US Global Investors Inc (GROW) 2016 Q2 法說會逐字稿

Good morning. Thank you for joining us today for our webcast announcing the US Global Investors results for the second quarter of FY16. I'm Lisa Aston.

(Operator Instructions)

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 risk and uncertainties that may materially affect actual results. Please refer to our press release and corresponding Form 10-Q filings 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 accept no obligation to update them in the future.

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

Thank you, Lisa. Good morning, everyone. I'm going to try to speak as quickly as possible and to go through these slides. As you can see, US Global is an innovative investment manager with vast experience in global markets and specialized sectors, which have been truly challenged in emerging markets and resources since September of 2011. And I'm going to expound more on that with this presentation.

We were founded as an investment company. The Company became a registered investment advisor in 1968 and has a long-standing history of global investing and launching first-of-their-kind investment products. It was the first no-load gold fund. US Global Investors is well-known for its expertise in gold or precious metals, natural resources and emerging markets.

We've become, as the next slide will show you, the go-to stock for exposure in emerging markets and resources. Gold has bounced off its lows and so has grown. A debt-free strong balance sheet with a reflexive cost structure, which both Lisa and myself -- Lisa Callicotte will talk about later in this presentation.

Monthly dividend and return on equity discipline continues. It's been challenging and I'll try to discuss that in more detail. But we continue to try to as quickly as possible respond to the shifts in capital markets.

And then I'd like to point out and thank all of our top institutional investors, like FIM Group, Royce Funds. We see the Newberg Family Trust has just recently come in, and The Vanguard Group and the Sentry Investment Management out of Canada.

The next visual is dividends. Consistently paid dividends for eight years. The current share price was $1.17 as of the end of the year. That was at 2.56%. Now the stock has rallied, as I mentioned earlier, off its lows because gold has rallied.

We've cut this dividend over this time period to just basically deal with this onslaught of emerging markets. And we've highlighted this in our presentations on the significance of looking at global trade and how we as a company have really truly given investors big leverage and also taken on the chin in global trade, either expanding or contracting. The monthly dividend now is $0.0025 and it's approved until the end of March 2016.

Page 8 is the share repurchase program is in motion. The Board approved repurchases of up to 2.75 million of its outstanding common stock on the open markets through calendar year 2015. During the second fiscal quarter of 2016, the Company repurchased 60,207 Class A shares using cash or approximately $81,000.

An algorithm is used to buy back shares in down days in accordance with all applicable rules and regulations that restrict the amounts and times of repurchases. And this purchase may be suspended or discontinued at any time.

The balance sheet, as you see, it's been declining in marketable securities and our overall because we have money in our own funds, but also the cash with this bear market. And, fortunately, we've had still, and still do, have substantial amounts of cash to reposition the Company for growth.

The next visual is not pretty but it reflects the change that has taken place. And you can see on this visual the peak in March of 2009 in the assets. And you start to see this decline as you trigger down for losses with a couple of surges. But, really, the gold peaked in September of 2011, and that was a time period, this period between March and the fall of 2011 in all emerging markets and gold had peaked.

The next visual is showing you quarterly average assets also peaking in March of 2011, and the Galileo acquisition which is added to assets. However, the challenge for Galileo is being in a country like Canada, which is rich in resources, and resource markets taking it on the chin. And, in fact, it's had a major impact on their currency, which has also impacted some of our own assets. Lisa Callicotte will talk about that in the financials.

Asset breakdown -- it's still basically, as you can see, 56% are in emerging markets, resources, and domestic equity is 44%. We still have a substantial retail and client following directly with us. And that's what really separates us from other investment groups that predominately have their funds through these other platforms, which they are paying lots of peace for.

We have this Steady Eddie clientele base that are followers of what we write and think. They're at USfunds.com. You can subscribe to the Investor Alerts and Frank Talk. I just think it's something, we've hit that stabilizing base.

Now, hopefully we get a turn -- and we've written about it and I'll try to walk you through -- but I think what's important is to see the strong US dollar. And that strong US dollar, you can see, from 2014 to 2015 had a significant impact on global currencies and commodity prices and global economic activity.

The next visual on slide 14 is a quick simple model I'm showing you. As the dollar breaks out, the S&P Goldman Sachs commodity index declines. So, if you are bullish on the dollar, you remain bullish on the dollar then it's a simple trade to say I'm bearish on commodities.

The next visual is a currency depreciation against the dollar. What I thought I would point out here is it's interesting that gold actually is a currency. In the previous year, gold was the second-biggest, we pointed out, it barely decline, only 1%, or 2%, and it was the best-performing currency outside the US dollar.

But this year we saw gold decline 10%. But it still outperformed so many other countries' currencies. It outperformed the Canadian dollar, the Russian ruble, you can see, the Chilean peso, the Peruvian sol, and, interestingly enough, also the Australian dollar.

The next visual is real interest rates. And I've written about this because it was like a revelation to me to see how, as money managers, that when the world is basically at zero interest rates, and it's so easy to miss changes in interest rates, and what's most significant in our research is what are real rates doing. That is, what would the government pay you minus the CPI number.

So, with that, we've seen real rates have actually risen dramatically since 2011 in America. They've risen over 500 basis points. But they didn't look like that until there was a 25 basis point hike.

At any time in history that you had the US dollar rally to this amount, it's been highly correlated with real interest rates rising. So a 500 basis points real interest rate rise is also historically correlated with global markets and emerging markets and resources all falling during this time period. That's what we've witnessed, and to try to explain to investors and ourselves, better understand what have been the factors for driving that.

As shown in the next visual, this will drag on economic growth. I'm going to expand more on that. But this is something that I thought was interesting, put out by Deutsche Bank. It was basically taking a look at the number of pages per regulatory filing and how they've taken off since 2011.

We see this in an indirect way. And I think the Chamber of Commerce has also written about it extensively and have published many charts to try to highlight the fiscal drag of regulations. And we've seen all the major banks have to hire tens of thousands of compliance people who are basically slowing down economic growth from bank lending or whatever.

And this is not just in America but America's the best at basically giving you transparency and exposing this. But this, in my global travels, has been everywhere. In Latin America. In fact, in certain countries they are taxing on every dollar transaction a basis point -- every trade, every dollar.

So, the government continues to hire more people and these socialistic policies are taking away from entrepreneurs and expansion in the public arena, or privately it's been shifting. And that's why I want to point this out. I just thought it's really important to understand.

When we had the great boom from 2001 to 2007, we had China at the beginning of that cycle enter the WTO, and many other countries, and we had huge global trade and growth. And even though we had the price of oil rising and the price of gold rising, we also had the stock market rising. And we had companies like Starbucks on a tear. We had Apple all of a sudden taking off in this global search.

So, I think it's important for investors to take a look at and really understand that all these regulations and rules, even though we need good rules, and, like I say, we need good referees in the sporting arena to make sure that the games are honest and kept on time, et cetera, but, at the same time, if you have more reps on the field that you have players then the game starts to slow down and no one scores.

The next visual on 18 is trying to show the number of planned regulations expected to cost at least $100 million a year. Someone has to pay for that. And so many brokers -- I've seen this in England, I've seen it Canada -- institutional brokers that are shutting their doors. They just are finding it so difficult to be able to provide services for the regulatory costs. It's just another visual highlighting that.

The reason why I point that out is that we find that. We have found that. And we continue to find that as a small organization in an entrepreneurial setting is maintaining because it's very costly to make sure that everything is held well, because the process of being criticized is so expensive, and explaining.

This is a key factor why we made many shifts in our Company to reposition the formation of capital. Like I discovered, I've mentioned in previous presentations, ETF being watched. ETFs are a lot less expensive for many reasons, which I will try to highlight a little later in the presentation. But, the fact is, they are less expensive because they have a less regulatory cost filings associated with it.

Even though they're 40 Act products, the process of making decisions with them, and the execution of them, that TA, the cost of having a transfer agency for a mutual fund, it goes away. And it's amazing to see because it's not just a computer account for them, there's lots of regulatory, anti-money-laundering laws. All those things are subject to that TA and that becomes just one of those costly parts on the overall industry. So, we continually try to adapt and adjust and make sure we keep the highest compliance standards and care as a Company, but at the same time not be ignoring this cost.

The next part is the global decline in gold assets are off 70%. Our active funds have outperformed the ETFs that are out there. That's what's important. But we do see a shift at any time, like we had a surge recently, that we're getting gold fund flows but nothing like we previously see when gold went above its 50-day moving average and then went above its 200-day.

The next visual is basically highlighting. And validating this thesis that we have, is that US Global is highly correlated to global trade. And what we've seen is a slowing global trade leads to a 40% decline in emerging markets. And that clearly has impacted us even though our active funds have outperformed indexes and the ETFs associated, it has also led to just a shift in the formation of capital.

But, as Warren Buffett says, life is all about managing expectations. And we like to share it with you, we like to share it with our shareholders, the volatility.

I see here that we omitted about GROW. GROW's volatility should be in here on this presentation. It's very volatile. It's a nonevent for gold to go plus or minus 40% in any rolling 12-month period. It's much more likely emerging markets and much more like, as you can see there, the New York Stock Exchange, Arca Exchange.

Bullion has the same volatility basically as the same S&P 500, and the currencies are less. But GROW, it is highly volatile but it's unleveraged. A lot of highly volatile assets have a lot of debt on their balance sheet and we don't have debt on our balance sheet.

But we still move with these fund flows and these assets in emerging markets and resources. And investors that buy GROW should be just really cognizant of that, understanding the sentiment that drives the security price in addition to just pure financials of assets coming in, getting revenue, generating cash flow and generating an earnings. Between those time periods of positive fund flows or negative fund flows there's tremendous volatility of GROW that's associated with the volatility of resources.

And this next visual is the number one visual in an educational format that's downloaded, shared around the world. It's our periodical table of commodities. We just try to highlight here that commodities are very volatile. And in any one year it's very seldom do you see commodities stay at the very bottom, and if they do they may stay down there for only two years and then you start getting these tremendous surges and then they come back. It's really significant to watch and take a look at, up 80%, or you see copper in 2009 up 141%, and then only a couple years later it declines dramatically.

The next piece is the most important piece of research I've been trying to use and educate our investors worldwide, is this understanding Global PMI, that PMI is looking for GDP, which most economists follow is looking behind. Driving up their rear view mirror is very dangerous unless you're going backwards. And life is about making progress in growth and going forward.

So, you need tools to help you to go forward with, and PMI is the best tool that we've been able to see as a macro tool to help us understand what drives a commodity, what drives economic activity of trade in emerging markets. And money supply is a significant factor in emerging markets, along with PMI.

We show you here in the next visual is that China's purchasing index has been very bearish, in fact is below 50. Any time it is below 50 it's very significant. And you see the commodities have unraveled since September 25. With the Fed fund hike rate in the US of 25 basis points, really it's more significant as global trade is slowing down even more so.

And why are commodities impacted? As the next visual will show you -- China. China, China, China, China. It consumes, with only 20% of the world's population and only 13% of GDP, it is a gorilla when it comes to consumption of commodities -- concrete, aluminum, nickel, copper, steel, gold, et cetera. And the same thing with oil. So, their global economic slowdown has impacted the demand for oil, which is then turned around and impacted the price of oil lower.

The next visual is what we're trying to do on this capital market transformation. And I want to share with our investors -- I thank you for your loyalty and it's so important -- but being able to shift, that is to shut down a fund and move around, outsource, partner with US Bancorp, or go and partner with our latest partners, Atlantic. The process is a very legal, arduous, expensive regulatory process. Whereas you can buy and sell a fund in a day, the process of making change is very expensive in the '40 Act mutual fund arena.

But, nevertheless, we are very focused on streamlining for stability and growth, building our capability in the ETFs, and realizing potential and where we think the markets are going. So, we have streamlined our staff, as you see on slide number 28. It's from 65 down to 26 people.

The next visual is to show you how we partner with experts in administration and operations from US Bancorp, Quasar, Atlantic, Foresight, SEI, and Brown Brothers. And we thank all those partners that have been very important to us as we've gone through this shift. And the same with Atlantic Fund Services, which I'd like to turn it over to Susan McGee to comment on that.

We had a proxy in the fall in a shareholder meeting of this fund on December 9, and we were proposing a new slate of trustees for the fund. Those new trustees were approved and the proxy on December 9. The funds now will receive their corporate governance services from Atlantic Fund Services, and a slate of the trustees that are serving for one of their series trusts.

Eventually the funds, over time, will move their administrative and fund accounting services and their transfer agency services over to Atlantic Fund Services. This transition will be over the next two years. And with this transition, the funds will be able to realize operational economies of scale that we were just not able to obtain operating in our previous structure.

With these economies of scale, it will be a positive impact on US Global Investors' future net income because fund expenses are lower than expense reimbursements for those funds that have expense caps, will be lower.

It will impact our revenue, correct? But it should and expand our profit margin.

That is correct. That is what we are projecting. Cost will decrease because we did have personnel reductions at the end of 2015 because we did outsource some of these job functions to Atlantic Fund Services. The remaining functions that will be here at US Global Investors will be investment management and marketing and sales, which we believe are our core competencies and which will lead to the future growth here at the Company.

Thank you. The next visual, Susan?

Atlantic Fund Services is based in Portland, Maine. They are a full-service global provider. They provide services to mutual funds, separate accounts, closed-end funds, various different forms of products. And we're looking forward to our partnership with them.

Thank you. In our current product lineup it's all, as you can see, gold and precious metals, natural resources, China. But one of the real drags impacting our financials was poor fund performance. Whenever we have a rolling 12-month poor fund performance we have to give back to the trust, and only rightfully so. And then, say, in time when we outperform by 5% to where we are able to enjoy additional cash flow.

We've made changes in portfolio managers in addition to our processes and relate to shares at the funds. I'm so proud of how the team has adapted and adjusted so it's not such a drag on what we're doing as a Company.

Building for future growth -- 65% ownership in Galileo, advisors at a Canadian asset management Company. I mentioned earlier at the beginning of the presentation, similar challenges because of Canada. It's known as a resource country. And I'll show you that visual in a few minutes.

But it's really important to realize the Canadian dollar has come off, and that's impacted investments. And then the Canadian dollar is highly correlated to the price of oil. And then earnings valuable, brand awareness in over 170 countries through publishing of our financial commentary and other original content.

And being a global trotter. Sometimes I don't know what time zone I wake up in, flying to Peru, and then from Peru over to Melbourne, and then Melbourne to London to give keynote speeches and also gather insight, local reconnaissance. What really impressed me in this last trip was more turn out. And I'll discuss that in a few minutes.

But we're continuing to develop the innovative and dynamic ETF products. We've expanded. We've been basically truly absorbed, I guess is a better way to look at it, in the transition. It is just a so time-consuming from legal and accounting to go and make such a transaction with the relationship with US Bancorp or to partner with Atlantic.

It takes all the intellectual capital, compliance, Susan's department, Lisa Callicotte's department, and then marketing to be able to communicate and connect and to reposition the Company. It takes away from the time and the resources we have to launch our other ETFs. But this week, we are in motion to fast track this process. So, that's happy.

And I'd just highlight this next visual to show you the growth in ETF products continue to be a threat to all mutual funds. And the next vision for growth is to highlight that we did launch JETS ETF. I learned a lot from it. I continue to learn from it.

It was a strategic relationship with US Bancorp and their ETF series solutions. We launched what's called that smart beta ETF focused on global airline industry, looking for key factors that relate to the industry, and leverage expertise as active money managers have developed additional robust rules-based smart investing.

This is the next visual. I hope to have many more of these visuals of the fist rising and clapping as we launch other products this year. The media coverage of JETS -- over 100 million views through earned media exposure, which is much less expensive than trying to buy advertising.

But it's basically creating rich content. And that's something that the investment team and the marketing team, which is filled with journalists, that are rich in their ability to be able to synthesize information for that investor, both retail and institutional. So, I think it's really important for that global footprint that we have.

Now I'd like to turn it over to Lisa Callicotte, our CFO, for a financial analysis of the past quarter and year.

Thank you, Frank. Good morning. I'd like to summarize our results of operations for the quarter ended December 31, 2015.

On page 39, you'll notice a change in our financial statement presentation. In December, 2015, US Global Investors Funds elected a new slate of trustees to the Board of Trustees of the funds. And, as anticipated, effective December 10, 2015, the Company, through its wholly-owned subsidiary, US Global Brokerage Inc., ceased to be the distributor of US GIF and no longer receives distribution fees and shareholder fees from US GIF. The Company also no longer is responsible for paying platform fees for the US GIF equity funds and will be reimbursed for certain distribution expenses from the new distributor.

Net loss, assets, liabilities related to the distribution of US GIF are included in discontinued operations. And, as discussed earlier, this transition that was endorsed by the Company will reduce the cost of the funds, which will have a positive effect on the Company's financial statement results, and allow the Company to concentrate on asset management and marketing.

Now to the numbers -- we recorded total operating revenues of $1.3 million for the quarter. This was a 31% decrease from the $1.9 million we reported the same quarter last year. The decrease was permanently due to a decrease in assets under management and was somewhat offset by addition of the ETF advisory fees related to our first ETF launched in April of 2015.

Moving on to the next page, operating expenses for the quarter were $3.2 million, an increase of $510,000 or 19%, primarily for the following reasons. Employee compensation and benefits increased $296,000 or 21%, primarily as result of severance costs paid due to the reduction of workforce.

General and administrative expenses increased $292,000 or 30% due to costs related to the US GIF transition. The Company split costs of the transition with US GIF 50/50, and paid approximately $290,000 related to the transition. However, platform fee expenses decreased $93,000 or 42%, as a result of lower assets held through the broker-dealer platform.

On the next page, we see our operating income for the quarter ended December 31, 2015 is a loss of $1.9 million. Our other income, which is income related to our investments, was a loss of $271,000 for the quarter. This amount includes approximately $257,000 of other than temporary declines in securities, somewhat offset by the approximately $238,000 of dividend and interest income.

Our investments in certain Canadian entities were written down due to the decline in the Canadian dollar. The Canadian dollar is highly correlated with oil prices and has seen significant decline in oil prices as the oil prices have fallen. Net loss attributable to US GIF after taxes for the quarter is $2.2 million, and, as you can see on the next page, that's a loss of $0.14 per share.

Moving on to page 41, we see we still have a strong balance sheet. We own our own building and have cash and marketable securities of $20.8 million. That combines to make up 76% of our total assets.

And as you can see the next page, we still have no long-term debt. Our Company has a net working capital of $17.2 million, and a current of 11.3 to 1.

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

Thank you, Lisa. While commodities in emerging markets have been in a bear market, our sales team and marketing efforts have continued to focus on one of our long-standing top performers, our near-term tax free fund, or NEARX is the ticker symbol, and also our newest product, the US Global JET ETF, which is the only airline ETF out on the market today.

As Frank mentioned earlier, we've benefited from a successful product launch of our first ETF. And JETS has received extensive financial media coverage and interest from the investment community. It now has an eight-month track record and it was named one of the most popular new ETFs launched this year by ETF Trend.

By quarter end at December, the ETF had reached $52 million in assets and had a robust daily trading volume. We were very pleased with that success. JETS utilizes a dynamic rules-based index strategy and it provides investors with a diversified exposure to the global airline industry. As Lisa and Frank have mentioned, we anticipate that we will be launching additional smart beta ETF products in 2016.

As investors continue to worry about the volatile stock market and the future of interest rates, our near-term tax-free refund continues to provide investors a calming solution with its consistent positive performance and tax-free income. We're proud that NEARX is only one of 39 equity and bond mutual funds out of more than 31,000 that has delivered consecutive positive annual returns for the past 21 years. And when investors compare NEARX against the S&P 500 over the past 15 years, you can see the fund's history of no drama.

NEARX has earned a Morningstar four-star rating for overall performance in the municipal national short-term funds category. And our gold and precious metals fund has earned a four-star rating in the equity precious metals funds category.

Investors Business Daily recently highlighted how our actively managed gold and precious metals fund is outshining its passive ETF peers. And we're pleased that two of our mutual funds hold the top Lipper Leader rating. This rating is based on investor centered criteria. And on a scale of 1 to 5, a Lipper Leader funds that rates a 5 is in the top 20% of its category. The near-term tax-free fund and the US government securities ultra-short bond fund both rate a 5 for preservation.

The Company and our funds continue to receive an invaluable amount of viral publicity 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 periodic table of commodity returns has been featured by many prominent publications, including Money.com, MarketWatch, Visual Capitalist, and Business Insider, with millions of monthly visitors to these sites.

It has resulted in over 5,000 page views on our website as well as over 1,000 social media shares from Visual Capitalist alone. This coverage, as we've mentioned before, helps us leverage our brand by reaching millions of readers, viewers, and potential investors.

We like to call Frank Holmes our globetrotter because he, along with others on our investment team, travel around the world to share our thought leadership. We also 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 market analysis. Last July, Kitco teamed up with the Street, and that broadened the show's exposure and viewership. And since the show's beginning in 2014, 89 video episodes of Gold Game Film have aired.

US Global Investors is well-known for timely and balanced market insights and thought leadership. Last month the Company earned another five-star award from the Mutual Fund Education Alliance, which recognizes excellence in investor education. That brings the Firm's total to 69 star awards since 2007.

Investors can sign up at usfunds.com and join over 30,000 subscribers to receive our award-winning Investor Alert and Advisor Alert enewsletters, and our CEO blog, Frank Talk. We encourage you to sign up if you have not.

Now I'd like to turn it back over to Frank who will discuss what we've been watching in the markets recently.

Thank you, Susan, and thank you, Lisa. I think what's important and why I do this is because GROW gives you much more leverage than any emerging market ETF, because we've shown this before in rising emerging markets. We've also shown in rising gold markets the responsiveness that we have, and the following.

So, understanding the underlying commodities has a collateral impact on the underlying securities in the underlying countries. And that in turn affects my asset management fees. If the funds themselves just rise, there's no fund flows, we automatically earn more management fees. If we have star-winning funds and the particular category is rising, like we experienced from 2001 through 2011, we experienced not only great fund performance but those sectors were rising.

So, our funds were rising, immediately the management fee, and then at the same time the overall stock picking showed that we were able to attract more assets, particularly through the platform. And that is, to us, so important for investors to recognize what makes us as a company. And then in that whole world trying to be informative internally for our portfolio managers is to be able to embrace the factors that we try to use to look forward with.

And Global PMI, I mentioned earlier, this is just some of the evidence of showing to you what happens when PMI is positive versus what happens when PMI is negative. So, when Global PMI, which we wrote about a year ago, the one month is above the three months, there is a high probability based on percentage terms of looking back over 20 years of data of oil rising, copper rising, S&P energy and material stocks rising.

Vice versa, if you have one below the three months, then there's a high probability of declining. In fact, we took it since 2009, we took it back 20 years of data. The pattern statistically, the world has changed since 2008 because, I mentioned earlier, all these regulations and this collateral with that has shifted the formation of money and the flow of capital around the world.

Not only has this impacted, say, products I mentioned earlier such as ETFs over mutual funds, it's also shifted global economic activity. In several of our visuals I point out the G20 meetings are truly, when they take place, the finance ministers, it's all about global synchronized regulation and taxation. That impacts overall economic growth. Versus prior to 2008, it's all about trade, trade, trade, whether it's dropping tariffs.

So, hopefully, this new trans-Pacific partnership can truly get some progress. And I noticed in the visuals, reading on the weekend, Obama speaking on the West Coast, his protesters were outside, and the protesters were unions, unions that are anti free trade, anti economic growth. And it's just trying to recognize this pattern. It doesn't make the mainstream media, but you can Google it and you can find the small story in Reuters, but it also showed up in Chinese newspapers, of the protesters against this trade agreement.

But this trade agreement is very significant because it will drop 18,000 tariffs. It will streamline regulations for 25% of the world's GDP. These are the things we need besides low interest rates. I believe the central banks have exhausted themselves in zero interest rates, or Japan recently went to minus 25 basis point to try to stimulate economic activity. At the same time have excessive regulations for any type of trade.

This next visual is to show you something I want to give investors, that are highly clicked upon, downloaded, shared around the world. This took place when I was in Hong Kong and the great leader of Singapore had passed away. I thought it was just so simple to take a look at, comparing cash flow versus Lee Kuan Yew. What a difference.

Cuba was more vibrant in 1950 compared to what it is today. And Singapore was poorer in 1950 than it was today but it was also poorer than Cuba. Both are dictators. One is a benevolent one, one has used common law to manage the process.

You can see Singapore today taken from my panorama view from my BlackBerry camera. All that, all those visuals you see are on reclaimed land from the ocean.

It's just stunning to see what happens when you have savings plans that are important for investors to save and buy their own condos in Singapore. It's a complete different thought process than in other places in the world. In fact, it's led to other countries having sovereign funds and having a greater retirement program.

So, that was one of the most downloaded visuals. You can go to the website and see it and share it if you find it also interesting.

Gold war is positive. The next one is gold was positive in nondollar currencies. I think that's important to take a look at how gold surged for South Africa, but also gold stocks in South Africa. Harmony is up 100% year to date -- 100%. So, a falling country's currency, like in South Africa, and falling oil, and gold prices basically slightly rising this year, ignited these stocks that their cash flows are trading substantially better.

Next one is a visual on Canada showing the falling dollar in Canada. It's impacted many of the gold stocks there that are turned. And they continue to be much higher than when this visual was made.

The physical gold deleverage, which is from Shanghai to the world, versus world mining output, as you can see, Shanghai continues to basically consume all the world's mining output. It's also important to recognize that China and India -- it's actually known as Chindia -- consumed 42% of all the world's gold last year.

And central bankers continue to buy gold. Last year, when gold declined 10%, American sophisticated investors were record buyers of gold, silver coins, bullion coins, taking delivery of them. Kitco, which is a massive distributor of coins, they were commenting it was their second best year ever.

Every time there was a down surge in gold, it's amazing to see that people were buyers of gold. So, gold has remained relatively resilient in the commodity route, as you see in iron ore prices, oil prices, et cetera.

The next visual is showing you iron ore versus gold versus copper in dollar terms. Iron ore has had the biggest decline, it has the most supply. The global slowdown in China and other emerging markets has had a significant impact on it.

But the next visual is important for investors to recognize that the Canadian dollar versus the Russian ruble and oil prices, they all trade the same. It doesn't matter if they have a conservative or a liberal in Canada, or a Democrat or Republican in Canada, the currency moves with the price of oil.

The only other factor would be interest rate spread differences and what Canadian banks are willing to pay you versus a US bank. It is not great enough to offset the loss of foreign currency. So, in my global travels, these visuals were very much asked about, and people were not cognizant of the high correlation of oil prices to these other countries' currencies.

The other one is Norway. This shocked people, with almost 5 million people and close to $1 trillion of savings from this sovereign fund. It doesn't matter -- it doesn't matter if they have the richest balance sheet in the world. If the price of oil falls which is their largest source of cash flow, the Norwegian krone falls, the Russian ruble falls. And the other thing is the Colombian peso falls. Then we have the Peruvian. You see the Peruvian sol tracks copper prices.

In Australia, it's iron ore prices. You can put oil in there but really it's much stronger to iron ore prices, which is their largest source of exports to China. And it's declining in price dramatically. It's impacted the country's currency.

But the positive part is, as this next visual can show you, that they lower oil prices has had a huge windfall for airlines and it's been a big boom for the airline industry. Now the airlines are slightly below our JETS ETF, it's slightly below where it was launched at. But the airlines themselves fundamentally are the least expensive of all the 100 industry groups in the S&P 500.

And based on cash flow, free cash flow, based on increasing dividends, last year they increased their dividends by 88%. Already this past six weeks they have been announcing record stock buybacks and also increasing their dividends.

So, you're seeing an industry that's adding a significant windfall from not only, prior to that, rising fee charges for everything you did -- when we were launching this ETF, it blew me away, since 2007 to 2013, that these extra fees basically helped the airline industry from $3 billion to $36 billion -- before oil fell. So, this drop is very significant. And I think as each quarter goes by, this industry is going to go to a re-rating.

And I mentioned, if you go to jetsetf.com, you can learn more about this particular product. It has all the necessary disclaimers and recommendations for if you talk to your broker. But, it's really easy to go to jetsetf.com and learn more about this particular unique product.

If you're reading US Global's Investor Alerts, so is Cramer. We like to highlight. So, it's well read, besides domestically by our own fund shareholders but by many hedge funds. When I travel around the world they come up and want to ask me questions about what I think about commodities and what GROW is doing. So, these are all positive parts.

With that, I would like to open up to questions.

Great. Now we will take some questions. Again, you can enter them in the questions area of the control panel. We do already have a question. This one will be for Lisa Callicotte. The question that our investors are asking is, since you have broken out discontinued operations, is the operating income what the Company projects as income in the future?

No. Actually, the only costs included in discontinued operations are those related to actually distributing the US GIF funds. There are several one-time costs that are included in continuing operations that aren't related to the distribution of the US GIF. These include costs related to the transition, which we talked about, which is about $290,000. But there's also severance costs due to the reduction of workforce.

And because we reduced the workforce, we saw the number of employees go down significantly. We won't have those costs also going forward. So, we are expecting further reductions in costs.

Thank you.

This is substantive from the previous quarter, going to year end, what those losses were. And has the revenue changed per employee, when we take a look at the number of employees we have, based on less assets?

It has, and it has increased to slightly. Even though our revenue is going down, our number of employees is going down, too.

And we do have another question. This one is for Frank. It's evident that you've been working on reducing expenses, and clearly revenue needs to increase. What are the market conditions that will be needed to increase revenue?

The biggest, most significant product we have, as Susan highlighted and showed you earlier, near-term fund. It's just remarkable. And I have no idea how Morningstar goes from 4 to 5 stars. And gold shares is the best of breed for four stars. Extremely volatile.

But near-term has got 21 years of positive fund performance and no down year. It is an elite. I think the data points, it's easier if you go out and make it to the Olympics than it is to get 21 years of fund performance. We're shooting the stars, shooting 3 points better than Stephen Curry is. It's just really incredible in that end of it.

Nevertheless, that's probably the strongest fund, which is 5-star for three years. And it continues. Like this year the market was off 17%, it's up 1%. So, it's a continuous success for us. And the marketing strategy is to focus on selling that particular fund.

But if you go on the platforms, the biggest challenge, if you want to go onto swap platform, you've got to pay them 45 basis points. So, now you're left with 5, because there's 45 basis points -- 5. So, you need a gazillion dollars at 5 basis points to break even in that mutual fund arena. It's just too expensive.

What we have to do is basically take a page from dimensional funds. They're on platforms but you have to pay a commission. And it's worthwhile because this fund has just great stability, high yield, and consistent performance. And in this uncertain time and volatile time, it's positioning and becoming awareness of this. But we've been known for [resources] in emerging markets more so, and it's basically positioning US Global as having very stable funds.

The other part we used to have is money funds. We always had huge money funds that weathered these storms. I remember in the 1990s so well, we built those up to over $1 billion in assets so when commodities fell down -- I mean, some of our funds were down to $20 million, $7 million, $4 million, like emerging Europe, et cetera, before it all took off. And what gave us the stability was these large money market funds.

But we didn't have zero Fed funds rate or 25 basis point Fed funds rate. We had interest rates were more like 4%. So, those funds threw off a lot of cash flow and picked up costs.

So, we have to reposition near-term as a money fund in that concept as a Safe Harbor. It will have volatility, it can move a penny. Where do you want to get that higher yield with that safety, and you're willing to take that stock. It will always be at $1 NAV because it's not $1. But it's relatively the most stable because also the share price is around $2. It seldom moves a penny and it's a very stable product.

And it's education and awareness on that particular product. So, getting that fund to $1 billion is the key element in addition to launching ETFs, the other products. I hope that answers your question.

Thank you. This concludes US Global Investors' webcast for the second quarter 2016. This presentation will be available for replay on our website at www.usfunds.com. Thank you all for your participation today.

Thank you.