US Global Investors Inc (GROW) 2016 Q3 法說會逐字稿

Good morning. Thank you for joining us today for our webcast announcing US Global Investors ' results for the third 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 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 period. Frank?

Thank you, Lisa. And thank you Susan McGee and Lisa Callicotte. It has been a lot of work preparing for this, especially as we've gone through a big transition.

Let me briefly start off with slide 4 about US Global Investors, for those who are new shareholders. US Global Investors is an entrepreneurial investment manager with a vast experience in global markets and specialized sectors, in particular in the resource sector and those countries that are related directly and indirectly to that commodity cycle, that we've witnessed ups and downs with.

The Company was founded originally as an investment club back in 1968 and has a long-standing history of global investing and launching the first of its kind no-load gold fund. US Global Investors is well-known for its expertise in gold and precious metals, natural resources. And we will talk a bit more about our investment blog, has 40,000 readers in 170 or 180 countries. I know when you add in the other social media platforms it is robust and people that follow what are thoughts are on resources around the world.

We like to look at GROW, slide number 5, and some of the strengths as a go-to stock for exposure to emerging markets and resources. We are a debt-free, strong balance sheet with a reflexive cost structure, monthly dividends and return on equity discipline, which has been a big challenge. I believe that we should have turned this corner and bottomed. And you can see our stock has had a massive surge relative to the rebound in many of the commodities and emerging markets in the first quarter.

Our top institutional holders of growth, I'd like to thank them all for their loyalty during this painstaking downdraft of experience since the peak of 2011 when gold hit $1,900. The FIM Group, TheRoyceFunds, Vanguard and Sentry funds, and in particular we have a new investor, the Newberg Family Trust which is now over 5%. Thank them for their interest and their confidence in the cycle, and thus as a proxy for this resource asset class.

Dividends, on page 7, paid monthly, consistently paid for eight years. Current yield is a modest 1.73% and dividends are approved through September. The Board meeting always reassess our cash positions, our cash flow, and our strategy for turning this Company -- they like to call it P to P -- path to profit.

Page 8, I would like to turn it over to Susan McGee to talk about the share repurchase program that's in motion.

Our Board has approved a repurchase program of up to $2.75 million for the calendar year 2016. During our third fiscal quarter of 2016, the Company repurchased shares using $26,000. We're using an algorithm to buy back our shares on down days.

That plan is in accordance with all the rules and regulations. We do disclose that the program can be suspended or discontinued at any time. And, also, as you can see by regulatory filings, Frank Holmes is also purchasing shares of GROW in the market pursuant to a rule 10b-18 plan.

If you have any questions later on we can always answer regarding this particular plan. Now going on to slide 9, the balance is a reflection that Lisa Callicotte, our CFO, can comment during further questions, but our overall seemed to be stabilizing here. We took a lot of our cash in September of 2013 and we moved it over to short term, ultra short bond, to get a higher yield.

On the next visual, it's showing you the earnings per quarterly. Several corporate events that are taking place, as we restructured with the ramp up of all the regulations that have hit all financial institutions. Many companies have repositioned what they are doing from major billion-dollar banks that have taking deposits, becoming wealth management -- I was in Chicago yesterday, hearing of these transitions.

What we've done is, with zero interest rate, money funds costing a lot, we repositioned. And it cost you a lot of money just go to through a transition, close down money market funds. We try to show that those cost of closure have a greater downdraft during those quarters. And the last one was the transition to Atlantic, which Susan McGee will comment a little bit more in greater detail later in this presentation this morning.

The quarterly assets under management, as you can see they are pretty well stable. What was really challenging, on slide number 11, is showing you that there was a big downdraft this year in the first quarter, but in particular January when we had all equity funds in a panic mode sell off, and it impacted emerging markets domestic and resources.

Since then, we've had positive appreciation in our resource and gold assets and relatively attractive fund performance. And we've had positive flows from the negative but net-net.

It was a modest positive flow but we did have a turn, which showed up in February and March, which is interesting, because I mentioned that in that first quarter, when gold was taking off, that the ETF equities had no flows. There was no net flows going into them but there was going into the bullion ETF, every billion dollars going into the GLB billion ETF spikes the price of gold around $30. It wasn't until later in April that you started seeing fund flows really coming into that gold equity space.

The asset breakdown, it is always useful to look at, we have a very loyal group of shareholders, and a lot of that comes from our branding, our weekly investment blog, and the ability for investors to get a pulse of what factors are driving the different assets that they may have investments with us. Short-term fixed income to global equities or domestic equities, the weekly swat analysis is a simple yet concise and comprehensive way to communicate with shareholders. So, we have a loyal following in that capacity.

Our approach to billing performance and managing costs is continuous and is a streamline for stability and growth, and build capability and realized potential. It just seems that with all regulatory world, it just takes longer. There's a learning process as we streamline and go through it.

In this past quarter there's still some legacy costs that are impacted from previous big write-downs and laying off costs and HR costs, et cetera. But I think this quarter that we are in now is really a true reflection of how we are running the business.

The next visual, 14, is basically showing you this streamline has taken place from senior management to total workers. As assets have declined so has the number of workers. And as we divested or repositioned the assets in relationships, we just have less employees and less needs.

And we've relied on outside sources for compliance. These other facilities, like US Bancorp, Susan McGee can comment more on, they have a very rich and deep compliance department, in addition to Atlantic, the Association with SEI. So, it is basically quarterbacking the relationships of making sure we have cutting-edge and best practices.

Focus is now on our core competencies -- money management, marketing and sales. So to partner with experts, administration, operations, is not just compliance, et cetera, it allows us to really focus on the money management aspects.

Now I would like to turn it over to Susan McGee on the partnership with Atlantic Fund Services.

We completed an outsourcing and a first phase of a transition to Atlantic Fund Services in December. We have a new slate of trustees for US Global Investors fund. These are the trustees that are also overseeing a series trust that's sponsored by Atlantic Fund Services. Atlantic is now overseeing and has taken on the responsibility of the corporate governance of the fund.

The second phase involves transitioning our transfer agency over to Atlantic. And then the third phase will be the transition of fund accounting and fund administration to Atlantic.

We believe that moving over to a larger complex like this will help the funds realize some operational economies of scale that were not available when we were running the funds ourselves. We do believe that this will have a positive impact both on US Global Investors future income, as well as reducing costs for our fund shareholders. We do think it is a win-win solution. And, as Frank mentioned, we are going to be focusing now on investment management and marketing and sales to grow the Company.

Atlantic is based in Portland, Maine. They provide a full range of services to various investment vehicles.

I think there's a complete outline on Atlantic Fund Services on slide number 17, for your interest. And slide number 18 is just an overview of our funds and gold and precious metals funds and natural resources, China region; emerging Europe domestic equity, which we have two; and short-term bonds. In particular is our near term tax-free, which had a spectacular 21-year run of positive performance.

And our latest, the global airlines. That's our steppingstone into the world of ETFs. Now building for future growth, it's just really difficult where resources, when you have to go through these restructuring. Restructuring is not only costly, as you saw what happens in the financials, as previously shown in those quarters, but it is also time-consuming. And a lot of human talent has to be consumed with this restructuring.

So, now we can focus, get back on this game plan with growth. We have 65% ownership in Galileo. They've also gone through a process of asset declining in the resource sector. They've stabilized and look forward to building out there opportunities in Canada.

And then earnings, valuable brand awareness, we continue with publishing, at the same time going around speaking at conferences. I will comment a little later.

And then we develop innovative and dynamic ETF products to expand product line or revenue streams. And we should be filing for our gold equity ETF within the next immediate 24 hours, which is exciting to be ready to hit the fall with.

And I will talk a bit more about just the factor model that went into the airlines model as the same due diligence and resilience and efforts we took in for this gold ETF to make sure that it really differentiates from other funds that are out there. I like to call it a strong value proposition to investors who are moving to the direction of ETFs.

As you can see on slide number 20, massive headwind for mutual funds, the growth in ETF products and numbers. And the next visual, 21, is to really simply show you fund flows are leaving from mutual funds. It doesn't matter if the mutual fund, like we can show we've outperformed these ETFs and the equity side, for funds that people want to all trade ETFs for several reasons, and that's where the direction is going.

Now we are truly happy that in the first year we launching our JETS ETF. Its ongoing strategic relationship, which we show on page 22, with US Bancorp Fund Services, the ETF series solution. And I think what's important at this one-year anniversary is our first smart beta. And smart beta, it is really just a rules-based investing.

I've spoken at several conferences to RIAs, and it is interesting to hear questions on really what is smart beta. Smart beta is a set of factors in that investment theory in finance, a factor, a common systematic driver of security returns. I'm a believe in simple terms.

Money flows towards growth and safety. And there are times when people feel more confident, they are looking for growth. And if not, they are looking for safety. And you can turn around and look for factors that just give you a tilt towards those securities that are going to provide you with growth at a reasonable price -- GARP.

And we can do back testing with all the data mining and intelligent software. It is expensive software, and it takes eight hours at a time to run a series of analysis, and it takes about 1,000 hours to really dig deep to see what factors are resilient to rising markets, falling markets, takeovers, bankruptcies.

And that's what we did with the JETS. We went out and talked to all the airlines analysts, found out the factors they used, and then we went and back tested them. And then we turned around and used other factors to do our back testing.

This process was very helpful in learning what factor will attract money into that industry faster than another factor, such as low PE ratios doesn't attract money into this category as much as cash flow returns on invested capital does. So you have substantially higher cash flow returns on invested capital, money flows into the transport sector.

I think that we've learned how to leverage the expertise in our active money management to develop additional rules-based smart beta ETFs Clearly this is where the trend is, with even the ETF space, is if there's been substantially more money flowing into smart beta. Most of these indexes previously were only market cap. They were equally weighted or they were based on the biggest market cap, got the biggest holding.

The smart beta comes along and says -- you know what, it may be best to buy those stocks which have the lowest debt to leverage ratio, have only a 60% payout, and have a dividend policy for five years, and some other factors, and I can basically create a safe harbor of stocks. And I think that this trend will continue.

On slide number 23, as you can see, that JETS surpasses $60 million market assets and had about $54 million just recently. It does flow with the market. Markets up, it is above price; markets are down, it's slightly below.

JETS has remained extremely liquid, demonstrated by the daily average trading volume exceeding 54,000 shares over the past year, along with additional liquidity provided by both salable calls and puts. Because of the volatility of this type of asset class, it's attractive to several investors that turn around and buy it and then sell calls against it to get additional income.

JETS was nominated for best ETF ticker of the year by ETF.com. And I've enjoyed learning more about the significance of the ticker.

And the next visual is showing the launching of JETS and what a great experience. Complete different marketing distribution. Storytelling. Everything is very different than the normal process for mutual funds.

And media coverage of JETS, over 100 million views to earned media exposure, which we are really proud with what Holly has been able to do, and communications with the public and the shareholders, this educational format regarding this particular ETF. And it has been well received as a go to product.

And probably because 2 million people a day have to fly in America, and it is going to be a trillion dollar global industry soon. It employs something like 8%, directly or indirectly, of Americans. So, it is a significant employer with well-paid jobs.

I'd like now to turn it over to the numbers. Lisa?

Thank you, Frank. Good morning.

I'd like to summarize our results of operations for the quarter ended March 31, 2016. Beginning on page 27, we recorded total operating revenues of $1.3 million for the quarter. This was a 4% decrease from the $1.4 million reported from the same quarter last year. The decrease is primarily due to changes in our administrative agreement with US GIF due to the outsourcing of certain services to other service providers. It was somewhat offset by the addition of the ETF advisory fees related to our first ETF launched in April 2015.

Moving on to page 28, you can see that, though our revenue only decreased 4% in the period compared to the same period last year, our operating expenses for the quarter decreased 27%, or $690,000 to $1.9 million. This significant decrease is primarily due to our strategic changes, including the outsourcing of certain services to other providers, and it caused the following.

Employee compensation and benefits decreased $383,000 or 30%, primarily as a result of a reduction in workforce. General and administrative expense decreased $236,000 or 24% due to strategic cost-cutting measures. And platform fees decreased $60,000 or 36% as a result of the Company no longer being responsible for paying platform fees for the US GIF equity funds after outsourcing to a third-party distributor in December 2015.

On page 29 you can see our operating loss for the quarter ended March 31, 2016 as $540,000. And our other income, which is income related to our investments, was $148,000 for the quarter.

Net loss attributable to US GIF after taxes for the quarter is $350,000. This is an improvement over the same quarter the previous which was a net loss of $1 million. The 65% decrease in net loss is mainly due to our decrease in expenses. And as you can see on page 30, net loss attributable to US GIF for the quarter ending March 31, 2016 is a loss of $0.02 per share versus $0.07 per share for the same quarter March 31, 2015.

Moving on to page 31, you can see we still have a strong balance sheet. We own our own building. We have cash and marketable securities of $20 million that combine to make up 76% of our total assets. And as you can see on page 32 we still have no long-term debt. The Company has a net working capital of $16.9 million and a current ratio of 16 to 1.

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

Thank you, Lisa.

While the markets have been struggling with the global slowdown, our sales and marketing efforts have continued to focus on our long-standing, our near-term tax-free fund, or NEARX, and our newest product that we mentioned, the US Global JETS ETF, which is the only airline ETF on the market.

As Frank mentioned earlier, JETS recently celebrated its 12-month anniversary. And it has received extensive financial media coverage and interest from the investment community. The ETF was nominated for best ETF ticker of the year by ETF.com. It has robust trading volume, as we've mentioned. And it's using the rules-based dynamic index strategy. It does give investors a diversified exposure to the global airline industry.

We anticipate that we will be launching additional smart beta ETF products in 2016. That will leverage our expertise investing in resources and also in other specialized sectors.

We believe that performance-based results are important to investors. And we share with investors that it is actually easier to become a professional NBA player than for a fund to deliver 21 consecutive years of positive performance. And we are very proud that NEARX is one of only 39 equity and bond mutual funds, out of more than 31,000 funds, that have delivered consecutive positive annual returns for the past 21 years.

The near-term tax-free fund continues to provide investors a calming solution with its consistent positive performance. And they appreciate the monthly tax-free income that the fund does provide.

When investors compare NEARX against the S&P index over the past 15 years, you can see that the fund's history has really no drama. NEARX has earned the Morningstar four-star rating for overall performance in the municipal national short-term funds category. And the gold and precious metals fund has earned the four-star rating in the equity precious metals fund category.

We are pleased that two of our funds hold the top Lipper Leader rating. This rating is based on investor-centered criteria. And on a scale of 1 to 5, Lipper Leader funds that rate a 5 are in the top 20% of their 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 very influential financial newsletter writers, and the sharing and syndication of our award-winning original content by third-party publishers. For example, our slide show on the seven biggest airlines was featured by Business Insider, and it received over 50,000 views.

And Frank Holmes' commentary is often featured on prominent publications, including Forbes, Seeking Alpha, ValueWalk, Business Insider. These sites have millions of monthly visitors. This coverage 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 interact frequently with loyal followers through Facebook, Twitter, LinkedIn, and Instagram.

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. Kitco's partnership with the Street has broadened the show's exposure and viewership. Since we began airing the show in 2014, 101 video episodes of Gold Game Film have aired.

US Global is known for timely and balanced market insights and thought leadership. We've earned a total of 69 star awards from the Mutual Fund Education Alliance, which recognizes excellence in investor education.

Investors can sign up at USfunds.com. We encourage you to join over 30,000 subscribers who receive our award-winning investor alert and advisor alert e-newsletters and the CEO blog Frank Talk.

And, Frank, now I would like to turn it back over to you to discuss what you are seeing in the markets today.

Thank you, Susan, and thank you, Lisa. I'm going to speak quickly. A lot of this material is on our website in the Investor Alert. I think it is just important for you to go back and you can read the content that goes with these words.

The fact that we have a golden cross. And what we've commented before is that money flows when a commodity or stock goes above its 50-day or below its 50-day, which is its 10-week average price. It seems to have a -- a trend is your friend -- thought process.

And money can do Lipper analysis, and do data analytics. You can see that. And the 200-day moving average is 10 months, which is a longer-term trend and it gives more confidence that something is in motion. And, as we show on this visual here, that gold actually started to turn in the beginning of January. We commented in February that we were getting a significant move.

With that, we show that our gold funds have great leadership. They've outperformed their benchmarks at indices by a substantial margin. And we got recognized with four stars for one of the funds. And then US News & World Report, they also gave us strong ratings.

And the near-term also shows up with strong ratings in these service providers, US News & World. But most important is on slide 54. There's an expression that investors look for risk-adjusted rate of return. What is that sharp ratio?

People are finding it more and more difficult to deal with volatile capital markets, especially the baby boomer. And there was a slide earlier that Susan commented on, on near-term. I think it's really significance on that visual that shows you the downdraft that's taken place in the capital markets in the past 20 years that we've had substantial declines, declines of 50%. And I believe that shows up in slide number 39.

On slide number 39, it is a nice visual showing you the selloff with the tech bubble, and then we had a rally. And, still, invest in the stock market, you did not get back to breakeven until December the 7th, and then you had another dramatic meltdown. And finally it took 13 years before you got back to a decent level and where you surpassed near-term, which is earlier expressed and showed to you that it had no drama.

But how do you get that risk-adjusted rate of return. Slide visual 54 is highlighting it is better to be near Seattle than it is in Miami. Miami may be the fund. But in the top left-hand quadrant, the further you're up there means your return has less risk.

If you are in the top right-hand side, you may have high return, but you have high volatility, and that's what investors are shying away from. They just do not want to experience those meltdowns that we have experienced, like I showed you, in slide number 39.

So, I'm happy to report that both the gold funds are in the top left-hand side. And that's both a fundamental stock picking and a quantitative modeling that we use to look at these stocks.

Global resources, which was a real drag on our overall performance for several years, actually went for about three and a half years, it has now turned the corner and you can see it once again is back on the top left-hand side on a risk-adjusted basis. And that's what's so key for investors.

What is driving gold? Several factors are driving gold. I've written about it extensively -- the fear trade, the love trade. The love trade is the rising GDP per capita, in China and India in particular. Chindia, affectionately known, has 40% of the world's population. Have a deep emotional passion to give gold for love, for graduation, for marriage, for any type of anniversary.

The fact that last year the GDP per capita of China surpassed the US. And in a sea of 1.4 billion people you had 104 million people hit middle-class status, which surpassed the US of 92 million. It does get lost under the discrepancy between the very poor there and the wealthy, is greater than here. But what's interesting is that it does lead itself to buying gold, that love trade.

However what dominates our psyche here is inflation and the fear trade and negative real interest rates. This is what we're seeing, the PPI numbers coming out, which is just a reflection that we have seen inflation pick up from a year ago and this had an impact on gold.

The next visual, we've written about this many times, it's a simple inverse relationship. That is, the price of gold falls -- or, as the dollar falls, gold rises. And vice versa, as the dollar rises, gold falls. What drives the dollar to go up or down are predominately real interest rates, are the negative or positive?

What does that mean? It means what will the government pay you on a 10-year government bond minus that monthly CPI number. So, when gold hit $1,900 in September of 2013, you had minus 3%. So, why would you buy a US Treasury 10-year government bond when you are locking and losing 3% a year?

Since then rates went to a positive 2% and the price of gold fell from basically $1,900 to under $1,100. And now rates have gone negative again with the global slowdown and seen negative rates out of Japan, negative rates out of Europe. Gold is rising against all countries' currencies.

Next visual is like this, all about management expectations from Warren Buffet. And it is so true. And we like to try to look at slide number 59 to help you manage expectations, which is basically saying over any rolling 12-month period different asset classes have a different DNA of volatility.

That means basically 7% of the time is a nonevent for GROW to go plus or minus 4%. And if it goes more, that's more material. And over a rolling one-year period it can rise 101%. That's its normal DNA volatility.

Same thing when we look at the New York gold index, plus or minus 3%. You can see the yearly volatility is a lot less than GROW. And GROW correlates very quickly with the price of gold action. So often we hear the negative press on gold is too risky versus the S&P when, in fact, the volatility is basically the same/ I just think this is an important thing for investors to consider.

What has a lot of volatility, though, is oil. Oil is pretty volatile as an asset class.

The next visual is our most popular downloaded visual. And this is all about showing you management expectations. Whatever is in the basement, the following year can be in the attic. It is volatility of different commodities based on supply and demand that move them around. It is important to have active managers that know how to dynamically, have signals that move with these changes and understand the supply and demand factors and how sustainable they are.

The next visual is the GDP versus PMI. Most economists follow GDP and that's like staring out the rear view mirror to the past. We focus on the PMI. We've written excessively about it. It is a purchasing manufacturer's index. It is a future data point and it gets updated every month. It is helpful for where the global trend is and it is highly correlated to commodity demand.

If you get a big order and you are a manufacturer of metal doors, therefore, for you to make metal doors, you need to import a lot of metal, and you have to use a lot of energy to manufacture those doors, so therefore commodity demand picks up. This visual here is showing you that with the global PMI, we've written about last October, go to the website USfunds.com, and you can learn more about it.

The global slowed down, which is a negative sign. But China's purchasing manufacturing index has slowly picked up, which is a positive sign. So, why do we have to be cognizant at all of China? It is because this visual makes it really easy to comprehend.

China consumes mind-boggling amounts of raw materials, even in a slowing economy. 60% of concrete, 54% of aluminum, 50% of nickel, 23% of all the gold. They've now become, when it comes to the world of gold, the price maker, not the taker. The Shanghai gold futures pricing mechanism is seeing the highest delivery of gold.

The Chinese government want to become a center stage, have their currency as a tradable fungible asset, just like the US dollar is. To give special drawing rights, the only collateral people will take is gold. So, the Chinese have been on a buying binge. As gold has gone from $1,900 down to just over $1,000 an ounce, every month they've been a dominant buyer of gold to play in that arena.

Here's another visual that's really helpful. You can go and get more detail. Please, I highly recommend you go to the website and read it. What happens if the global PMI is positive? What is the probability happening, and the impact on the S&P materials versus energy, copper and crude.

And what happens when the one month is below the three months? What does that do? What does that signal reflect? Usually these markets, the probability that material stocks fall 67% of the time 1%, S&P energy falls 78% of the time almost 3%, and copper falls over 4% 67% of the time, and oil falls 67% of the time 3%.

So, like this. All about management expectations. There's different ways to look at when it comes to commodities. There's the annual cycle, there's a supply and demand cycle. There are other factors. And we try to take a look at PMI as a leading indicator for you.

And hopefully our thought leadership as we position ourselves to come out with unique ETFs. Some of them are in a crowded space. JETS has been a success because there's no one else in that space. Our gold one will be, I do say, in a crowded space, but I do think it is a much more interesting product for many reasons, which we can talk about later.

We will come out with some other unique themes. We want to stay focused on our global investing. When we go to China, we go to India, we go to Czech Republic, what are the themes for this global investing? And we've talked many times that demographics is a key point. It is understanding the demographics of China is inverse to India when it comes to -- India has 600 million people under the age of 25 and China has 600 million people over the age of 65. So, you have complete different demographics. So, stay tuned to this global growth and the presidential election cycle.

Thank you. Questions and answers now.

(Operator Instructions)

We have a couple of questions that have come in already. First of all, what is the Company's plan to profitability?

Now that we were able to outsource certain functions, we are able to concentrate on managing our funds and the marketing of the funds. In order to get to breakeven we need to increase our current gold fund by approximately $100 million, or all funds on a proportional basis approximately $200 million and that can be a combination of net purchases or market appreciation.

There was that large selloff of assets in January but it was able to rebound. In February and March there was that increase and we were able to have positive flows during the quarter, as well as a good amount of appreciation.

I think the other part, just to add to it, is fund performance. We do have a fulcrum incentive fee. There's a penalty when you are underperforming and we did experience that penalty from 2013 for global resources, emerging Europe.

I'm happy that's turned because that was a big drag that was costing us $100,000 a month and that's turned positive. That's more the hedge fund model.

I think now we've got a turn in global resources, et cetera, there's been more interest for talking to the offshore fund CEO. There's more interest in putting money into that particular fund as more people are developing a confidence that the gold cycle has turned.

We're going to do a webcast on June 8 on the historical cycles of gold, when it corrects, how long it corrects, and how much it falls, how much it rises, and for people to better understand that we are in the beginnings of a bullish cycle. I think that we need to get this $100 million rising in the gold assets or gold resource assets in Eastern Europe and China collectively for several hundred million dollars in near-term because the fee structure.

It is really simple -- 45 basis points versus 100 basis point on average. You just need more assets. The nice part about JETS is 60 basis points, it's gone through the cash costs, there's no cash burn, for that. It doesn't take much in the ETF space. So that's a positive aspect.

What do we believe the future is? We have to get, in the next three years, is basically get up to about $3 billion in ETFs. That's the goal and how do we differentiate and attract with that smart beta mindset and what we are plodding along with.

At the same time always looking at acquisitions and opportunities. We see that there's some [la-la] land valuations for global advisors and things like that.

So, we are not going to go and splurge money into that space when you are paying 50 times revenue. So, we are very prudent and we're cognizant of it. The growth model is to get these assets back up as quickly as possible, launch with the ETFs, and at the same time look at acquisitions.

Thank you, Frank. One more question related to that -- what level of assets does the Company need to break even?

Really, if we were to just grow our mutual fund gold fund it would be probably about $100 million based on our current assets. And then if we were to grow assets across all of our funds proportionally, that would be about $200 million.

Thank you. That is all the questions that we have for today. Any other comments that our speakers would like to make today?

No, just continue to do the marketing and communicating. I had a long day yesterday, up until 4:00 morning to fly to Chicago and get back at 10:00 last night. Sadly to see the Spurs lose. It is a big issue down in San Antonio. We don't have baseball and we don't have football.

We have basketball. So, the eighth largest city in America has one sports franchise and we all live and breathe around it. It is sad to see the team had the skill but not the will, that spark of energy that you saw Oklahoma has.

I share with you that we will maintain that spark and look for growth and opportunities. Thank you all.

Thank you. This does conclude the US Global Investors webcast for the third quarter of 2016. Thank you all for your participation today.