US Global Investors Inc (GROW) 2016 Q1 法說會逐字稿

Good morning. Thank you for joining us today for our webcast announcing US Global Investors' results for the first quarter of FY16. I'm Susan Filyk. If you have any questions during the webcast, you can enter them in the questions area of the control panel sidebar, which is normally to the right of your screen. Also, you may download a PDF of today's slides by clicking on the red handout button. 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 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 filing 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. Now, let's go to Frank Holmes, CEO and CIO, for an overview of the quarter. Frank?

Thank you, Susan. US Global Investors as an innovative investment manager with lots of experience in global markets and specialized sectors. Founded as an investment club, the Company became a registered investment adviser in 1968, and has a long-standing history of global investing and launching the first of their kind investment products.

US Global Investors is well-known for its expertise in gold and precious metals, natural resources, and emerging markets, which I'm going to walk through in this presentation, has had tremendous challenges since 2011. In addition to as a money manager, but those categories globally, in particular in the past two years, with the massively strong dollar. We're going to walk through how we are adapting and adjusting to those external factors.

Let's take a look at what makes us special, and let's go to the strengths. We are a go-to stock for exposure to emerging markets and resources. We're debt-free and we have a strong balance sheet with a reflexive cost structure, which Lisa Callicotte, our CFO, will comment a little bit more on in her presentation. And we still maintain monthly dividends and return of equity discipline, in how we're repositioning products, et cetera. Susan McGee will comment in more detail of what we're doing to restructure and line up the capital markets and how they have morphed and changed.

Now, I'd like to go on to our Top Ten institutional holders of GROW. I'd to thank them for their loyalty, particularly during this treacherous markets and resources. The FIM Group, The Royce Funds, The Century, Vanguard, and BlackRock. In particular the top three, which are all based on active money managers.

The next slide is slide number 7. Dividends, consistently paid them for over eight years. The yield of the stock at 167 is 1.8%. The monthly dividend is a modest 0.0025.

Share repurchase program is in motion. the Board has approved the repurchase of up to 2.75 million shares of its outstanding common stock in the open market, throughout the calendar this year. During the first quarter FY16 the company repurchased 73,021 shares, Class A shares, using cash of $163,000. We as an algorithm that's used to buy back shares on down days, in accordance with all applicable rules and regulations that restrict the amounts and times of purchases. And this program may be suspended or discontinued at any time.

Our balance sheet as it shows that cash has been declining, in particular because of just losses as we go through this restructuring. Restructuring is not a linear process, okay, I'll sell my house or I'll sell this. It's a very steep and regulatory processes for making any types of change. Susan McGee will go on to much more detail today in her presentation of the process that we made in our press release last night of this restructuring.

The next visual is showing you what the quarterly earnings are, and in particular, it's been showing losses for the past several years. The losses seem to hopefully -- the worst is behind us, as we manage through this transition period. I'm a big believer that this current quarter we're in should be the last significant challenge on the cash flow, as we go through this restructuring, and have additional costs again for our proxy and the process of repositioning due to these responsibilities, and other, I guess, key factors as for growth, how we can free up our intellectual capital for growth.

But you can see the quarterly assets under management is in that decline, just like most mutual funds that are in the resource sector of experience, such as decline, particularly active growth. What's nice about US Global is that we still maintain a very, very strong direct relationship with shareholders, with our funds and the complex. So the big factor has been the strong US dollar, and I've written about it on our investor alert, and I think it's important for those who are listening that they take a look at the article. Any time you have had a 10% rise in the US dollar relative to global emerging markets, that basically is 100 basis points rise in the fed funds rate. We've got a 20% rise so we've already had a significant lift in interest rates in real rates of return, and it's so important for investors to differentiate between those nominal rates, which everyone is focused on in the fed funds, and that's basically faking everyone out, whereas real rates have risen dramatically.

And the next visual on slide 14 is really trying to highlight, in simple terms what the pressure of the strong dollar, and what does to resources. And it's not just resources. There are so many companies where the big profits are made from industrial companies that are exporting airplanes, to chemicals, et cetera. Or Tiffany stores have all lamented regarding how they have been negatively impacted with the strong dollar.

So the next visual is really highlighting the strong dollar hurts these names, and it's just important to recognize that it has been remarkable, the sheer size of the growth, the run in the dollar for the past couple of years. So the next visual is showing you the strong dollar hurts S&P companies, and as it that shows you, the light blue is X energy with more than 50% of the sales. It is significant of seeing how companies are naming in their announcements the impact of the strong dollar. Particularly the currency swings. Gold mining companies, even though we have top-performing gold funds, gold mutual funds, it's really sad, but the overall decline is still there, and our revenue is basically off of assets, and if the assets themselves are declining, and even if you're number one, two, or three in those categories, the overall asset sentiment has declined.

But interestingly enough, I just came back from Australia and their weak currency, their gold stocks are on a tear, on a tear. 200% to 900% price appreciations, and so they're really benefiting from a week Aussie dollar and have the intellectual capital and the profit margins. So when we look at those companies, they have twice the global average for returns on invested capital and profit margins.

The next visual is emerging markets. We've seen a three year decline, in particular Russia and Turkey, which are significant to our emerging market funds. You can't hedge the Russian ruble, but you can hedge the Turkish lira, and we been doing that in a modest way. Whether it's actually -- it's interesting, if you look at Turkey in the past five years, in Turkish lira terms, the market's up I think 70%, but when you convert it to dollars you are off 30%. So the idea of hedging that's important for us, in maintaining our fund performance.

The next visual, I know got lots of economic visuals, but investors want to understand what's taking place and what's driving, there's so many external factors that have been driving US Global but the positive note is that the PMI, which is been bearish for China, appears to have finally turned positive, and global PMIs have turned positive. But to truly get what they call the lift off, we're going to have to get China's PMI above 50, where one month is above the three month, and they are above the 50.

The next visual is our approach to building performance and managing costs. It's a three-step process. Streamline for stability and growth, and I'm going to share with you investors, it's not a linear program, it's not turn a light on or off. The process of streamlining is so expensive and time-consuming, and that, but we are in motion and it appears to me that we'll be closing a chapter on it restructuring this quarter and should be all behind us.

And then we can focus on our core competence. Marketing and money management with the existing active funds we have, and the launching of ETFs and especially smart beta, we're now at the smart beta 2.0, which makes it exciting. So the next visual is showing you that we significantly streamline the staff, and we will continue to assess various departments in this new world, this new market. But you can see the total decline is about 48% of number of employees. So as I just mentioned a few seconds ago, our focus on our core competencies, which is money management, marketing and sales.

By partnering with experts and administration operations, we're able to benefit the fund shareholders and GROW. When we moved to a Bancorp, we had economic savings for the fund shareholders, because they had massive economies of scale for the TA, which was a benefit for the shareholders. At the same time for us, then we didn't need the big staff and technology and all the regulatory that was necessary for all these people, we were able to outsource that, and restructure. And now it's Atlantic in its foresight, and Susan will give you -- Susan McGee, will go into more detail on the significance of his new partnership. Susan? Next visual.

Thank you. We announced yesterday a new partnership with Atlantic Fund Services. We will be transitioning through a fund adoption to Atlantic Fund Services for that firm to provide trust governance, fund accounting, and transfer agency services for US Global Investors funds. Many legal, compliance and administration responsibilities will move to Atlantic Fund Services, and this transition will free up resources at US Global Investors to focus on investment management, the sales and marketing, and strategic growth opportunities. We are expecting the transition to take effect on December 10, and costs will be decreased due to personnel and shifting of job functions that I just mentioned.

What's really important for GROW shareholders is that it's a win-win, and anything that benefits the fund shareholders benefits GROW and vice versa. So I think it's an important step in how capital markets are changing, and we're changing with them. Susan, next visual?

Atlantic Fund Services, out of Portland, Maine, does provide quite a few services to mutual funds and hedge funds throughout the world. They do specialize in the servicing of mutual funds. They do provide the series trusts, and as we mentioned, it will be taking on the servicing of US Global Investors funds trust.

Our current product lineup, as you can see, the funds are there and we have streamlined them, and we will reassess them in the new relationship with Atlantic, and we been very happy with the growth of our ETF JETS. And we had another create this week and a create last week, which is all positive and constructive. and it's one of the least expensive -- we call it inexpensive industry categories of the S&P 500.

The S&P for shareholders that are not aware, has 10 sectors, and the 10 sectors themselves have about 100 industries. When we look at the transportation sector, and you look at the industry group of the airlines industry, this is the only ETF out there listed on New York, and it has the ability for investors to hedge their positions, go short, go long at the same time for GARP investors it's a wonderful product, so we're very happy with the launch of that. And we have learned a lot, we have really learned a lot of how to monetize the intellectual capital we have in our marketing distribution. And further, I think it's really going to help our active management because the disciplines necessary to create a robust, dynamic, rules-based system of investing, that deals with both macro and micro factors and realigns itself unemotionally.

Emotions went into creation of this particular set of rules, and after that, it has such great peer survivorship, when we tested over short time periods, long time periods, it's extremely robust. When we look at year to date, from the date of launching it, and we compare it to other indexes out there and how it's performing, even after fees, it's outperforming a New York index that's out there. So we're very happy that what we've learned from this exercise.

But building for the future growth, and that is what is most important. 65% of ownership in Galileo Equity Advisors, a Canadian asset management company, earning valuable brand awareness in over 170 countries through publishing of our financial commentary and other original content. Which I would validate for everyone, when being on a conference rock 'n roll tour, of looking at rocks and rolling from one country to the other, going from Peru and then from Peru over to Australia, it was amazing to see the enthusiasm that was coming out in those particular countries for mining, because their country's currencies have declined, and they're now very profitable. Which is very different than here, if you're in mining sector in North America.

So I was happy to see how many people subscribe to our investor alert. That's the other part. It just shocks you, wherever you go people are going to comment on this particular article you wrote, and what do you think about this? So I thought it was a validation of this far-reaching content, and how people respect our balanced view.

But with more of that, let's hop onto growth of ETF products. Just educational, it is Uber-izing the mutual fund world. And it's changing, it's not just ETFs for the sake of an index and category, it's becoming much more intelligent and rational, and I think that is very positive as a product for the public. It will have its difficulties, especially when you have great volatility. The markets correct on a big Monday down, that these stocks can trade at big discounts, the ETF, and vice versa. On big up days, they can trade at premiums, trade at underlying holdings.

I think that's just a function of dealing and trading in those, but it doesn't happen day in and day out. It's only when there's some global event that's creating a fear, a surge in buying, or a cascading in selling. And it's just recognizing those factors appear not to be bothersome to the general public, and so that's what I think is another part of -- in mutual funds, you're very cut off from fair value pricing and everything is of great expense in detail, to make sure you strike that NAV to perfection. So I think we'll see more traction from that category.

But for us, we have learned so much from it, and the vision for future growth will be ETFs, and form strategic going relationships with US Bancorp. Susan commented on it before, we launched our first smart beta ETF, but it's not even smart beta one, really they call it now smart beta two, and we're happy to see that we were ahead of that curve in how we created it, and it's focused on the global airline industry JETS, and leveraged expertise as active managers have developed additional robust rules-based smart beta ETFs.

So the next one is just a visual, I'm showing how happy we were to get it launched, and then the media coverage that the marketing and PR departments have done a phenomenal job of creating an awareness of this. It's just remarkable to see that the enthusiasm that took place in this category, by such a broad local network. Now, I'm going to turn over to hard-working, our CFO, Lisa Callicotte, to talk about the income statement and financial analysis.

Thank you, Frank. Good morning. Now I will summarize our results of operations for the quarter ended September 30, 2015. Beginning on page 34, we recorded total operating revenues of $1.6 million for the quarter. This was down $1.7 million, or 52% from the $3.3 million we reported the same quarter last year. The decrease is primarily due to lower assets under management, related to shareholder redemptions and market depreciation, mainly in the natural resources and international equity sectors.

So as Frank discussed, the challenges of these sectors have directly affected our assets under management, and therefore our revenue. The decrease was slightly offset by the addition of the Jet ETF advisory fees. Moving on to page 35, operating expenses for the quarter were $3 million, a decrease of $627,000 or 17 % for the same quarter last year, primarily for the following reasons: Employee compensation and benefits decreased $112,000 or 7%, as a result of fewer employees and lower performance-based bonuses. General and administrative expenses decreased on $197,000 or 17%, due to strategic cost cutting measures. And platform fees decreased $338,000 or 50%, due to lower assets held through broker-dealer platforms.

On page 36, we see our operating loss for the quarter ended September 30, 2015 as $1.4 million. This was somewhat offset by our other income, which is income related to our investments. Other income was $534,000 in this quarter, which increased from the same quarter in the prior-year by $314,000. The increase was attributable to an increase in realized gains on sales of available for sale securities, and lower unrealized losses on trading securities in the current period.

Net loss attributable to USGI after taxes for the quarter is $868,000 or a loss of $0.06 per share. And as previously discussed, as the Company endorsed US Global Investors Fund proposal is adopted, we anticipate that certain revenue line items will be reduced or eliminated, and will be offset by reductions in personnel cost, platform expenses, distribution expenses and other administrative expenses due to outsourcing of certain functions and responsibilities for these funds. We also anticipate that we'll have additional one-time costs in the second quarter of our FY16, as we implement these changes, and look forward to the positive effect on our net income.

Moving on to page 38, we see we still have a strong balance sheet, which includes high levels of cash and marketable securities that combine to make up 79% of our total assets. And as we see on page 39, we still have no long-term debt, and the Company has a net working capital of $19.1 million and the current ratio of 14 to 1. With that, I would like to turn it over to Susan.

Thank you, Lisa. While commodities in emerging markets have been out of favor with investors recently, our sales and marketing efforts have continued to focus on our long-standing top-performance in the Near-Term Tax Free Fund, or NEARX.

In our newest product, the US Global JETS ETF, which is the only airline ETF on the market, and its Frank mentioned earlier, we have benefited from a successful product launch for our first ETF. JETS has received extensive financial media coverage, and also quite a bit of interest from the investment community. It was named one of the most positive ETF launches this year by ETF Trends. The JETS ETF has attracted about $50 million in assets, as we mentioned. It has very robust trading volume, and our sales team is making inroads at key wire house distribution channels. JETS utilizes a dynamic rules-based index strategy, as Frank mentioned earlier, and it provides investors with diversified exposure to the global airline industry. We do anticipate launching additional smart beta ETFs in the coming year, throughout 2016.

As investors continue to worry about the timing and impact of an inevitable interest rate hike, and volatile stock market rises and falls, our five-star Near-Term Tax Free Fund continues to provide investors with a calming solution. It has consistent positive performance in tax free income, and we're proud that NEARX is one of the only 30 equity and bond mutual funds out of entire universe of 25,000 funds that has delivered consecutive positive annual returns for the past 20 years. Quite an accomplishment.

NEARX has also earned the Morningstar five-star rating for overall performance in the municipal and national short-term funds category. And our gold and precious metal fund also earned a four-star rating in the equity precious metals funds category. Investors Business Daily recently highlighted the actively managed gold and precious metal fund, and noted that it is outshining its passive ETF peers.

We're pleased that we have three of our funds holding the top Lipper Leader rating. This rating is based on investor-centered criteria, and on the scale of one to five, Lipper Leader Funds that rate a five are in the top 20% of their category. The Near-Term Tax Free Fund and the government securities ultra-short bond fund both have a rating of five for preservation, and the gold and precious metal fund rates a five for total return.

The Company and our funds continue to receive an invaluable amount of viral publicity that's gained through media interviews, recommendations by influential financial newsletter writers, and the sharing in syndication of our award-winning original content by third-party publishers. For example, our slide show on the world's busiest airport was recently featured on Business Insider, and it's received over 456,000 views. This coverage helps us leverage our brand, because we are able to reach millions of readers, viewers, and potential investors. We also add interact frequently with loyal followers through Facebook, Twitter, and LinkedIn.

Kitco News, the biggest gold website in the world, with an audience of 10 million monthly visitors, features the Gold Game Film show with Frank Holmes' weekly gold markets analysis. In July, Kitco teamed up with The Street and that broadened the show's exposure and viewership. We started the show in 2014, and since the beginning, 81 video episodes of Gold Game Film have aired.

US Global Investors is well known for our timely and balanced market insights and thought leadership. Last month, the Company earned another five-star award from the Mutual Fund Education Alliance, recognizing excellence in investor education. And that brings our firm's total to 69 star awards since 2007. And we also very proud of these awards and this recognition.

Investors can sign up at USFunds.com and join over 30,000 subscribers, who currently receive the award winning investor alert and advisor alert E-Newsletters, and our CEO blog Frank Talk. Now like to turn back over to Frank.

Thank you Susan, thank you Lisa. So let's go to an important visual. Everyone is so caught up with nominal interest rates, fed fund zero rates, and what's really important when you look at global currency realignments that take place, the US dollar versus the Euro versus the Japanese yen versus the Canadian dollar, et cetera. it's all done on real interest rates.

In particular, it seems they focus on what the two-year government bond is of America, versus Canada, versus the UK, versus Europe. And deduct the CPI number, the data that comes out, the inflationary number each month, and you get a real rate of return. Is it positive or negative? This is much more significant in the currency movements that take place. Money goes to countries where there is positive real rates of return, and it leaves countries where there's negative real rates of return. And what we've seen in the past several years is that in fact the US, without fed funds moving has had real interest rates rise, whereas Europe has declined, Japan has declined, the British pound has declined, the Canadian dollar has declined, the Australian dollar has declined.

So this has had a significant impact on the rotation, but everyone's focused on nominal interest rates so the next visual just shows you that any time we've had what they call a negative swing of 500 basis points in real rates, it usually has great difficulty in this global slowdown. And the definition of a global slowdown is 2% global growth. Whereas in America, a slowdown, a recession is defined as two negative quarters, but the world functions very differently, and it's important to recognize we are having a global slowdown, and this does impact our cash flow because it impacts the assets themselves, and the strong dollar also impacts.

So every time we talk about rates going to rise in the US, it knocks the stock market out, here. Not only does it knock out emerging markets or resources, it is also hurting the overall stock market. And there's a group think of real rate -- wanting to see rates rise, but there is no rational reason for them to rise. So we've used, every time there's a surge, for our short-term Tax Free Fund, is lowering interest rate yield curve, and deployed cash. And so far, touch wood, as Susan mentioned, it's a rare fund, very small or 25,000 mutual funds, that been up for 20 years in a row. So whereas a negative, it's been a positive and trying to capitalize on it.

We also look, give you the next visual, trying to show the real rates of change and how they happen year-over-year. And what's important here is just to show that anytime we have had big declines in real rates, you get the currency, you get gold prices rising. So when we got to see gold at 1900, it was just prior to a huge decline of plus 800 basis points of real rates in US to minus 400 basis points. That huge year-over-year took gold in 1900, and since then, we've seen nothing but real rates decline and now hovering around plus 2%. China just want to negative deposit rates. Japan is negative. Europe is negative. And they're also impacting the slowdown.

I've been writing about this extensively, that I think they have exhausted themselves, the monetary stimulus issue is tax and regulations globally, and it seems to be slowing down. Hopefully we wrote about TPP, that the TransPacific Partnership, which is 25% of the world's trade will get through next year, and we need fiscal stimulus where it's forecasted that 18,000 tariffs will drop. Historically, that's always led to greater economic growth.

But this is the next visual to show you what happens when you have a strong dollar. The impact on gold, copper, and iron ore. It's much more difficult for US companies right now to be able to make any money, especially if you're in the iron ore business, because of the massive decline. And even with the Australian dollar going to a massive decline, the iron ore business is still a huge negative for them. But the gold mines, in fact, gold is above, and is very attractive high returns on capital.

The next visual is just put things in context. Over the past rolling 12 months, is to show you how much these currencies have declined, and put that in context the impact. So you can have great stocks in each of these countries, but the decline in the currency -- so if you make the Canadian dollar, if you're making 15% return in your money after convert back to US dollars, you're basically only up 1%. Same thing happens on Australia. If you make 50% return on your money, which is a very attractive return on your capital, it's what all private equity looks for. But you've lost 4% when you convert back to US dollars. So the thought process of how you hedge these countries is going to be significant as an active manager.

But let me share with you, you can't hedge the renminbi, and you can't hedge the Russian ruble. So a lot of countries' currencies which experience so much volatility, you just can't hedge that currency swing in volatility. The one is in my rock 'n roll trip to Latin America, and then over to Australia. What shocked everyone, this the visual that really people kept commenting to me, and it is the co-relation of the Peruvian sol, which is their currency to copper prices. And what happens is that a country's currency is usually -- it makes it attractive on two factors. What does it export the most of, and two is, there are real interest rates than the US dollar.

So the real rates in Peru are less than the US dollar, then the currency will fall, and their largest source of foreign currency is exporting copper. So you can see the correlation for Peru is copper prices. Where you make the big money is buying a copper stock and copper prices are rising, when you buy a Peruvian copper stock, because not only do the copper prices rise and the stocks rise, the currency rise, which gives you a greater amplitude of performance. And the Peruvian stock markets normal D&A volatility is plus or minus 60%. It's hard to fathom that. 70% of the time it's a non-event for this stock exchange to go plus or minus 60%, whereas in America, it's plus or minus 20%. So the Peruvian stocks are three times greater in volatility.

The next visual is Colombia, and it's not copper but oil. And it correlates with oil. And the next visual is to give you this idea, the importance of understanding these countries currencies, is the Canadian dollar and the Russian ruble. They track the prices of oil.

And then we go to Australia, and it tracks iron ore. Basically I think iron ore is going to be a big surplus for the next decade along with met coal, whereas copper and gold, income of global economic upturn that's sustainable, these particular, and zinc, these metals will surge. So the next visual is trying to show you Australian dollar decline, the impact on copper, iron, and gold.

As you can see there's been no remorse from them -- no reprieve is the word I'm looking for, for the Australian iron ore producers, which has impacted their currency. But as you can see, the gold stocks, the price of gold in Australian terms is positive, and that means the returns on capital are rising. The global number right now in our data analysis is the cash flow return on invested capital for the world of gold producers is around 12%. In Australia, it's 25% to 100% returns on the capital. So that's why gold stocks have been doing much better on a relative basis.

So not everything is negative in Australia with falling dollar, their falling currency and falling oil prices. Qantas Air, which I flew back, and it was the longest flight, it was nonstop from Sydney to Dallas, Texas. It was 17 hours. But what's important to hear for investors is that the stock is up 180%.

The next visual is global PMI. We write about it. It's a forward-looking tool, that gives you an idea of sentiment, of commitments and orders for manufacturers. And anytime anything is going to be manufactured, you have to use base metals and energy to manufacture. So it creates a future demand, and it's predictable. So we're just showing you that if the one month was above the three months, that you have a high probability of oil prices rising, copper prices, the S&P energy stocks rising, and basic materials rising.

And vice versa, when the one month is below the three months looking forward, you can experience oil will decline, copper will decline, S&P energy stocks. So for us, it's important to track this every month. It's not 100%, nothing is 100%, except for what Ben Franklin said. We're all going to pay taxes, and we're all going to die. Those are the only certainties in life. The other part is how to ride the wave and enjoy life, and use these tools like lights on the front of your car to try to be able to see, have some visibility.

The next visual, that was a very compelling piece of research that came out of Cornerstone. In addition, it was another group that was similar, was stable global strategist, and these PMIs go through cycles, global PMIs, and it appears that we're in a trough period for global PMIs. We are in an election cycle for next year in America, and odds favor not a slowdown. Historically, in the fourth year of presidential election cycle, markets rise, unless you have a crisis but we had back in 2008, which took place because of the pullbacks in 2007, but the crisis really took place in 2008.

The next visual, it's just really important to recognize the investor alert and what the PR marketing in building the brand, and how our story gets told all over the world. And it helps us stay focused for our own, make sure our contact is relevant. Our content is helping us. When we go through this process of creating this content, it's actually helpful for a portfolio manager and for myself to focus from macro to micro on what's important.

So now let's jump into Q&A. Susan Filyk, you're in charge.

Thank you, Frank. Now we'll take any questions. Again, you can enter them in the questions area of the control panel. Our first question is for Susan McGee. As the asset classes US Global manages turn positive and GROW shares benefit from an increase in AUM and correlating management fees, how much upside does US Global give up in partnering with Atlantic?

Our management fee will operate the same, and US Global Investors revenue, of course, will increase as AUM increases. The fees from the 12b-1 plan and the shareholder servicing plan will continue to operate as usual. Those fees pay marketing and platform expenses, and those expenses will continue. We will experience a decrease in the administrative services fees that we will be receiving; however, we have lowered our expenses by reducing our personnel needed to perform the administrative functions.

Thank you, Susan.

Lisa, do you have any comments on the format? Looks different, the revenue's going to decline.

Yes.

But the offsetting expenses are also going to decline?

Yes.

So why don't you explain that to investors?

So line items on our revenue, it's going to simplify our income statement. So we have certain line items in our revenue that will either decrease or be eliminated, but there also be corresponding expenses, so we will be reimbursed still for certain distribution expenses, therefore reducing those line items as well on our income statement.

So this will also benefit our funds, and with that, them having lower expenses also lowers what we're paying for expense caps, so we do cap voluntarily those funds, therefore that will also decrease our expenses. With that, we are planning to streamline our processes and reduce personnel, again giving us lower expenses. So we're talking about the net effect on our income is going to be positive due to all these changes.

My experience is, looking at this as CEO, is, when we have the transfer agency and the money market fund, there's just so much administrative duties and responsibilities that went with that. And as I mentioned, getting rid of that particular, maintaining a $1 NAV that became so costly in a zero interest rate environment is millions of dollars. The industry as a whole, we reported on previous webcast, was costing billions of dollars per year in maintaining $1 NAV. So when we partner with US Bancorp, what that really did was it lowered, they had economies of scale, so the shareholders benefit, which is so key, the fund shareholders. And then their benefit is our benefit.

And so we think that was very key, but we ended up shrinking the number of employees, because we had less admin people that are related to customer service. And the same thing today with Atlantic, and this whole repositioning, there's less admin people and really you are going to a very focused, I like the metaphor Navy SEALs. It's very highly educated professional people that multi-task, have multi-skills. It's not like the US military infantry. It is highly educated motivated professionals, and you just need less, and with technology that you have today, it's learning how to use your smartphone, so really it becomes a tool for growth. So that's how things are changing.

Thank you Frank. We have one additional question for Frank. The cost management is an important part of the equation. The other side of where revenue growth will come from in the future. Could you comment more on that?

Sure. What's most important is growth. One is stabilizing our overall complex in the mutual fund world, but the growth has been, and we've highlighted, is the ETF space. And when I take a look at our knowledge and our expertise in creating robust rules disciplined money-management sets like for ETFs, I believe there's lots of opportunity. And we'll be coming out with our own category for the gold space and also for luxury goods. And we're working away.

And it's just not a simple quant model. It requires tremendous amount of scrubbing so we can create a basket from a quant model of stocks that makes certain smart beta, they like to call it. But it's not enough. You have to go and look at what were the dynamics?

Every quarter stocks went in and went out, and know the names, and do this, what we call a double scrub on the robustness of the product, and then back test, that it does change with capital markets. It changes on a timely basis, it's not hyperactive in turnover, and so with that, we feel much more comfortable in our ability to come out with products. We're looking at Canada, coming out with, which we're very excited on a product that will just be a wonderful product for investors, and it's just the idea that I can go out for myself and put money into it. And for the public, these are just great products, they have been really well thought out, both top-down and bottom-up, and that's where growth is going to come from. These people are always looking for good stable products.

Thank you, Frank. Thank you for the questions this morning. This concludes US Global Investors webcast for the first-quarter of 2016. This presentation will be available on our website at USFunds.com. Thank you all for your participation today.