US Global Investors Inc (GROW) 2010 Q1 法說會逐字稿

Welcome to US Global Investors exclusive webcast, US Global Investors earnings announcement for the first quarter of fiscal year 2010. Please note that the slides you see on your screen are controlled by the presenters. Also you may print a PDF of today's slide at any time by clicking on download presentation in the resources section in the lower left corner of your screen. A question-and-answer session will follow today's presentation. If you would like to submit a question during the webcast, simply type your question in the dialogue box in the bottom of the screen and click submit. We would like to begin by introducing Terry badger, director of communications at US Global Investors. Mr. Badger?

Thank you, operator, and welcome everyone to our webcast announcing results for the three months ended September 30, 2009, which for us is the first quarter of fiscal year 2010. The presenters for today's program are Frank Holmes, US Global Investors, CEO and Chief Investment Officer, Susan McGee, President and General Counsel, and Catherine Rademacher, Chief Financial Officer. During this webcast we may make forward-looking statements about our relative business outlook.

Any forward-looking statements, and all other statements made during this webcast that don't pertain to historical facts are subject to risks and uncertainties that may materially affect actual results. Please refer to our press release and corresponding Form 10-Q, for more detail on factors that could cause actual results to differ materially from any described today in forward-looking statements. Any such statements are made as of today, and US Global Investors accepts no obligation to update them in the future. There will be a question-and-answer session as part of today's presentation.

To submit a question during the webcast, which you may do at anytime, just type your question in the dialogue box at the bottom of the screen and click submit. Now let's go to Frank Holmes, CEO and CIO, for a brief overview of the quarter.

Thank you, Terry. Well, let's hop over and take a look at what GROW is. It's a debt-free Company, a very strong balance sheet, no toxic derivatives in the funds, and a very consistent and steady monthly dividend program and focused, focused on the world, focused on where the growth is. And at the end of the presentation, I'm going to walk you through the big picture in the sectors where the world is growing, and how that's impacting US Global. Let's quickly jump to the year-over-year quarter, looking at the numbers. As you can see, the revenue was slightly down. Net income was up. And we see a $0.21 reversal per share, a big factor of that was last year, we had to deal with a proxy cost of merging the trust. Susan McGee, our President and General Counsel will comment more about those developments, but they have been very, very helpful in that process of dealing with the volatility of markets, and being able to fulfill our responsibilities as investment advisors.

On the next one, just take a look at the sequential quarters many we think this is very significant, as the market rallies that we participate with it. And as can you see, for this -- looking at these different quarters, the sequential growth from $0.06 to $0.09. And if we take a look at the previous quarter, it's also a sequential growth. So as these assets start to rise, then in particular, looking at emerging markets and resources, we're very, very highly geared to the success of emerging markets and resources. On the next slide, is assets under management. Basically, because the inherent volatility of emerging markets and resources, and the dollar, the inverse the relationship of the dollar has been like a minus 8. That is, if the dollar's strong, resources are down in emergent markets. When the dollar's weak, the emerging markets and resources are up. And that's had a big impact in the past year, overall. However, our structure of how we manage our costs, and how we renumerate the bonuses for employees, it's sort of organic. And it moves with the market. And so as as it declines, still fund performance is doing well, there's bonuses but they're less. So therefore we can adjust very rapidly to the marketplace.

What you're seeing here on the next visual is, that the assets under management looking at calendar third quarter 2008 versus third quarter of 2009, they declined 47% versus the investment peers are minus 11. And that's quite simple, approximately 80% of US Global assets are in emerging markets and resource-based, which experienced greater volatility than peers because of the product mixes. And these other fund groups have a much higher domestic allocation, at the same time much substantial greater bonds and fixed income. So it does impact them. So it does impact them. However, in a continued rebound of the world economy, we have a potential to have much greater growth. Earnings, as you can see here, is -- it's very significant to us, to see the elasticity and how fast we move on -- looking at these quarters, and how fast we have adjusted. So you can see earnings per share growth taking off, and the same thing with the net income, and beating the peers. This always translates into return on equity. And what we like to show i, that for the three years we're still above our peers. And on a year-over-year basis, we're lagging, but we have the potential quickly to improve this return on capital.

Mainly because we have a very low cost structure, relative to all the products, all the services that we provide. And so we have to provide the same standards of care, necessary, that a large fund group has to. So we have to -- and we still, even with that, be able to do that, we run a low cost structure. The next visual to me is important, because it's leverage for financials. And this whole leveraging factor is what's really hurt the industry. And hearing about last year and discovering that Lehman Brothers is over 30 times leveraged, Fannie Mae and places like that were leveraged over 80 times. Merrill Lynch was 25 times leveraged. Any type of volatility with that basically wiped out the financials, and was a big part of the financial crisis last year. But we don't have any of this leverage. We have intellectual leverage. And we do not have financial leverage so that that market volatility will not harm us in respect to wiping us out like it's done for so many of these other corporations. So I think it's really important when you look at our balance sheet, what does this mean, and you compare to the peers, they're still a third leveraged, and major banks are 68% leveraged. I'd now like to turn over the sort of detailed financial analysis of this past quarter to Catherine Rademacher, our CFO.

Thank you, Frank, good morning. I'd like to go over our results of operations in a little more detail for the first quarter of fiscal 2010, which ended on September 30th, and beginning with revenues on page 12. We recorded a total of $8 million for the quarter, down 9% from the $8.8 million we reported last year. And to break down the main components, starting with advisory fees, we saw a decline of 51% to $4.5 million, largely because of decreased assets under management during the fiscal year. As Frank mentioned, especially in the natural resource and emerging market sectors. Secondly, transfer agent fees decreased by almost $900,000, primarily due to a decline in the number of accounts and transactions within the funds. But these declines in revenues were somewhat offset by an increase in investment income of $2.7 million. And also distribution and administrative fees of $1.6 million in quarter. These distribution and admin fees that's commenced in October of 2008, have helped to buffer the decline in revenues from lower assets under management, and contributed to a better margin on fund management than we had the last time we were at this level of assets.

Moving on to page 13, our total expenses for the quarter were approximately $5.6 million. That's a 51% decrease from the same quarter last year. And as Frank referred to the largest decline in G&A was primarily related to the proxy costs of $3.5 million that were included in the same quarter last year, associated with the merger of the fund trusts. Second in this area, sub advisory fees declined by $1.6 million or 93%, to $129,000 for the quarter as a result of a change in the sub advisory contract associated with Eastern European Fund, as well as decreased assets under management in that fund. Third, platform fees decreased by 43% to $1.2 million because of decreased assets under management. And that takes us to net income on page 14, of $1.4 million or $0.09 per share, compared to a loss of $1.8 million or $0.12 loss per share in the comparable quarter last year. And next on page 15, we show the results for the last four quarters, which as Frank mentioned earlier, shows sequential growth in earnings per share. Next on the balance sheet starting on page 16, this reflects our continuing high levels of cash, no long-term debt. Combined with our marketable securities, the cash and cash equivalents constitute 76% of our total assets, with working capital of over $27 million. And finally as you can see, on the next page, page 17, equity remains strong, and as Frank mentioned we still have no long-term debt. And with that I'd like to turn it over to Susan.

Thank you, Katherine. As part of the fund restructuring in 2008 that we have spoken about in previous webcasts, US Global and the funds trustees agreed to contractual expense caps on all of our funds for a one year period. And that one year period ended September 30th. So beginning October 1, we replaced all of our contractual expense caps as voluntary caps, and the caps on our equity funds were set at roughly 25% higher than the previous contractual caps. The caps on our municipal bonds and money market funds remain the same. They have not increased, however, they have gone from contractual to voluntary just like the equity funds. Mutual fund expense ratio is a high profile topic these days as many of you know, not only in the financial media, but all the way to the Supreme Court which heard the Jones v. Harris case this week.

It's an important topic for us here as well. We embarked on an education campaign via the internet and our various publications, to let our fund shareholders know more about the key factors affecting expense ratios. There's one point I'd like to make that isn't noted on the slide. We're very pleased with the success we've had this year in our institutional services group in bringing in assets via the broker dealer platforms. Our AUM coming through the Schwab institutional channel, for example, is up 45% through September. This is a channel most sought after by our no load fund peers. Overall, institutional assets are up 67% for the year.

The institutional gains are critical, because these investors tend to control larger pools of assets. And they make their decisions based not only on performance, but on investment process and the quality of management. With the decrease in assets over the last year, many fund complexes are experiencing increased expense ratios for their fund. And here at US Global, we are no exception. In addition, we are a very small boutique mutual fund complex. And it does present some challenges when we're trying to achieve economies of scale, that much larger fund complexes enjoy. Several small factors contribute to our funds' higher than average expense ratios. Number one, would be small accounts. The median fund industry-wide has an average account balance of approximately $40,000. Here at US Global, our average account size is substantially less. Given our niche funds, investors may be allocating a smaller portion of their investment portfolio to our specialty funds. Next we have small funds sizes, and a small complex. Our funds asset sizes are also small for the industry. And all of our funds have the same regulatory and compliance standards and these, as the larger complexes do.

And these operational expenses are costly, as a percentage of assets for a boutique fund family, than a larger fund family, because the larger funds are able to spread their expenses across a larger asset base. And finally, small Company investments. Our funds that specialize in the natural resources and emerging market sectors, a substantial amount of our investment in those funds are made in small and mid-cap stocks, as well as in a host of emerging economies. And while these are where many of the best opportunities lie, they also come with added costs for administering trade and maintaining the highest standard of care. We do have small investors in our funds, but we have an extremely loyal investor base that has stayed with us through the thick and thin. And we do appreciate their loyalty.

The next few slides that I'll be discussing with you are prepared by the Investment Company Institute, and they offer a snapshot of small fund complexes over the last two years and what flows that we as a group have been experiencing. A small fund complex is one that is defined as having less than $5 billion in assets under management. When comparing 2008 to 2009, you can see long-term assets in 2009 are almost back to the 2008 levels, and that is an important factor for small fund complexes. You can see, however, that the money market fund assets are down. There was a huge amount in 2008, approximately $400 billion industry-wide, of assets that left money market funds. And that did affect small fund complexes. The net cash flows to small companies, and small complexes began to become negative in 2007, as you can see on this slide, and that continued into 2008. The entire industry was in net redemptions in '08. However, small complexes experienced a higher percentage of net redemptions compared to larger fund complexes.

And in 2009, small complexes have rebounded, but we're still getting a lower percentage in 2009 of net flows, compared to larger fund complexes. The next slide is a snapshot of which funds attracted assets over the last two years. And I find this very interesting. In 2008, actively managed domestic equity funds had significant redemptions, as you can see. In 2009, they're still in net redemptions, but at much less rate. However, indexed domestic equity funds for 2008 and 2009 are in net purchases. And this is attributable to index funds that are very prevalent in retirement platforms, which see consistent money flows from year to year. Foreign equity funds also experienced net redemptions, particularly the actively managed foreign funds in 2008. But you can see, they have rebounded in 2009. And that is because I think investors are looking for and expecting faster growth in non-US economies. But the significant story for 2009, is the bond story. Bond flows are getting the dramatic flows, and this is primarily due to investors looking for safety, and having lowered risk tolerance levels.

Next slide compares the flows of small complexes to large complexes. In 2008, 58% of small complexes were in net redemptions, compared to large fund complexes, 72% were in net redemptions. So in 2008, smaller complexes did fare slightly better in that regard. However, in 2009, still approximately half of the small complexes are in net redemptions. compared to only 34% of the larger complexes. Larger complexes typically are the firms that are offering the bond fund products. And since that is where the money flows are going, you see more flows in 2009 going to the larger fund complexes. And with that, I'll turn it over to Terry.

Thank you, Susan. On slide 24, let me touch a little bit on our branding strategy here. Different fund groups use different ways to brand themselves. For us, it's education, it's communication, it's timeliness with what's happening in the markets. And as you can see here, we started doing webcasts regarding the market crisis back in August of 2008. You remember back then, it was pretty chaotic time, as we were heading toward the failure of Lehman Brothers, and all the problems that followed after that. And we intended it, as kind of a one off, to just kind of put jittery shareholders at ease that there was not -- the world was not coming to an end. And we found that we had such a great response to that that we decided to keep doing these webcasts. And we realized the importance of putting information into the marketplace, sharing it with our shareholders and others. And we kept doing six of them down to the bottom of the market back in March. And even though the markets have recovered, there has been some volatility since then. And we've kept doing the webcasts. We do commentaries in our investor alert.

We do many other forms of communication to put our insights and perspectives, out there for people to see on our key sectors, and our markets overall. And shareholders appreciate this standard of care that we provide, and we expect that we will keep doing that going forward. The reward for that ambitious communications program, we saw last month at the Mutual Fund Education Alliance awards in Chicago. We won six awards there, all of the industry's major players compete for these awards. We came away with six of them. We've won -- I think we've won about 14 of them over the past three years. It's really a testament to the value of the communication that we are putting out there for our shareholders. Just going down the list here, we won for our quarterly shareholder magazine for the third straight year, our weekly investor alert, and weekly adviser alerts, advisor web sites, an educational program on what's driving gold, and our commodities periodic table that shows reversals in the various commodities. All of these were honored by the MFEA, and we're very proud of that. Also part of our branding, our communication, is our website. It's probably our most critical thing that we do with that in the communications sense.

And we have revamped our website recently, to give it a cleaner look, with better organization, easier to navigate for people coming in, better organization of the information there. And I encourage you to have a look for yourself, if you haven't already been there. It's a -- again, we're very pleased with how that's turned out, and the way that we're able to convey information. And finally, on fund recognition, our long-term track record, investment leadership, results in performance, we have -- we've won more than two dozen Lipper Fund awards and certificates since the year 2000, really a testament to the quality of our investment team. And we expect that we'll keep moving in that direction going forward, as the markets rebound in our key sectors. And with that, I'd like to go back to Frank, for some thoughts about emerging markets and commodities.

Thanks, Terry and thanks, Susan and Katherine for great presentations. And just a comment on -- I thought was an excellent overview, some new education for the GROW shareholders of what's happening in our mutual fund industry, and trends that are taking place, and that sort of flying at 50,000 feet overview puts us in context of what we're doing. And with that, we were happy -- I remember earlier in the process of our 15C, of showing that the redemptions that we were experiencing less, than our peers. And still nevertheless, you still get redemptions, and that's just a fact of the market. But these educational tools that we're using, I think help investors understand. And if you've never been to our website, to watch and listen to "Anticipate Before You Participate" part one and two, I highly recommend it. Because every day we go to work, and we know at US Global over the next 60 trading days, emerging markets can be up or down 20%, and that's just normal volatility. Rising trends or a falling trend, that's what can take place. And last year, we experienced what's called a two standard deviation movement or down side, where they fell 40%. And at one point it was like a quick 60% decline for a brief period, and that doesn't happen very often.

I'm going to show you this visual. But what's important here, is this slide. And recently with our Vice Chairman, Roy Terracina, we were in Shanghai at the CLSA conference. And we were at this particular building, it's a hotel that went up probably about 15 years ago. And the photograph is taken of this building from the -- what's now the Shanghai, the tallest building in China, it's the world financial center, and it is that vibrant at night. It is just absolutely mind-boggling to see the activity. And at the end of this presentation, we have a four minute video clip showing this tower going up, where they're building a floor every four days. And this whole fact that the government is so focused on infrastructure spending, and I've commented on, is driving -- seeing sort of the standard of best practices for all the emerging countries.

So let's go to page 29. And I think this is so important that we recognize the world is experiencing an unprecedented change in the global economy, that also has a sustainable tailwind because of the massive demographic and social change. After 200 years of global dominance by Western economies, structural changes in China, in India, Brazil, and other emerging economies are projecting them to potentially become the larger economies in the next 20 years. The most significant development is the emergence of a new middle class in a developed world. We have invested in a Company that's in Africa. And it's focused not on the billion Africans and the poor, it's focused on the upgrading of the 220 million middle class and building hospitals. And those hospitals will then do work in that area to help the poor, but the idea is to cater to the emerging middle class, which then pulls everyone else up. And this to us, is very significant change taking place. And I was only 200 years ago, look, the world's population was 1 billion people. It took 120 years to hit 2 billion. And then, 40 years to hit 3 billion. And 15 years to reach 4 billion. So between -- I mean take a look at when we landed on the moon and Y2K, the world's population doubled to 6 billion, and we're now at 6.5 billion people. And this is very significant.

And on page 30, there's also a bit of luck here. The luck is is that in 1978, Deng Deng Xiaoping became the leader of China, the largest country in the world in terms of population, one of the smallest GDPs at the time. He's not a Chavez. So it's -- we're very fortunate and lucky, and sort of coincident of the world's events, that you didn't have a sort of a dictator that was very caught up with the policy of two pillars of the success were social stability and a means for people to get rich. And at this stage -- in this visual showing you the tipping point, was when half the global population is estimated to live in urban areas. And what you're seeing here, is where emerging markets are expected to account by 2015, only a couple years away, three quarters of the world's urban population. The next visual is this catchup potential, the big macro trend. That is as massively increasing population of 6.5 billion people has contributed to an increase in consumption in virtually all goods and services. So for example, US GDP is up 10 times since 1972. China's GDP is up 10 times since 1978, when Deng Xiaoping took control. And when it's -- the fact that it is from such a low base, what you can see here, the upside is still massive. And with technological improvements around the world and ability to communicate from cell phone and the internet and CNN being all over the world, these countries want the American dream

And their policies are very much for job creation. And what that's doing is putting a tremendous demand on the commodities. So demographics is the key. On the next visual -- and we continually strive to help our investors better understand, the -- sort of the current -- the characteristics of this current bull market in natural resources, by explaining what caused the previous bull and bear cycles, and where are we in this cycle. So what caused the last 25 years commodity cycle from 1955 to 1980 was the Baby Boomers generation in the US, and the development of Japan, Korea and Taiwan. And then it ended with the inflationary run in the U.S. in the late '70s. Also during this period, Russia restricted commodities, and Africa and Latin America had serious political issues. This is all changed.

And it's significant to recognize that this has changed. And what we're seeing in this visual is that the share of emerging markets, including the Middle East in 2006 surpassed the US. And that's when the price of oil started to take off. The next visual is showing this sort of importance of middle class, and the growth of the middle class in the world. And consumers living in emerging markets, the first thing that they consider, is getting a home that has clean water. Getting a home that has basic things that we take for granted.

And what you see in this movie that won all the awards last year, Slum Dog Millionaire, is the exporting of Americanism ideals -- you too can be rich and these two boys, disaster after disaster, falling off a train, landing on their feet, they always seem to prosper on the emotions of hope, hope that things will get better. So here you have the most dire poverty, but there's hope. And this is driving a huge, significant change around the world. Next visual is giving you this macro trend, the tailwind for investing in emerging countries, is the world's distribution of income and looking at the percentage of people that are this middle class. And as I mentioned earlier, Asian, Russian, Brazilian families entering the middle class, the first thing they want to do is have a home. And they are not going to get -- they just want basic plumbing, and they want electricity. American middle class is very different. They're expecting more money to go towards leisure, travel, healthcare, and going to Home Depot.

This is a very important factor when you take a look at China, is shortly going to have the whole population of America, with a GDP of 300 million people, 1.3 billion, making middle class wages, and that's driving this huge demand for resources. So the next visual is a simple macro tail -- another tailwind of infrastructure spending. What we're seeing here is the urban population and that shift. And the natural effect of this global social economic change constitutes the basis of the secular bull market in natural resources. This started in 2000 and may last to 2020 to 2025, based on previous cycles and looking at the (inaudible)cycle, this is a usually a 20 year cycle job creation. The next visual is to take a look at how Asia responded, in particular China responded last year to the economic crisis. Immediately they started spending money, and another $800 billion that's in the regional plan that's basically excluding Japan.

And you take a look what's projected for the next five years. It's $2.5 trillion. And the difference between what the US and China, both committed to stimulus package -- of there was approximately $600 billion going into the economy, the bulk of China's money is going into infrastructure spending that required picks and shovels, job creation. And something like only 5% so far of the US budget has actually gone into picks and shovels, and this is a very focused job creation program and this drives higher incomes, this drives higher demands for products. And the next visual is showing you the use of oil. And it's very important to see there's a high correlation of the use of oil per capita as versus urbanization. So as this world goes through this mega shift, where more than 3 billion people shortly will be living in urban areas, then the demand for oil rises, and the demand for other commodities rises. The next visual is showing this impact of comparing the OECD countries to emerging countries. And as you can see, the developed countries in gray, that basically topped out and have been declining, whereas emerging countries are rising.

The next visual on 39, gives you another simple picture of look at China's crude oil net imports, they're just off the charts. And if you were to take a look at strategic stock piling, China and India are starting now to build stockpiles, nothing compared to what the US has of 70 million barrels, but they're still building. I think the numbers are more like 7 and 15 billion, I'm sorry, a million barrels. The next visual is showing the impact. Even though the US demand for oil declined with the economic credit crisis, China has actually risen. And when you take a look at this China oil demand, it's basically offset the US demand destruction. The next visual shows combining the imports of China and US, as Chi-America, as a well-known economist likes to call it. It just shocked me to find in July, we're back to 2008 levels. So what happens when the US economic engine starts to churn? The issue that we see is that Americans as a whole really don't understand what's happening globally, until they go to the gas pump.

And that's where they basically take a look at what's driving it. And it's very different in the '70s, because in the 70's China and India had a global footprint of only about 3% of GDP. Now they're 15% of global GDP, and growing at three times the rate of the developed countries. So this puts an underpinning for strong demand for energy. And we take a look at the long-term power demand, we just also believe it's going to continue to grow. China's per capita power consumption is only 16% of the US. India is only 4% of the US. But what movie won all the awards last year? Slum dog millionaire. Where do you think the policies are in India? They're for infrastructure spending. And also a very significant factor what took place this week, is India is the largest second most populated country in the world, the largest consumer of gold jewelry in the world, what they characterize as price takers. So every time gold corrected, India demand would come in to buy gold for jewelry, and all of a sudden became a price maker when they went out and bought half of the [IMF] gold. That's a very significant sea change, by the second most populated country in the world. So there is factors that is important to recognize.

And what we like to take a look on the next visual is how we simplify this world. Government policies are either monetary or fiscal. Interest rates are money supply, taxes, rising or falling, spending, where is it focused, and when you break the world down into what we like to call, the emergent seven most populated countries against the G7, you do see these huge tectonic shifts taking place. So let's take a look at the next visual. There is a high correlation of oil and money supply. And during this one period, I have another snapshot, you see that the R-squared is basically 86%. That means that money supply and oil basically usually run in the same direction.

The next visual is another factor of taking a look at, an increase in the money supply translate into higher commodity prices in the long run. And what you see here on the left-hand side is helped by securitization, the global money supply expanded at a phenomenal rate in 2006 and 2008. And it fell, in the second half of -- basically started falling on 2008, and then has turned up. The visual on the right hand side is showing you that oil prices rose rapidly as money supply growth far outpaced any increase in oil supply. And what we're witnessing this year is an unprecedented growth in money supply. And that's made gold now at a $1,000 level. This next visual is an important piece of research that compares the opportunities and threats. What the left hand side is showing you, is the shock to real interest rates by the Fed are well-known to fuel commodity prices, inflation due to the short run supply what it does. Basically a drop in interest rates triggers into commodities rising and as you can see over one, two, three, four, five, six and et cetera months.

As interest rates have fallen and continued to stay lower, we're seeing commodities rebound. And not only that, we're seeing government policies in emerging countries very focused on infrastructure spending for urbanization, which puts a huge demand on commodities. Now, the threat. The energy sector passes price shocks to the retail level relatively fast. And this it was a factor that really impacted the US, coupled with the credit crisis last year. Hopefully this year oil prices, gas prices hit $3 a gallon at the pump, and there's ample credit. Not like last year, where you had no credit and rising gas prices. The next visual shows you that car passenger, car sales year-over-year is huge in China. In fact, it's surpassed the US. To make that car, one has to recognize you need steel. And if you need steel, you need iron and you need coal. And what is that, you need transports. So what are we seeing. We're seeing the transports in America taking off, because Warren Buffet is taking a look at the significance of that as an infrastructure play for the arteries of America. And what we're going to be exporting to Asia is a high quality product or commodities like coal.

And what is China now all of a sudden -- they're really focused on building railways all through the interior part, super speed railways also for moving passengers, railways that go 120 miles an hour. The next visual is the huge pent up demand for automotive transportation in the developing world. This is a real simple visual showing that real GDP per capita as it rises, the demand for vehicles rises. You take a look, it's an easy snapshot, where is China and India, where Chi-India going? Their policies are going in the direction of the US. Australia, Germany, well, that means more car demand. And this company there -- it's really -- it's asking -- we own, BYD Build Your Dreams, President -- this particular company, Wang Shampoo -- Warren Buffet has made a significant investment in his company. And I listen to presentations when I was in Shanghai, and this guy has something like 12,000 engineers working for him.

He is a leader in battery technology. So if we go to battery operated cars, guess what? Demand for copper takes off, because -- and same thing with lithium. So here's a man that's really focused on the technology of batteries, for the new cars. And we see -- where's the copper supply going to come from? There's been no major mega discovery since the '60s. So hopping over on page 49, China's overseas oil and gas activity rebounds -- and this Business Week --several months ago did -- "China Goes Shopping". And the Fortune magazine most recent October 26th issue is also on "China on the Shopping Spree". I highly recommend you read it, and gives you an idea that they're doing transactions. And we've had a couple of our investments being bought out by the Chinese, particularly energy that's in emerging markets, public companies that quite often get listed on the Toronto Stock Exchange, that 100% of the assets are in emerging countries are being bought up by the Chinese, and some also in the UK. And it's just an important factor because the government in China, say we've approved policies for building tens of thousands of square feet every day of new construction. We need the commodities to fulfill on that.

Next visual is taking a look at volatility of oil. So this is important because not only give you the big picture, it is a long-term secular trend. But within it, each year there's tremendous volatility that has to do with weather, or you can have a geopolitical event drive it. But this gives you an idea what happens the annual cyclical pattern for oil going back since 1989. I have other research going back further from -- going back 25 years, and it's a very well-defined pattern which takes place. The next visual is a little more complex, but it's very important to understand why GROW is more volatile, because underlying assets are more volatile. Not only because the growth in emerging markets. But when you have a strong economy, say Korea, and the dollar is weak in the US, you get double amplitude in the growth on the upside. And it's understanding that, the same thing with the oil. And what we've mentioned, I mentioned earlier, to go to Anticipate before you Participate, but what's important here is the to look at. what's is the inherent volatility. Basically this visual is saying that the core relation between oil and the dollar is minus 80%. So whatever the dollar is doing, oil is going in the opposite direction 80% of the time. And we know the correlation is something like 86% with money supply and oil.

So now we understand the dynamics from financial factors, and then you add in the backdrop of this huge sector bull market infrastructure spending, and the demands it puts on oil, and this creates a sort of inherent movement that causes volatility. And what we're trying to show you here at the bottom, is that over any 60 trading days, oil can go up or down 18%. The dollar can fall or rise 4.5%, and it's just normal. But what's interesting here is that oil seems to have a volatility in the down side where it falls two standard deviation over the past ten years, more often than it's gone up two standard deviations. So that means you have great buying opportunity. Whenever you get some severe corrections in the oil sector in emerging markets, this is where you have the condition to see the super cycle. And this is where you get that big alpha that when they move -- the actual -- they explode on the upside. So with that I'd like to turn over this very important, amazing growth in China from the National Geographic -- this very short video clip. (Video Presentation). Thank you, everyone, for your patience there. What's important is that picture at the very beginning of this emerging market presentation, was taken from that building. It is now finished, and it is mind-boggling, and right beside, between those two buildings, is another skyscraper going up. They put the workers right on the site, they work 24 hours a day, 80% of the time everyone's got paid time. It's unbelievable, you have to go there. Terry Badger recently took his children. They went over to China to embrace, to see what's going on. And the task of knowledge is the key factor, and right now we have Romeo coming back from Beijing. We have two of our other analysts in Eastern Europe touring around, look for the growth opportunities and what's taking place. So with that, thank you everyone and let's get to some Q&As.

Okay, thank you, Frank. We'll be going to questions here. First, I would like to let you know about a few ways you can keep current with what we're doing, and thinking and saying. We encourage you to visit our Facebook page, and join the growing numbers of our fans there's. And if you're on Twitter, so are we. We find it a great way to keep our busy followers informed on what we're doing. We also have the Frank Talk Investment blog where we share ideas and insights on our key investment sectors. The Weekly Investor Alert, and its sister, the Adviser Alert, our free electronic newsletters sent out by our investment team each Friday to recap the past week, and to look ahead to factors that may be affecting markets going forward.

And finally, as I mentioned before, we overhauled our website, USfunds.com. It's worth a look to see how we streamlined the ways that we present information, and USfunds.com is where you can find replays of our webcasts. You'll be able to find that, the National Geographic video on China that we just saw, it's there. You can find our commentaries there, other videos, and just generally keep pace with what we're doing. So, now we'll take some questions. Again, to ask a question, just type it in the dialogue box at the bottom of the screen and click submit.

I have a couple in hand here. We'll start with one for Frank. Frank, you talked in the presentation about the dollar and its impact on our key sectors. If the dollar were to strengthen, how might that affect GROW?

It will always affect GROW, like we said at the beginning, because the inverse relationship with emerging markets and resources. That's well-documented, and presented on our pages. And that's another key reason why we run a very lean process of salaries, and remuneration is very much related -- to not -- bonus is not a percentage of your salary. Bonus is based on deliverables, and deliverables in every team and I think that that's a key factor. And when it comes to managing the money, trying to manage those downdrafts. Last year we experienced real pain for two months. And really it was a shocker to us, and in pour research we found out that over a trillion dollars that was forced redemptions, by hedge funds, by banks needed money, they forced these -- to blow out stocks. And we found that a high percentage of them were in emerging markets and commodities, a lot of these hedge funds. And a lot of them were in the growth veins that we were seed investors in, and we weren't forced to not sell them, but they were, and that really hurt us. But at the same time we've had a huge recovery from the lows, and I think that we have to be able to manage that volatility. So what we do is we try to manage cash for our funds, and try to buffer those down drafts. And that's the most important part of managing the revenue, because it's a very linear line, management fees, assets and assets are predominantly related to performance.

Thanks. Regarding your bond funds, there was some discussion here about the fixed income sector here. What can you tell us about your -- the growth in your bond fund assets? Frank?

The focus we have in bonds are tax-free. And we're on a big campaign of educating investors. They're growing, in particular our short-term tax free, which has been number one over time periods, highly ranked with the stars, and those rating services, et cetera. And it has a very low volatility. So for us, it's education to shareholders, about diversifying their income. And we're very happy. We're seeing flows and percentage terms are bigger than what the industry is. But they're very small funds, and we feel going down the road that we get these funds up to a certain size, particular over $200 million, then they start to throw off decent cash flow to us. And that's a focus for diversifying.

Okay. Thanks. Question is, how might the firm grow the smaller funds, like Holmes, All American, and even the Global Emerging Market Funds, what are our strategies in that direction?

The most important factor is performance. And that's always the biggest issue that any Chief Investment Officer has to be focused on, and reviewing your processes, trying to capture opportunities, and manage the downdrafts and volatility of risk. So the -- that's the most important part of it, and something that's I'm working on diligently.

Okay. And the final question I have in hand, the IEA, that's the International Energy Agency, is reportedly issuing a report, substantially reduces its estimate for oil demand in 2010. Do we agree with that? What about that China factor?

Well, that's -- the issue there, is policies of China right now are just showing increasing of imports. And I think that the demand that gauge they're talking about is a surplus of oil in the world. OPEC would like to see inventories running about 52 days. And right now, they're 63 days of supply. And at the same time they don't want to see oil over $85 a barrel. I think the magic number is around $65 a barrel. When oil falls below $60 a barrel, which is the long-term basically cost of finding, developing these resources, then exploration development drops off dramatically. And it's much easier and faster to have a child. And right now there's millions of babies being born every month. And that's much faster, than gearing up to go and drill, look for more oil. So I think you're going to see that oil's going to be a range-bound, and it's going to be trading between $50 and $90. And it's going to be a non-event for it to go to 60, and up to 85. This is going to lead to stock-picking, so stock picking is going to be a very important factor. How good are you at picking those opportunities, going to emerging markets, what we do in our funds, going to Columbia, being on the ground floor of the creation of new oil companies that show huge growth rates. That's what we are focused on.

Okay, thank you, Frank. Thank you everyone who did submit a question. At this point, this concludes US Global Investors earnings webcast for the first quarter of fiscal year 2010. This presentation will be available for replay on our website at www.USfunds.com. Also available for replay at USfunds.com is this week's special webcast presentation, "What's Driving Energy", which looks at the key drivers and trends affecting the global energy supply and demand. Again, thank you all for your participation today. Operator?

Ladies and gentlemen, that does conclude our conference call for today. We thank you for your participation and ask that you please disconnect your lines.