio manager John Derrick, be sure to watch the replay to learn how our NEARX fund has achieved 20 years of drama-free history during past stock market corrections and interest rate increases.

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.

Total Annualized Returns as of 12/31/2014
  One-Year Five-Year Ten-Year Gross Expense Ratio Expense Ratio After Waivers
Near-Term Tax Free Fund 3.07% 2.64% 2.98% 1.21% 0.45%

Expense ratio as stated in the most recent prospectus. The expense ratio after waivers is a contractual limit through December 31, 2015, for the Near-Term Tax Free Fund, on total fund operating expenses (exclusive of acquired fund fees and expenses, extraordinary expenses, taxes, brokerage commissions and interest). Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. For a portion of periods, the fund had expense limitations, without which returns would have been lower. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any direct fees described in the fund’s prospectus which, if applicable, would lower your total returns. Performance quoted for periods of one year or less is cumulative and not annualized. Obtain performance data current to the most recent month-end at www.usfunds.com or 1-800-US-FUNDS.

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.

Bond funds are subject to interest-rate risk; their value declines as interest rates rise. Though the Near-Term Tax Free Fund seeks minimal fluctuations in share price, it is subject to the risk that the credit quality of a portfolio holding could decline, as well as risk related to changes in the economic conditions of a state, region or issuer. These risks could cause the fund’s share price to decline. Tax-exempt income is federal income tax free. A portion of this income may be subject to state and local taxes and at times the alternative minimum tax. The Near-Term Tax Free Fund may invest up to 20% of its assets in securities that pay taxable interest. Income or fund distributions attributable to capital gains are usually subject to both state and federal income taxes.

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

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Near-Term Tax Free Fund as a percentage of net assets as of 12/31/2014: Berkshire Hathaway 0.00%, Capital Group International 0.00%, Janus Capital Group 0.00%, MannKind Corp. 0.00%, Pacific Investment Management Company 0.00%, Second Sight Medical Products 0.00%, Tesla Motors 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 “Skin-in-the-Game Investing: Why It Matters”

Net Asset Value
as of 09/25/2017

Global Resources Fund PSPFX $5.78 -0.04 Gold and Precious Metals Fund USERX $8.02 0.06 World Precious Minerals Fund UNWPX $6.69 0.06 China Region Fund USCOX $10.96 -0.46 Emerging Europe Fund EUROX $6.94 -0.06 All American Equity Fund GBTFX $24.34 0.10 Holmes Macro Trends Fund MEGAX $19.99 0.03 Near-Term Tax Free Fund NEARX $2.23 No Change U.S. Government Securities Ultra-Short Bond Fund UGSDX $2.00 No Change