US Global Investors Inc (GROW) 2015 Q2 法說會逐字稿

Welcome to the US Global Investors Webcast, US Global Investors Earnings Announcement for the Second Quarter of Fiscal 2015. If you have any questions during the webcast, simply enter your question in the dialogue box at the bottom of the screen and click Submit. Also, you may download a PDF of today's slides by clicking on Resources tab in the top center area of your screen. To switch back to the presentation, just click the slide tab.

We would like to begin by introducing Susan Filyk, Investor Relations at US Global Investors. Ms. Filyk?

Thank you and good morning. Welcome everyone to our webcast announcing results for the quarter ended December 31, 2014. The presenters for today's program are Frank Holmes, US Global Investors' CEO and Chief Investment Officer; Susan McGee, President and General Counsel; and Lisa Callicotte, Chief Financial Officer.

During this webcast, we may make forward-looking statements about our business outlook. Any forward-looking statements and all other statements made during this webcast that don't pertain to historical facts are subject to risk and uncertainties that may materially affect actual results. Please refer to our press release and corresponding Form 10-Q filing for more detail on any 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. If you have a question for us, you can submit it at any time during the webcast. Simply type your question in the dialogue box at the bottom of the screen and click Submit. If we aren't able to answer your question during the live presentation, we will follow up with you individually.

Now let's go to Frank Holmes, CEO and CIO, for an overview of the quarter. Frank?

Thank you, Susan. For everyone, I'm calling in from Cape Town of Indaba Conference, which is the largest mining conference in Africa with ministers from every country attend in addition to the CEOs predominantly from every major mining company. So I'm doing both research as a Chief Investment Officer and branding in speaking on panels and participating. So the call may have bit of an echo, so I apologize for that.

But let's get onto slide number 4. We are a boutique publicly listed investment advisors specializing in gold, natural resources, emerging markets, domestic equities, or municipal bonds. And for the past year and quarter, the real highlight and strength has been coming from our near term municipal bond fund. And the challenges continue for the last year of the show and reflect on emerging markets and resources, which seem to have peaked in 2011 and hopefully that this will be a trough year.

Basically, there's a thought process of this particular conference also with the accelerated spending of EUR60 billion a month out of Europe and to the idea that $500 billion piece dividend from America and oil prices collapsing. Thanks to fracking and I think the technology advances that we've made basically are accelerating, budgeting, spending, and many of these countries will have to import oil.

South Africa, which is the biggest country and richest country in Africa, is also net oil importer. So it�s a big benefit to the economy here. It's going to take about six months before we start seeing a take-off as sort of highlight of what I am listing to at this conference.

But going on our next visual on slide 5, we're a go-to stock for exposure to emerging markets and resources. We are debt free, strong balance sheet with the reflexive cost structure, and a multi-divined in return equity discipline.

We're going to comment more about that in the presentation as we have to deal with the benefits to the world of falling energy prices has been a real challenge to us short-term because we have resource funds which have exposure and we also have some investments in high dividend paying investments like MLPs, et cetera. So they all took in the collection last quarter, and hopefully, as I said earlier, think that this should be a trough period.

But let's take a look at our top institutional holders of GROW, that's the next visual. As you can see on slide number six, financial investment management group stayed at 18%; but Royce Funds at 15%; Vanguard is 4%; Century Investment Management 3%; and BlackRock Fund Advisors, 3%. And we thank all of them for their support as shareholders in our company.

In addition to all retail followers that we have both on funds and grow as a public company. We�ve been paying, consistently paid, as the next visual shows on seven, seven years, slide 7 for paying dividends. And current month lease is $0.05 per share, and yield is roughly around just under 2%.

We've continued -- so the Board approved the repurchase of up to $2.75 million of its outstanding common stock. And so, we continue to do that in accordance with all the regulatory rules we have to follow.

And then we have the next commentary, I think, is important during the fiscal quarter 2015. We repurchased 50,212 class A shares using approximately $147,000. We buy these on down days or down moments, and it�s less where the models could be opportunistic on down days.

And the next one -- it basically highlights -- it is an algorithm. We used to buy shares on down days in accordance with all applicable rules and regulations that restrict the amounts and kinds of purchases. We need to suspend this anytime, and that's just a normal disclosure stuff that we have to give.

The next one is for current lineup of our mutual bonds.

Frank, Frank.

Yes?

Could you pause for just a moment? We lost connectivity here, and we need to get the slides to catch up with you. So, pause for just a moment.

Okay.

On which slide did we lose connectivity?

Five, five.

slide five

slide five, okay. GROW strengths?

Yes.

Okay.

Okay, we are good to go.

So, slide five, GROW strengths, go-to stock for exposure to emerging markets and resources. We�re debt-free, strong balance sheet with a reflexive cost structure.

But there�s a delay to that. A lot of times as you can see that it just takes about 60 days for the cost to adjust to lower assets; and this we�ll comment later in the presentation. But we have a multi-dividend return equity discipline.

Slide number six, is the top institutional holders of GROW, Financial Investment and Management Group will have the largest; Royce Associates, number two; Vanguard, number three; Century Investment Management, four; and BlackRock, number five, with both equal 3%.

And I like to just always thank our investors for their loyalty and their thoughts in putting money to our funds; and in addition to bringing money to our funds, being shareholders at GROW, especially in the challenging time for all these emerging markets have been declining since 2011. And so, we get these massive rallies, but it�s the lack of follow-through in the asset class. But I do believe that we're in the trough period here.

The next visual is showing you GROW dividends paid monthly, consistently paid for more than seven years, and current month for -- is basically in place since 2013, about half are coming per share, and the current yield is just under 2%.

On the share repurchase program is on next visual slide, that�s slide 8, and the Board approved the repurchase of up to 2.75 million of outstanding common stock, and the open markets for calendar year of 2015. And during the second fiscal quarter 2015, the company did repurchase 50,212 class A shares using approximately $147,000.

We do have an algorithm, which is used to buy back shares on down days in accordance with all the applicable rules and regulations that restrict the amounts and times for every purchasers. And they may suspend or discontinue this at any time. But they�re still in place, and we�re trying to be as pragmatic as possible in demonstrating that return capital model.

The next is the current lineup of mutual funds. And you can see that gold and precious metals, and nat resources are big asset classes for us. And they have continued to have really difficulties along with emerging Europe in this past year and in this last quarter. We grew it back in the calendar quarter of 2014 with the oil plunge.

Now, these are benefits for the world and it�s a benefit for America. But when you have resource funds, they all take a plunge, and it�s usually a violent down correction without seeing these oil prices bounce up from their lows in this particular quarter. So it did impact us dramatically last quarter.

The next visual is to go on building for future growth; 65% ownership Galileo Global Equity Advisors developing innovative dynamic ETF products, expanded product lines. And that�s what [views] this vision investment future. And I think it�s also this idea about how can we better in our strategy to monetize the brand that we have and the follow-on that we have both institutionally and retail globally.

And the Galileo also is paying monthly dividends and a lot of that in Canada was resources of the energy stocks, and they took it on the chairman, just decline. And the Canadian dollar declined last year is the benefit for all those companies in Canada that are exporting gold, or copper, or oil because of that margin expansion or they are able to protect themselves from the decline of the commodity price. But it does impact our investments in Galileo which we can always address more details. But we think it�s more short-term paying dispute, and hopefully, honestly, I just think is going to be behind us.

Now let�s talk about the vision. That�s just much more exciting, and the vision for the future growth is on slide number 11. We formed a strategic relationship with US Bancorp Fund Services ETF Series Solutions. US Global Investors will be investment adviser to a series of specialized smart beta ETFs, preliminary prospectus for USGIs first ETF filed with the SEC is coming, and Susan McGee can maybe comment on this in a technical; or regulatory questions asked, she can answer those.

And the new ETF Jets ready to take off and will be based on an index of companies in the global airline industry. And small portion will include [somebody at the] for airports. And our goal is to lower the volatility of this sector but still get the upside. And that�s what this might have been, very aggressive from detailed analysis of our factor models. They go into it as far as -- one of our product for investors.

The next visual is number 12, and it�s key themes: our approach to building performance is simple and continuous; it�s a streamline for stability, which we had started in 2013, which we started to process of shrinking our product lineup with money market funds. Truly a real cost to the whole industry in which we have highlighted in previous part of the presentation of billions of dollars unwinding at and partnering with US Bancorp, lowering that cost structure and a number of employees and truly focusing on what their core strengths are, and then getting ready for EPS and still looking at acquisitions so that we can unlock our company.

And the next visual will show you unlock the potential that we have; is how we streamline. And I think number 13 is nice and simple. It shows you, CEO [1/1], Executives still the 2, and CFO and Susan McGee -- Lisa Callicotte will be speaking shortly, and Susan McGee, President and General Counsel. But then on the leadership end, we have shrunk up by 25%, and the number of employees has shrunk by 25% as we have streamlined a lot of our process internally.

As you can see next visual is the growth of ETF products, historical ETF assets in trillions of dollars, and the bigger part is in recent conference we went to. And it�s not only getting $2 trillion, but the fastest growth is this idea of smart beta. And that is clearly some factors that get rid of noise and the rebalance once a quarter of a dynamic algorithm. For me, it�s more like a slow quant system, doing high frequency trade. But it does rebalance and reposition for investing. And we can do it a lot less expensively for investors.

The next visual is showing you, on slide number 15, the quarterly average assets in the management. They have declined and explained that already. A lot has to do with the decline in resources, in particular any investments directly or indirectly that are tied to the energy space. And it's a benefit for the world, it's a benefit for Americans, cheaper oil at the pump, but it does impact the overall investments that we have. And we have seen a bit bounce in oil and think it will stabilize.

But the interesting part is that airlines, they absolute took off in the last quarter with the fall in energy prices. So we think that the idea of the ETFs that's related to, inversely to lower energy prices, airlines, in particular, is a great product that they've offered and give us greater stability in our overall revenue and assets.

In addition to that, the airline industry has been going through a lots of changes in the past three years, in particular, streamlining their costs/ And now all of a sudden they�re throwing off lots of positive free cash flow. So it's not just the energy falling, it's their models have changed and it's another reason why we like them.

The next visual is showing the divergence between domestic stocks, gold and mining companies in emerging markets. And I've been talking about this during this presentation.

And this is the visual we try to explain to you in simple terms. You can see that the gold miners are picking on the chin and our assets are -- I mean even though we outperform them, our active gold funds have outperformed the market victors during this time period. It's actually really a decline to overall assets.

And the emerging markets, they declined. And so, if you take a look at the Eastern Europe, in that particular asset class, they declined more or so than just the emerging markets overall index. And as you can see, the S&P has been on a charge which has been important for our diversified portfolio.

The asset breakdown of US Global funds is pretty well consistent. It hasn�t changed dramatically as you can see with the numbers reflect. So there's nothing of material, but it's just good for you to understand and if you�re a new shareholder. But you can look at this to understand what portion is institutional retail.

The next visual is showing our balance sheet has no debt. We maintain lots of assets. We repositioned some of those short-term cash that's gone into higher income-producing assets. And that's what we did -- we had this -- throwing out lots of income from our investments, but still some of these investments have their own volatility, which Lisa Callicotte can comment on later in the presentation.

Earnings per share per quarter, as shown on the visual, that it was a challenge here. As you can see, a year ago, it was actually more severe because of the write-downs we took. We had to take with restructuring as it's so costly to unwind bonds to streamline the business. And it seems to be mutual funds are becoming � fully [act] mutual funds so expensive not only during the open and launch but also the close.

And ETFs seem to be a much more cost effective not only the lower fees but you can charge for the customer, and it�s a benefit for the investors. But the overall maintenance in the cost will run in the product line, the engine. So that's important part of historical visual.

The next is showing you peer group comparisons. We also had to look at ourselves in a world as a growth company, as a valued company, as an income company, and you can see that it's been a real challenge with returns on capital as assets have declined and we�ve tried to, as fast as we can, to adapt and adjust our cost to the decline in emerging markets of assets.

The next visual is showing that, over the past decade, our average return compound has been 8.57%.

And the next visuals, I'd like to show in 22, is how is it compared to other asset classes and how did the Vancouver, which we have investments in a long time, how did it perform. And you can see the [puts of gold]. But GROW is a go-to gold stock and the outperformed spot as a go-to stock. And we have performed a lot of these other things that focus on emerging markets and resources.

And then we took a look at what the quarterly numbers that reflect how we've done. And we've underperformed the Russell 2000. I think it's really simple. And we used to outperform it when we had a higher asset base and we had positive flows. And hopefully we'll get this done as fast as we can with ETF launch in focus.

Now let's turn it over to hardworking, Lisa Callicotte, will give all of financials, and to cover the income statement and balance sheet, if there are any questions later on. Lisa?

Thank you, Frank. Good morning. I'd like to summarize our results for operations for quarter ended December 31, 2014. As I discuss our financial results, significant change compared to the same quarter last year due to obtaining controlling interest in Galileo in June 2014 and consolidating Galileo's balance sheet and revenues and expenses in our financial statement. Therefore, these statements increased by the amount we consolidated for Galileo.

Beginning on page 25, we recorded total operating revenues of $2.3 million for the quarter. This is a 13% decrease from the $2.7 million we reported in the same quarter last year. The decrease is primarily due to decreases in our mutual funds, assets under management, and was offset by the consolidation of 519,000 of Galileo revenue.

Moving onto page 26, operating expenses for the quarter was $3.3 million, a decrease of $942,000 or 22% primarily for the following reasons: employee compensation and benefits decreased $325,000 or 17% as a result of fewer employees and lower performance-based bonuses offset by the addition of Galileo expenses of $144,000; general and administrative expenses decreased $552,000 or 36% primarily due to higher fund reimbursement and fund restructuring cost in the prior year, offset somewhat by the consolidation of Galileo expenses of $171,000. Platform fee expenses increased $67,000 or 15% as a result of including 211,000 of Galileo's platform fees and was offset by a decrease in platform fees of our mutual funds due to lower assets sold through broker-dealer platform.

On page 27, we see our operating loss for the quarter ended December 31, 2014, at $891,000. Our other income, which is our income related for our investments, was $53,000 for the quarter. And this amount includes approximately $264,000 of dividend and interest income but was offset by unrealized losses in our trading securities of $295,000.

Our investments in energy, natural resource sectors had a large decline as these sectors as a whole declined. And at this time, we do have the ability to hold these investments until the market changes and these sectors are more favorable. But this downturn has approximately $0.02 per share effect on our net income. Net loss attributable to USGI after taxes for the quarter is $842,000. And as you can see on page 28, it's a loss of $0.05 per share.

Moving on to page 29, we still have a strong balance sheet. We own our own building and we have cash and marketable securities of $21.6 million that combines and make up 75% of our total asset. As you can see on page 30, we still have no long-term debt and the company has a networking capital of $22.3 million and a current ratio of 14.8 to 1.

With that I'd like to turn it over to Susan McGee.

Thank you, Lisa, and thank you to everyone who�s listening in today. The US Global Investors Fund has a history of demonstrating leadership in investment performance. In fact, since 2000, our funds have received 29 Lipper performance awards certificates and top rankings.

During the past quarter, our sales and marketing efforts have focused on one of our top rank funds, our five star near-term tax refund, or NEARX is the ticker, and it has delivered consistent positive performance over quite a long period of time. In fact out of 25,000 equity and bond mutual funds, only 30 have had consecutive positive annual returns for the past 20 years. And we're very, very proud that NEARX is one of the few.

Our investors and financial advisors repeatedly tell us that they appreciate the history of no drama performance that this fund has provided during fall of the market. If you compare the S&P 500 to NEARX, since 2000 you will see that it took the S&P 500 13 years to pass a steady growth of the near-term funds.

This fund seeks preservation of capital, and it has demonstrated minimal fluctuation and its share price; rarely moving more than a penny in a day, with interest rates that we have now at 50-year lows of the tax equivalent yield for NEARX is an attractive alternative to [advanced] CD rates. NEARX has earned the coveted five-star rating for overall performance among municipal national short-term funds.

We're also pleased that two of our funds hold the top Lipper Leader rating. This rating is based on investor centric criteria. And on a scale of one to five, Lipper Leader funds that are rated five are in the top 20% of their category. The near-term tax refund rates of five for preservation and the US government securities ultra short bond fund rates a five for preservation and expand. We have found that investors value preservation and tax efficiency. And we're happy to offers funds that are highly ranked in these categories. And along with our investment leadership, US Global Investors has earned recognition as an industry leader in investor education. We�ve received a total of 64 awards since 2007 because we believe that informed investors make smarter decisions with their money.

We have a firm-wide commitment to educating investors. Each week our investments and marketing teams publish the award winning investor alert and advisor alert to help investors navigate the complex global markets that we have today.

Frank writes a weekly special commentary for these newsletters, and he also regularly posts to his CEO blog FrankTalks, which is one of the longest running blogs in the financial industry. We funded our special report to case studies or another format in which can share our research, our insights, and our expertise. These, along with the wells of interactive materials, are available on our Web site, usfunds.com, and we encourage you to visit the Web Site.

Our regional educational marketing piece has received an invaluable amount of earned media which is free, viral publicity that is gained through sharing of our content by third party sources. And this helps us leverage our brand by reaching millions of readers, viewers, and potential investors.

In addition, our online community is growing as we interact frequently with loyal and digitally engaged followers through email, Facebook, Twitter, and LinkedIn. Frank is also frequently sought out by the financial media and is known as the go-to bull guy for his expert and balanced views on the metal.

In 2014, Frank was invited to share his gold market analysis on his weekly show on the biggest gold Web site in the world, Kitco. Today, we have aired 45 episodes of the Gold Game Film, and the audience is about 10 million monthly visitors on the Kitco News Web site.

In addition other members of our investment team are also sought out by the financial media. They were discussing natural resources, domestic and emerging markets. We have been interviewed by CNBC in the US and Asia, Bloomberg, MarketWatch, and many, many more.

In addition, many influential financial newsletter writers have also recommended our funds to their shareholders.

And now, I would like turn it back over to you, Frank, to discuss what we have been seeing in the markets recently. Frank?

Yes?

Would you like to discuss what we�ve been watching in the markets --

I am sorry. Yes, I am sorry. I did have to -- yes, yes. And what I would like to really comment on is I would add to color to what Susan had to say that it�s very difficult for our no drama NEARX line to create an ETF around it because a big part of that alpha creation is managing cash and the volatility that takes place.

So, recently, we had some volatility [gallop] at 10-year government bond and five-year. And we have quant models that measure that in addition take a look at inflection points along the yield curve. So there are times when we will have 20% cash and try to capture that, and that�s helped us deliver that performance with lower volatility when it comes to the ETF space which I�ve been doing lot of work on. It�s more of -- it�s a very different factoring model.

And so, I think for ourselves going forward, it�s just really truly to stay focused on what�s taking place in the capital markets and how can we have a product line that�s diversified for investors to be able to inexpensively be attracted and use that as a go-to place in addition to other fund groups since how do we do what we are doing such as our ETF for Jets, which is a global perspective dominated by the US, and news factors to be able to dynamically adjust and adapt to the key factors that we are looking at these companies.

So, with that, I would like to roll into what we experienced last year, and we wrote about this and a lot of coverage around the world. It was the epic price reversal in the dollar and commodities. And there are several factors that have led to that. So, you can go to the Investor Alert.

And I highly recommend that if you�re not a subscriber that you sign up. And you can see how we think in every week. A team publishes what are the strengths and weakness of last week impacted a particular category that we are intimately involved with by investing our money for that particular fund.

So, it does cover China, it does Europe, and it does cover energy, and it covers the gold, and it covers domestic equity, and it covers tax free, what are those factors. And then we try to take a look out for a one week outlook, the opportunities and threats to be. And one of the big things we�re trying to highlight this past year and inform investors on the significance of PMI, Purchasing Manufacturers Index, and how that impacts emerging markets, in particular the collateral that it has with resources, demand, supply, et cetera.

So we did go through this as the dollar became strong because the rest of Europe and other G7 countries, they have such weak economies and their interest rates were all negative. And so, you saw this interesting bifurcation took place in the capital markets but it did impact this.

On visual number 52, you can see the slide, we did try to highlight the significance of that $500 billion piece dividend for global consumers and businesses and the ramifications for that. That global PMI, it turned negative. And when it turned negative last year, we started seeing this skittishness, in particular, in August.

When people come back this global PMI, PMI is looking in the future. It�s a what will people be purchasing to manufacture a product, and its hugely a good tool looking six months out. And its turn to have weakness last year and that was Europe. And France was the first to reflect that, then Germany, and then the (inaudible) base, and then Japan, which we�re a negative PMI, and then China.

So when their numbers all really turn negative in the summer, we started seeing oil unravel. And what we have done in our studies, and we have highlighted that, is it there was like 70% to 80% rally in copper-based materials and energy. And the one month cost is above the three month and vice versa. It�s almost 100% decline when it�s negative.

So right now, it�s positive for the world as it is positive and that�s important. But what�s really more significant for oil, and gold, and copper, et cetera, is China. And China�s PMI is not positive, it�s below that 50 mark.

So that is really important. And the interesting part about China is it has a new normal, as we like to call it, is that the infrastructure build that they had for this huge demand for commodities is repositioned and the countries policies are non-infrastructure and non-manufacturing to the degree that they were before so that GDP slows down but their stock markets up 50%.

The stock market took off in August, and a lot had due with domestic equities when they�re not involved with exporting their products, as the consumption demand in [turmoil] in China.

So that's another sort of important factor of putting consideration of what's happening around the world. But next visual showing is that US crude oil production had a 25% year high, and that means that we're importing rest from the rest of world. We're not importing from like we used to, and it gives us so much strength internally. And the next one shows you that the rise in rigs, as you can see from 2009, we basically went from 200 oil rigs running to 2,000 was the number, and peaked at just under 1,800. It's declining now with the lower oil prices.

But it�s Americas� ingenuity, it's Americas' creativity in this space to unleash the energy that's underground. And now the rigs have been caught up in marginal wells and we still have a lot of productivity from existing wells. These wells, the rig count, have to come down to 1,000 before. We�re really starting to see oil get back to $70 a barrel.

And the next visual is trying to show you, in context, we've had some newer version. But we look back 30 years, 30 years of data of looking. And you can see on slide number 56, on the stress of a dollar being so strong, and oil then taking on the chin not only is there an inverse relationship of the dollar to oil and the dollar to gold, there are other factors where the PMIs of the world had turned negative.

And US development of its wells, et cetera, had gone through the roof. So we had additional supply in the marketplace. Europe was weak economically and the dollar was strong, so there was like the perfect storm for oil prices to come off. And as you can see here, they had a huge-huge drop. Now they seem to have redirected of the bottom historically does bottom in the month of February.

But the next visual is trying to show you that highlight that West Texas crude oil historically bottoms in January, February, and we're up from the lows. And what's also important is to show you that global oil demand still remains strong. It's highly correlated to PMIs, and the PMIs have turned positive. They're not ripping, but they are positive, which is constructive.

Now we did a special that�s received a lot of positive feedback. The next visual is trying to show the world with that breakeven oil price has. And what happened is that the Saudi Arabia, it doesn�t take much to get oil over the ground. It's like $5. It�s called lifting cost. But the mixed share that they have social stability, that they did not go through the rites of Arab Spring from a couple years ago, the government has been spending an enormous amount of money on social housing, social products, et cetera.

And what does that mean? It means that the real costs to maintain their budgets, if they want to stay to the surplus is pushing more like $80, $90 a barrel. So they have to cut back in military spending, their social programs if oil stays down at these levels for very long. And that's something that they have to wrestle with.

So the next visual is showing you Russia's currencies tumbling. And what's interesting is that Russia is the largest exporter of energy in the world. And their currency fall into the degree that has impacted the stocks we sold; 99% I think of our Russian stocks last year after the Ukraine invasion. And thank God we did because not only that the currency falling, it impacted the stocks.

And if you�re in fundamental screens, Russian stocks are -- they're cheapest, like they're just so cheap. However, the political uncertainty is a key factor from being careful of jumping back in to that space even though they fundamentally look so attractive on a global basis.

But one of the things we did see is that the credit default swaps, which is reflection of the currency weakness and the uncertainty for both Ukraine and Russia, is at all-time highs in the first week of January, second week. And now they seem to be coming off, and it appears there's some form of stability taking place in the credit default swaps, so maybe there's going to be better piece going around the world and it�s something that we can resolve.

But it is that black swan, right, I recently was in Zurich speaking to German and Swiss business people to the Zurich School, International School of Business, their executive program. There is a lot of concern over what will Putin do in sort of a global stage.

But let's hop onto next visual. I talked about it. Jets fly high. They were running, as you can see, until the global correction took place in October. And as oil prices fell, then they really took off. But they were already on a nice climb, Jets, because they've gone through the restructuring and all that pain and repositioned themselves for positive cash flow.

The next visual is showing you a piece that we published in January. Lower oil prices have benefited the Chinese airlines also. So it's not a domestic opportunity. It�s something that's global. And we're also seeing the Chinese tourism, and Chinese citizens are traveling around the world.

They are very big in spending. And so that�s an important part because when you get lost with 1.3 billion people, all you have to do is have 10%, make it $100,000 a year, and that's 130 million people. So that's our key factor in looking at the world in a different position about China's impact.

Next is showing you the correlation, some easing of the Fed's money, assets rising with the S&P 500. We're still seeing money supply rising even though the government in the US has pulled back on their stimulus program or QEs 1, 2, and 3. Now, we have Europe is going through their program of spending.

But what we did see is that the US 10-year bond yield just below 20 months low. It�s bounced off these lows and is back up to over 1.9. And I think it's important to see if the world is struggling. And even with this incredibly low interest rate scenario in America, our yields are the highest with G7.

So I don't think there is a real big threat on rates rising as a lot of people are forecasting because I think they would immediately slow down our economy. And we have to be really carful because of very strong dollar will show up and has historically slowing down our export business.

In high quality products, all of a sudden Europe starts becoming much more attractive to combine in euros rather than dollars. And this goes from Boeing down to medical diagnostic equipment. So the idea that how quickly the US is going to raise interest rates would only make the dollar sore against everyone else, and that would greatly impact our ability, with this high paying jobs, to be able to export.

Next visual is showing you that the global consumer CPI trends are down, and the are paying that trend down which is a factor for low interest rates.

The other thing that I think is significant took place at Chinese economies surpass the US based on a purchasing power parity, it didn�t get much spend there. But what it�s really trying to highlight is that as an overall GDP, it�s still substantially less than America. When you have such a big population and we get 10% of the population making $100,000 a year, it is significant. And it has tremendous purchasing power because we can see it in car sales. We can see it in many other products in China.

And the next visual is showing you Big Mac index, which is another way of looking purchasing power parity in global currencies and the volatility, versus [TIM] in South Africa. Big Mac is the cheapest here.

In renminbi, in China, it's 2.77; in US, it's 4.79. But in Switzerland, the Big Mac is extraordinarily expensive. I�ll show you how much that in Swiss franc has risen. And that's been a great concern for the Swiss is if their currency is great if you go into Germany to buy something. But domestically how do they export their products, if they're manufacturing.

So the watch industry in Switzerland is finding it very difficult with such a strong currency to be able to export. And I think it's interesting for a little factoid is that the very peak of old at 1900, and it was the all-time low of negative interest rates in US for 10-year government bonds. It is also in the Swiss peg or euro to the a dollar -- sorry euro to Swiss franc at 1.2. And that's all changed now this past month and that�s since volatility in the currencies.

The next visual is showing you that the vehicle sales in America remains strong and expensive to finance. It's also been very strong for Palladium in their commodity periodic table, which is probably the most attractive piece that people who are interested in using and sharing and downloading from our Web Site and go to conferences. Palladium was the best performing and a big factor for that Canadian strength was supply shrinking and supply factors. But car demand has remained very strong in the US and in China.

The next visual is to sort of push you in the context that gold is money. And so, when you look at gold versus all the other countries' currencies, you can see that the gold prices the second strongest currency was down only 2% against the dollar.

But look at these other countries� currencies; look at the Russian ruble how much it declined. Now what's interesting is that it�s negative short-term and it affects your global investments because you have them in US dollars unless is hedged, where you got the country�s currency can impact your over overall value and convert back.

But for companies that are exporting gold like in Canada, the Canadian dollars fell dramatically. And so, they have profit margin expansion. Then in South Africa here. Anglo made a presentation with CEO of AngloGold, and basically they were losing a billion dollars a year and their currency has fallen over two-year period over 40%. And now they're showing positive free cash flow of $100 million. We saw this swing in gold field.

So these stocks have jumped 30% to 50% because they have margin expansion, and that's something that US Global, we're working on to try and glide down our cost structure and launch our new products at the same time.

Let's get back to that margin expansion. And that is the key factor for seeing these companies take off and also seeing GROW take off. We�re very cognizant what they have to do to get that margin expansion.

And this is another -- the visual 70 is showing the Canadian dollar. When you price gold in Canadian dollars, it�s taking off. It�s basically when gold is hitting 1,900. So we�re getting these huge breakouts.

In Japanese yen terms, gold is breaking up with the real amount of gold producer and gold in euros. So Europeans have kept gold as a diversified part of portfolio. That�s 5% weighting in bullion, and 5% gold stocks are seeing a benefit of having that exposure and then going to rebalance.

The next visual showing that the low fuel cost and weakened rand benefit South African gold producers, which I just commented on, and their stocks have had these big runs. And it appears that one of the best performing stocks has run gold. And they are pegged to the euro, so the euro falling to the cost structure and fuel prices falling. They have had substantial margin expansion, and you can see the low fuel cost so that we can run a benefit harmony as a stock on slide number 74.

So it�s always been able to adapt to these adjustments, strong dollar, weak gold. Okay, well, weaker currencies all of a sudden, that you can get great stock performance because margin expansion is a key factor in that overall ability to attract share price to rise.

Next visual is [reason] for the active management. We continue to believe it. And we can see which commodities -- no stays with the bottom for a couple of years. But it�s exploding to the top, and there is a tremendous rotation you can see in natural gas, you can see from the basement to the ceiling. And it�s just this rotation takes place.

So I hope that you�re a reader of US Global Investors alert; Jim Cramer is. And last year, he tweeted to his loyal 600,000 readers what we published in addition to being in South Africa for this Indaba Conference where there are 7,000 people registered. And it�s an expensive conference to attend. It�s institutional investor.

It is now the new owner with Euro Money, which is the holding company, which is interesting, also [own bank] credit analyst. And it�s really -- it�s interesting to see so many people have bump into their subscribers to institutional money to the Investor Alert. I think I want to discuss the positive, negatives, whatever we write about but they always find it stimulating. So I hope -- so do you. That ends it. Let�s go for Q&A.

Thank you, Frank. Now we�ll take some questions. (Operator Instructions).

Our first question, can you discuss any expansion plans for more funds in Canada?

In Canada, we are working on dividend paying, US dividend paying stocks for total investment yield. And so that�s -- we are going through what we have done through. Jets has to go through the detailed analysis to assure that it�s a product that is sustainable rather than just a fact. And so, we hope that we will be able to come out in a second quarter and get the process fast tracked in Canada.

Thank you. Our next question relates to ETF. Do you push the US Global eventually bringing out more ETF so that the company�s focus will be on ETF as opposed to mutual funds. How do you market and sell ETFs differently? And will you need to add more staff?

Well, I don�t think that we need to add more staff. We have to educate staff because -- until we have a highly educated workforce. So it�s reorientating, and we usually have a big contingency off to the ETF conference in Florida in addition to Orlando�s retail conference of 8,000 retired retail investors. And I think, Susan, feel like you can comment, it was dominated with ETFs, and that�s where the space is going.

I think the mutual fund world is just too expensively. It�s really is a just burden that if you want to have an inexpensive product and then you add all the regulatory costs and all the committees that you have to deal with on and around for board meetings and audits and weekly meetings, the list goes on, it�s just too expensive.

You cannot do it to divide that. So I think the market is going to bifurcate the private -- as it is the private equity. It will be special funds that will deal with the opportunities of being ground floor, the creation of the new companies. And we will focus on the ETF space in our product lineup and as separate accounts, and that�s why we continue to look at in the business of separate accounts.

Thank you. Can you discuss the investment strategy for the proprietary investment account? You mentioned that the company�s investments generated income of about $53,000 for the quarter. Do these investments generate more income to barbell the volatile revenue stream from resources in emerging markets?

Lisa, I need your help me to give some exact numbers. The income from the dividends, et cetera, is more than $53,000? Am I right?

Right. The income from the dividend was $264,000. So we have been investing lately in items that actually produce income on a monthly and quarterly basis. But it was offset by unrealized losses in our training securities of $295,000.

And it�s not so much that we are training them but by how its categorized. But if they�re available for sale, then the volatility leads through the income statement, correct, Lisa?

The training securities, if they are qualified at training securities, that goes through our income statement and available for sale goes directly to the balance sheet and comprehensive economy.

Thank you. I hope that answers your question.

Thank you. That concludes our questions for today. This concludes US Global Investors earnings webcast for the second quarter of fiscal 2015. This presentation will be available for replay on our Web site at usfunds.com. Thank you all for your participation today.

Thank you, team. You're doing a great job. I really appreciate it. Susan and Lisa, thank you, thank you.

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's conference. You may all disconnect. Have a great day, everyone.