US Global Investors Inc (GROW) 2018 Q3 法說會逐字稿

Good afternoon, and thank you for joining us today for our webcast announcing U.S. Global Investors' results for the third quarter of fiscal year 2018.

I'm Holly Schoenfeldt.

If you have any question 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, U.S. Global Investors' CEO and Chief Investment Officer; Susan McGee, President, General Counsel and Chief Compliance Officer; 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 U.S. Global Investors accepts no obligation to update them in the future.

A quick overview about U.S. Global Investors. U.S. Global is an innovative investment manager with vast experience in global markets and specialized sectors. It was founded as an investment club. The company became a registered investment adviser in 1968 and has had a long-standing history of global investing and launching first-of-their-kind investment products, including the first no-load gold fund. U.S. Global is well known for expertise in gold and precious metals, natural resources and emerging markets.

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

Well, I'll talk about the strengths, and I think that we strive to be a go-to stock for exposure in emerging markets, resources, and now, digital currencies, mining of digital currencies, which has had a significant impact on our balance sheet and income statement and created phenomenal volatility. And I'll share the story a little bit more as we go through the presentation.

We remain debt-free, we have a strong balance sheet and we have very much a reflexive cost structure. We maintain a monthly dividend and a return on equity discipline, which has been a big challenge with mutual fund industry continuing to shrink as a whole and money going into predominantly ETFs and predominantly big-cap ETFs and where fees are the #1 driver, not so much the performance, but fees.

So we're in a sort of interesting place in the capital markets, but where we're showing the growth is in our new products, which I'll highlight and talk a little bit more in detail. But I want thank our top shareholders.

The Royce Funds have maintained with us, they're the largest shareholder. Then we had the Financial Investment Group Management Group of Michigan (sic) [Financial & Investment Management Group]. We have BlackRock Institutional Trust Company. We have the Vanguard, one of their indexes. And then we have Arbiter Partners Capital Management, which is showing up as a new investor.

We want to thank them all and all the other shareholders that have been on this ride with us because in the past 6 months since we made the investment into HIVE blockchain technology, our stock, its volume, has gone up substantially, and so has the volatility of our stock price. And I'll relate that more in detail as I talk about the cryptocurrency world.

Growth in dividends. We've been consistent, 10 years. Current yield is at price is $2.76, a little over 1%, and the monthly dividend is very, very tiny and modest, but it creates a discipline for us as a company.

Next is the share repurchase program is in motion.

So I think we have glitches in our office as I'm presenting, but we'll get that figured out because the system is working.

But the share repurchase program is in motion. The board has approved the repurchase of up to $2.75 million of its outstanding common stock in the open market, so calendar year 2018. For the 3 months ended March 31, the company repurchased 2,000 Class A shares using cash of $8,000. We use a volatility factor, we've mentioned before. We have an algorithm that we buy in the down days and only when it has these big selloffs that we automatically come in and buy. And this buying may be suspended anytime, but right now, we continue to use our algorithm to buy on the big down days.

The balance sheet, on the next visual, Slide #9. It still remains a best in HIVE. As you can see, exploded the overall assets. They've come off and the volatility in the first quarter, which took place just recently, it had a big impact on our financials. But it's -- to me, it's just more of a volatility. We're not forced to sell. These currencies have had a big rebound, and I'll talk a bit more about that.

And while we have the glitch in our system, just a reminder, you can download the slides. I know they're not progressing at the moment. We're trying to get that back up. But you can download the handout and follow along, like I said, by clicking the red handout button.

So Slide #10. We talk about earnings per share per quarter, and we show that -- Lisa Callicotte, our CFO, will talk about the minus $0.07, and predominantly what HIVE has done to do that has -- certain of our investments show in the balance sheet and the other portion are showing up in the income statement. But the -- it's just something to be aware of.

For 1-year and 1-day periods, what's really, really important for anyone in this space is to recognize the daily and -- the volatility of these various coins. The one day, I think this is -- when I take a look at the 1-year and 1-day periods for Ethereum, bitcoin, if you look at the S&P 500, it's a non-event on one day for the S&P to go plus or minus 1%. And over 23 -- over 1 year, it's 20%. It's just normal DNA volatility.

But I think that a 10-day standard deviation -- this is looking at it -- I think I'm just a bit I'm miswording here. But the 10-day volatility for the S&P 500 is 2%. The one day is basically 1%. Gold is also 1%. And the DNA of the volatility of bouillon is the same as the S&P, but bitcoin, now that's another animal. The daily volatility for it is 7%. So the volatility of bitcoin is 7x the S&P 500. Ethereum is 6x. So anyone investing in this space really has to be speculating. And it's an asset class that's emergent. It's not paying a dividend. And I think that it's very much emergent. It's a brand-new world in that space, so I highly recommend that you recognize the difference between long-term investing and speculating. We believe that this is a long-term trend, and we wanted to be involved with the first company to go public that was mining these coins -- these original coins there, Ethereum. And by September, HIVE will be mining bitcoin.

But in the next visual I'm showing you, on Slide #12, the quarterly average assets under management remain stable. It's disappointing that the funds can outperform an ETF. It doesn't really matter it at this stage of the cycle. Still just want to go and trade into an ETF. And all the fear last year -- the fiduciary rule interpretation, anyone that had small accounts like us -- and therefore, you have higher funding expense ratios, gets pushed off the platforms because they're worried about being sued because it's alleged out there that cheaper is best. So all those people who allege that, I hope they're going to Walmart and they only buy their clothes at Walmart because that's the cheapest place to buy them. And that's a joke, but it's bizarre to watch the process that's taking place and unfolding as an active fund manager.

And Slide #13. Quite often, when I'm on -- asked to go on the media to talk about gold, the world of gold -- and now, I talk about blockchain because I am the Chairman of the first public company in that space, which was predominantly controlled and owned by Silicon Valley. Just like you see the company that's called Coinbase, and the value of Coinbase has gone from $75 million 3 years ago to something like $8 billion last week valuation. That's all private. It's all private capital. The public doesn't get a chance, and HIVE was the first company where they really have the opportunity to have a chance.

On Slide #14. In talking about that world of gold, I really like to highlight to investors that since the beginning of this century, 2000, that bullion has outperformed the S&P 500 2:1. That's a 200% advantage. And I've always had the thought process and recommendation that investors consider putting 10% into gold and gold stocks and rebalance once a year. And this just really shows that it's been prudent to do so.

So you can see on Slide #14 that -- it's just incredible numbers. And then last year, gold was up over 13%. And there was just also a great double digit. And people act like gold is not performing well. I think it's doing exactly everything it's supposed to do. And year-to-date, gold has outperformed the S&P 500. So as an asset class, it's very special.

And we launched -- or this time last year, going in the process of launching our gold smart beta ETF GOAU, GO GOLD. And its whole thought process and the factors in our regressional studies that it would outperform the GDXJ, which garners most of the assets because those particular products are just indexes of names. They're not those that really have fundamental factors that drive long-term performance. And the numbers on that particular GOAU product is just far better than the GDXJ.

Now what drives gold? It's fear and love. And fear gets most the psychology here. And 60% of the world is -- for gold demand is for love. That's China and India, which is 40% of the world's population, affectionally known as Chindia.

The next visual is showing you that the Love Trade shows up with religious holidays and wedding seasons and season of lights. And then we have another wedding season in India, and then we have a Christmas, and we have the Chinese New Year, which is usually the peak in gold, and then it starts to fall off.

But year-to-date, gold has been doing exceptionally well. And so just recently, it slipped below its 50-day moving average. It's above its 200-day. Historically, the gold is a poor performer in March, and it did reasonably well this year. And the month of May is usually another sloppy month as we go into the summer season, the Love Trade season. And that's what this visual in '17 is trying to show you.

Life is all about managing expectations. And with gold, there's a very powerful seasonal pattern, and the seasonal pattern that drives the cyclical behavior is love. And it's predominantly in emerging markets, from Asia over to the Middle East. So that's an important component to recognize.

And when we take a look at the next visual, the government policy, it's a binary model. It's either monetary or fiscal. And monetary is interest rates and money supply. And fiscal is tax and regulation or spending. It's a very simple model.

We line up the G-7 countries, with the E7 most populated countries. And what's important here is that China and India are showing tremendous growth, and the GDP per capita is rising. And the rising GDP per capita there is a great long-term wind at the back of the sail for those that buy because what's happened is that we noticed for our JETS ETF is that the rise of the middle class in China has driven traffic. You can go anywhere in America, go to the New York Stock Exchange, and you will see that 50% of the tourists are Chinese. They all want to go to the epicenter of capitalism and take photos. And the same thing happens between San Antonio and Austin -- is a outlet mall, and the signs used to be in Spanish and English. Now they're Chinese. Why? Because America passed a 10-year tourist visa. And now we have 109 million people, 10 million more than there's in America, that have a high disposable income. It gets lost in China's 1.4 billion, but they're also big gold consumers and they're a big traveler. And so I think it's important to recognize that it drives global economic activity.

So GO GOLD, no matter what gauge you look at -- inflation is trending up. Today, they say the numbers are off slightly. But I think when you look at the 1990 factors for determining inflation, inflation is running more like 8%. If you use the 1980 factors, inflation is running more like 10%.

The next visual is to show you that the global PMI turned up last year. It's pulled off a bit, but it remains very robust and strong. And that's very important for resources and emerging market growth. So I think it remains on a healthy position.

And then we take a look at the last factor for gold, I think, is supply side. We had peak oil until the fractors came along. And all of a sudden, America became the dominant supplier of oil. There is no peak fracker for gold. There's nothing out there. The only person that can see through rock is Superman, and he has problems with lead. So there's no technological breakthrough to find these deposits, but the world continues to have babies, population growth remains strong, money supply continues to grow at a much faster supply than new gold coming on stream. And so I think that this is another fact foreboding well.

And the next visual is showing you declining production output highlights gold's rarity. Gold is still, long term, very important part of anyone's portfolio in our opinion, and we like to make our opinions based on math.

Managing expectations, 23. It's just really to recognize the daily volatility, the yearly volatility of these asset classes. The New York Stock Exchange Gold Bug Index is plus or minus -- as you can see there, daily, it's 3%. But I think that, that index is a higher number than 20.

The S&P 500, I'm trying to get -- I'm just -- the rolling index for the S&P 500, these numbers are not correct. They're not correct. I got to correct them.

The gold index is plus or minus, pushing 40%, it's 2:1. The S&P, over any 12-month period, the DNA volatility is 20%. Bullion is 20%. I think we've overlapped that. Oil pushes 40%. There's been some -- in the data pulling, has been -- something incorrect in that. So those volatilities are not right.

But let's hop on where the growth has been, and where has the excitement been but also the downdrafts. They're spooky. And Lisa Callicotte can tell you about that when they start to correct, which we experienced this year. And it really is interesting that the big drive for -- has been regulations. And when the first announcement came out in January of the SEC meeting with the Senate and gold -- not gold, but the bitcoin, and everything's sold off, Ethereum and all the cryptocurrencies on regulations. Then they rallied. Then there was going to be a meeting with Congress and the SEC -- and there's CME, et cetera, and it sold off again. Then it rallied. And then we had another sell-off going into tax season and we've had a bounce.

Now during all this sell-off, what really shocked me was that Coinbase still grew. Talking to people in Canada that use Einstein, they also had growth. People are opening accounts every day and buying and average down. And what to me is most interesting is that they're small purchases and they're not margin, they're all cash. And when the financial institutions came out said, "We're not going to allow credit cards to be able to buy them," in fact, that was a win because a lot of the fraud, I was told, that was taking place at these -- places like Einstein or Coinbase, were the everyday person. It wasn't hackers, it was people that try to play games with bouncing checks and Visa card scans, scandals, et cetera. They were trying to buy bitcoin with their credit card and they're not paying, and -- or getting it and taking money out and then bouncing the credit card. So I think, if anything, it only helped the industry, is what professionals told me on the exchanges.

But what's really important here in this visual is that USAA was brilliant in their venture capital, along with the New York Stock Exchange. When we were launching GOAU, the New York Stock Exchange commented they invested in 2015 in Coinbase, which is the biggest platform to open an account. And you can now, today, have that show up -- your bitcoin investments or Ethereum, in your overall account at USAA or Fidelity. They don't advertise that, but it's an interesting fact that these 2 major financial institutions have embraced.

And now we see Goldman Sachs going in the space to trade more. We're seeing in the next visual, that launches a bitcoin trading operation because it's so profitable. The spreads are wide. When you talk to the traders, there's ample money, there's arbitrage going around. And there will be new regulations. And in fact, I look forward to those regulations because these ICOs, a lot of them are basically ways of funding, and they try to announce that they're a currency when they're not. They're really just another source of capital raising, and they make misrepresentations. And they don't do full, true payment, timely disclosure. So I think the regulatory rule coming to clean up those bad actors is great.

And then we see -- NASDAQ would consider becoming a Crypto Exchange because it's so profitable. And so they're pushing in that direction. The biggest conferences next week is called Consensus, and NASDAQ's doing a big special with Consensus on this whole idea of trading.

What bitcoin has perfected is the trading -- the value movement. So when we look at the web and the Internet, it shows you that you can move information like an email. And I can share information costly in a very ineffective -- very effectively and very inexpensively and fast. Now what happens with bitcoin, it shows that you can trade value, not just information. You can have economic transactions, and it's going to be the big revolution for all these trading outfits.

The next visual is Coinbase. I mentioned it earlier. And it just had a real record rating of $8 billion. It's remarkable growth. And kudos to USAA and the New York Stock Exchange who made that investment. They must be up tenfold in their investment in 3 years.

But this is -- the next visual is "A rally in bitcoin came soon after the tax day government policy." We always write about U.S. Global is a precursor to change. We showed you earlier the visual of monetary versus fiscal policy because they -- government policies do have an impact in capital flows, in money flows, and so it's important to recognize.

I think we could have one more test here when the G20 is supposed to come out in mid-July with the pronouncement on sort of their thoughts of -- setup for regulations for cryptocurrencies in the world. But we'll see what happens with that. I do think that the most significant country has been the U.K., the British. The Central Bank of the U.K. has written many white papers about how it's going to be used. We're seeing governments like Monaco, Bermuda, Barbados, all these IOCs, small places are looking themselves at being blockchain and cryptocurrency-savvy platforms and setting up regs and rules of conducting business in those domains.

And the next one is more smart money is flowing into the cryptocurrency blockchain technology. You may hear about one negative news. Warren Buffett doesn't like it. I was at a conference recently, very small intimate group with Alan Greenspan, and he doesn't trust it. But you know why -- just might thoughts are, is that -- and I relate to it because I didn't trust Uber at first. And I didn't trust, and I've never trusted Tinder, but my godson loves it. And how can you just trust someone if that's a real profile, that's their picture? That may be someone else you're going to see. And they said they went to the school, et cetera, and they like to play tennis. Forget it. I don't believe it. But millennials do. They do. And they trust Airbnb. And I've used Airbnb, but I like concierge. I like to have someone at the front desk that changes things and get things for me, and -- when you have a problem. But Airbnb is the largest hotel in the world and they own no real estate. Uber is the largest cab company in the world and owns no taxis.

So there's something else that's happening. In the digital world, bitcoin is showing as another asset class, and people trust it. And the more people that to come to trust it, it will become an asset class.

And right now you have 12,000 nodes around the world mining -- competing for mining -- or that's validating a transaction every 10 minutes. So there's something that's big there that's happening, and so I see that -- we're seeing more trading coming into it and being involved with it.

If you go to Ted Talks, it's really remarkable to see how many articles are on blockchain coverage by thought leaders, but there's nothing on gold, there's nothing on emerging market investing, but there's lots on bitcoin and cryptocurrency. And I also had highly recommended that you see [Michael Spring's] interview because it's first class.

In September of last year, for the new shareholders, we made a strategic investment in HIVE. Rather than launching -- or trying to launch an ETF, we were right in zigzagging and saying, "It's not going to happen because the regulators are not going to allow a hacker to get a coin that's going to show up in an ETF." And then we turned around and -- to put our money into HIVE blockchain, became the first institutional investor. Like I would go on the board of a trust of a fund. And here, I went on the board as the Chairman and launched the first industrial-scale mining company. We don't have any of those hacker problems because we mine the virgin coin. Every time we validate a transaction, we get paid with a brand-new coin. And that coin has a premium value.

So we showed in the press release that in the first quarter, HIVE generated a 36% return on its capital, and is doing everything so far. The buildout -- the currency is volatile.

But here's another example that we made -- the announcement we made when we first went public that we would be consuming about 2.5 megawatts of energy. And that -- and then in previous announcements we said, we would get up to 44. We're now at 24. So we're basically up tenfold, usage of energy. We've gone from $1 million a month in revenue to $1 million a week. And based on where the coin prices are today, Ethereum -- you can see in this visual, bitcoin $10,000, Ethereum at $800. And those valuations -- HIVE by -- will have a run rate by September pushing close to $10 million in revenue. And having cash flow, potential cash flow -- free cash flow of $5 million. So it's a very profitable business.

So we're doing everything we said we would do, and we couldn't ask for better strategic partners than Genesis Mining. I mean, it's truly just a first-class organization.

The next visual is highlighting -- on May 1, we an announcement that Sweden Phase 3 increased HIVE's energy consumption dedicated to cryptocurrency mining by 6.8 megawatts to 24.2 megawatts, which, in a quarter is basically a 39% increase.

And the data center facility in Iceland, we were recently over there.

And you could in the next visual, there I am in the site. And it's a very loud place. It sounds like you're just under a 747 getting ready to take off. Or you're -- you got 10 million bees hopping above you -- hovering atop of you.

And so HIVE is -- bounced off its lows. It continues to be a great growth stock. The institutions, we have -- Fidelity's coming about more than 10%. Another 10% of the company is bought by other institutions. We have -- 15 new institutions have come in to buy it. And we remain a very lean machine in what we're doing. And so we're very thrilled as we're building a brand, and we remain the biggest and most -- I think most profitable company in that space.

And interestingly enough, HIVE has -- had looked at other opportunities, et cetera, but really, there is just -- people bought some of these A9 ASIC chips that they think are cryptomining, not. It's just not going to happen. It's very complex. You need to have cheap electricity, you need to have green energy, you need to have the technology advancements that have been made by Genesis Mining. And we have all those ingredients. They own about 25% of HIVE.

So HIVE is going to be a very important strategic investment for U.S. Global, and in particular, in Canada, where we've launched a fund in that space. And so I'm very excited about what's taking place with our investments in Galileo.

Now I'd like to turn it over to Lisa Callicotte, our CFO.

Thank you, Frank.

Good afternoon. Before I summarize our results of operations, I'd like to discuss the accounting treatment related to our direct and indirect investments in HIVE.

USGI, through its wholly owned subsidiary, U.S. Global Investors Canada Limited, directly owns 10 million shares of HIVE. These shares are included in investment securities available for sale on our balance sheet, and unrealized gains and losses on available-for-sale securities are excluded from earnings and recorded in other comprehensive income as a separate component of shareholder's equity, until realized.

USGI Canada also invests in the Galileo Partners Fund and the Galileo Tech and blockchain fund.

At March 31, 2018, USGI Canada owned approximately 26% of the Galileo Partners Fund and 20% of the Galileo Technology and blockchain fund. And the partners fund owned approximately 5 million shares of HIVE, while the Galileo tech and blockchain fund owned approximately 95,000 shares of HIVE.

And that excludes my investments, directly.

The investments in Galileo funds are accounted for under the equity method of accounting. And under this method, the company's proportional share of the fund's net income and loss, which primarily consists of realized and unrealized gains and losses on investments, decreased by fund expenses, is recognized in the company's earnings.

Now I'll discuss the results of operations for the quarter ending March 31, 2018.

Beginning on Page 38. We recorded total operating revenues of $1.4 million for the quarter. This is a 15% decrease from the $1.7 million reported the same quarter last year. The decrease is primarily due to decrease in average assets under management due to market depreciation and shareholder redemption but was somewhat offset by an increase in ETF advisory fees as a result of increased ETF average assets.

USGI's performance fees paid out in the quarter also increased, having a negative impact on our revenues.

Our operating expenses for the quarter were $2 million. This is an increase of $147,000 or 8%. The increase is primarily due to increases in employee compensation and benefits due to increase in bonuses and increase in general and administrative expenses, primarily due to increased ETF costs and travel expenses.

We have an operating loss of $590,000 for the quarter versus an operating loss of $191,000 for the same quarter prior year.

On Page 39, we see we have an other a loss of $643,000 for the quarter compared to other income of $161,000 in the same quarter ending March 31, 2017. $927,000 of this decrease is related to our equity investments in the Galileo Fund. This loss is somewhat offset by an increase in investment income of approximately $114,000. And then we have a loss in our equity method investment for the quarter due to the volatility of these investments.

On 9 months ending March 31, 2018, we had income of $1.8 million related to, these investments.

Net loss attributable to USGI after taxes for the quarter is $1.1 million or a loss of $0.07 per share.

Moving on to Page 40. We see we still have a strong balance sheet. We own our own building and have cash and marketable securities of $24.2 million that combine to make up 71% of our total assets.

And as you can see, compared to June 30, 2017, our trading securities did decrease $2.6 million. This is mainly due to liquidation of trading securities to purchase available-for-sale securities.

Investment securities available-for-sale increased $9.6 million, and this is in line that include our directly owned HIVE shares that were valued at $9.8 million at March 31, 2018. And the value includes an unrealized gain of approximately $7.3 million. And this is recorded in other comprehensive income as a separate component of stockholders' equity.

As you can see, on Page 41, we do have long-term deferred tax liability mainly related to our unrealized gains and investments, but we still have no long-term debt.

The company has a net working capital of $13.8 million, and a current ratio of 10.3:1.

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

Thank you, Lisa.

As you can see, a majority of our mutual fund assets are in emerging markets and natural resources. And we have about 30% in domestic equity and fixed income fund. And for distributions, more than 3/4 of our assets are coming from retail investors, and then the other 1/4 from institutional investors.

Our sales and marketing efforts have continued to focus on our mutual funds, particularly those that are concentrated on gold, natural resources and emerging markets. And then we've also focused on our exchange traded funds.

We are pleased that we have received numerous awards again from Thomson Reuters Lipper of the Year, and we have been recognized by Morningstar. Investors can find more information about our funds on our website, usfunds.com.

The company and our funds also continue to receive an invaluable amount of viral publicity, which is gained through media interviews. Frank Holmes often shares his advice with financial

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television, news, to name a few.

We continue to receive recommendations by influential financial newsletter writers, and we are also -- are able to share and syndicate our award-winning original content, which is shared

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publishers.

The newsletters have loyal followings, and they do receive million of visitors each month. Frank Holmes' CEO blog, Frank Talk, also continues to grow in popularity. His commentary is often featured by prominent publications, including Forbes, Seeking Alpha, ValueWalk and Business Insider. And these has millions of monthly visitors.

We like to call Frank our globetrotter because he, along with others on our investment team, do travel around the world to share our thought leadership. We interact frequently with loyal followers on Facebook, Twitter, LinkedIn, Instagram, YouTube and Pinterest.

In December, we launched a new video series that supplements our award-winning Frank Talk blog. Frank Talk Live features Frank Holmes as he dives into market-moving events of the week and shares his thoughts on trending financial topics. Each class is around 1 to 2 minutes. And so far, 12 at this day have been filmed.

After we've received positive feedback on this new series, we decided to branch out and feature other members of our investment team in similar short videos. We've witnessed a syndication of these videos to third-party sites and we've also seen an increase in subscribers to our YouTube page, Investor Alert newsletter.

Kitco News, the biggest gold website in the world, with an audience of over 10 million monthly visitors, in partnership with The Street, continues to feature the Gold Game Film show with Franks Holmes' weekly gold market analysis. Since the show's beginning, 142 video episodes of the Gold Game Film have aired.

All this coverage helps us leverage our brand by reaching million of readers, viewers and potential investors. Our website was visited over 586,000 times from March 2017 through March 2018 by investors from all over the world.

U.S. Global Investors is well-known for our timely and balanced market insights and thought leadership. The company has been awarded several STAR awards by Mutual Fund Education Alliance. We added 3 more at the end of 2017, including the Best Overall Retail Communication within the small funds category.

The MFEA STAR awards recognizes excellence in investor education, and our weekly free Investor Alert newsletter has been named the Best Electronic Newsletter 6 times. To date, we've received a total of 83 STAR awards.

We're also very proud to celebrate the 11th anniversary of our CEO blog, Frank Talk. Frank Talk was one of the very first on blogs distributed by mutual fund company and it has received numerous awards as well as from the MFEA over the years.

Investors can sign-up at usfunds.com and join over 40,000 subscribers who receive the award-winning Investor Alert and Advisor Alert e-newsletters as well as Frank Talk.

And now we would like to open it up to questions.

And just as a reminder to our audience, you can enter your questions in the Control Panel on your screen. And we have a few already.

Frank, I'm going to direct the first one for you, which is, where do you see the price of gold going as we head into the second half of the year, and what will that mean for GROW?

Well, the biggest thing is the headwind has been rising interest rates in the U.S. And looks like we'll have one more rate rise. Europe has not. U.K. hasn't. The PMIs, which I showed earlier, Purchasing Manufacturing Index is -- has peaked and has rolled over. It's not crashing, ending in a slowdown. But I think the fact that this rollover will slow down this rate rise. But the demand for gold remained robust. I think that the GDP per capita of China and India for the Love Trade -- 6% of all gold demand is love, and it's highly correlated to rising GDP per capita income in those 2 countries, where 40% of the world's population. So I remain very bullish, and I think that gold can easily test $1,500 this year.

Another one, which you've kind of already touched on, Frank, but just to revisit it.

Do you think that impending regulation of the digital currency space is a good or a bad thing, especially for a company like HIVE?

Well, HIVE gets pulled into the volatility because we validate coins. We don't have any AML risk or KYC issues, Know Your Clients rules, et cetera, which have really slowed down banking, the whole movement of money and capital. And so that's not our biggest issue. But we think that there's been fraud and there's been some real sloppiness on these new ICOs. Millennials don't want to speculate in the stock market because it's just too difficult. It takes 5 minutes to open an account at Coinbase to 10 minutes, and it can take you a week to open a brokerage account. And they're going to go and trade these currencies and coins very readily. And so speculative money of $5 billion has it gone into creation of thousand new -- 1,000 new coins last year. And still, this year, even with the regulatory pronouncements, there's been new coins of $30 million, $100 million offerings that have successfully raised capital. George Soros has got into the space. Goldman Sachs has got into the space. So I think that the issue is, is there's some regulations for full, true payment and timely disclosure of these ICOs that they cannot -- say they are a currency when they don't pass the tests. And it's called the Howey test? And it's a very specific test that says that if you quack like a duck and you walk like a duck, you are a duck. And you can't say that you're an eagle. And so that's been something that's positive for this overall industry.

Great. One last question, then we can close things out.

Are there any business or product-related updates from Galileo that you'd like to share?

I think that all of us in the mutual fund world are struggling with costs -- and just tremendous cost to market. The cost of launching a product -- a fintech product is substantially less than what we have to, and what they can go and say and do. So I see that the proliferation -- so I think the regulatory burden from audits or whatever you have is very expensive and counter for mutual funds as it is here. And the marketing costs, et cetera, road to communicate with the public is also very, very expensive. And so I think that growth will be the -- in the ETF in a separate account business. Still exploring where the separate account opportunity is because I think that, that's where this industry is growing. But Susie, you're on the board of ICI, and there's no real growth in mutual funds.

No.

No. And the growth in ETFs is basically 3 situations the capture it all. And something like 50% of all their flows are indexes that are the cheapest. But I do think we're going to get a hiccup when you have BlackRock and Vanguard owning 10% of 100 companies in the S&P index, and all of a sudden, there's big redemptions and they have to sell. Because we have seen that in a very mini scale with the GDXJ unraveling and hitting the market. They brought in $5 billion, and all of a sudden, they own too much of a company, and they had to go and sell quickly $3 billion. And they just crushed this time last year the gold industry. So I think it's only a matter of time before it's going to happen with the big cap stocks that, all of a sudden, something happens of that nature. But -- and then separate accounts is just a much safer way to play. And I think the other thing to recognize is -- I've written about it is -- the Financial Times created a story on it, that 70% of the trading today are quants. And so one of the things we've done for -- to help our fund performance is this called quantamentals, where you're using quantitative tools, and that -- those disciplines help a fundamental analyst look at fundamentals. And that process -- that thought process was the backbone to launching JETS, which has done everything it said it would do, and then GOAU.

Great. Thank you.

All right, this concludes U.S. Global Investors' webcast for the third quarter 2018. The presentation will be available on our website at www.usfunds.com.

Thank you all for your participation today.