Company Streamlines Operations and Product
Lineup
U.S. Global Investors, Inc. (NASDAQ: GROW), a boutique
registered investment advisory firm specializing in natural
resources, emerging markets, and domestic equities and municipal
bonds, recorded a net loss of $1,165,207, or $0.08 per share loss,
on operating revenues of $2.74 million for the quarter ended
December 31, 2013.
Net income for the same quarter of the previous year was
$165,985, or $0.01 per share, on operating revenues of $4.97
million.
Average assets under management were $1.11 billion for the
quarter ended December 31, 2013, compared to an average of $1.68
billion for the same quarter a year ago, a decrease of about 34
percent. Period-end assets under management stood at $0.97 billion
as of December 31, 2013, versus $1.61 billion under management as
of December 31, 2012.
“A big external pressure affecting assets under management has
been the fact that global gold equities declined three years in a
row,” says Frank Holmes, U.S. Global Investors CEO. “Additionally,
the close-to-zero federal funds rate created an industry-wide
financial burden to support the yield of money market funds.”
In this challenging environment, the company has been focused on
reducing costs and streamlining its products and services in the
second fiscal quarter of 2014. Changes included converting a money
market fund to an ultra-short government bond fund, closing the
U.S. Treasury Securities Cash Fund and the Global Emerging Markets
Fund, merging the Tax Free Fund into the Near-Term Tax Free Fund,
reorganizing the MegaTrends Fund into the Holmes Growth Fund, and
partnering with U.S. Bancorp for transfer agency services.
“Accomplishing these strategic changes was expensive and
time-consuming. Time is money and the length of time associated
with the legal and regulatory processes increased one-time costs,”
says Holmes. “Moving forward from our period of transitioning,
general and administrative expenses have been decreasing
significantly in January 2014. The organization is leaner, now with
less than 50 employees, and in a stronger financial position,
especially as gold and resources look to rebound.”
During 2013, commodities experienced a turbulent year, with gold
posting its first annual decline since 2000 and gold equities
declining for a third year in a row.
“In the last three decades, a losing streak of three years has
only happened three times for the Philadelphia Gold & Silver
Index,” says Holmes. “This most recent three-year decline has
negatively affected GROW’s revenues.”
In addition, in the continued low interest rate environment,
mutual fund companies have been hurt by voluntary money market fund
fee waivers. According to Ignites, in 2013, fee waivers for the
industry rose to a record high of $5.8 billion.
“By converting the U.S. Government Securities Savings Fund from
a money market fund to an ultra-short government bond fund, the
cash drain from the fund’s fee waivers has significantly improved,”
says Holmes.
“We’re pleased shareholders approved the conversion. Investors
are thirsty for higher yields but do not want the risk of a
long-term bond fund,” says Holmes. “The U.S. Government Securities
Ultra-Short Bond Fund is designed as an investment that takes
advantage of the security of U.S. Government bonds and obligations,
while simultaneously pursuing a higher level of income compared to
money market funds. And a distinctive feature of the fund is the
floating $2 share price, which reduces the penny-move volatility in
a portfolio.”
Additional Investment in Galileo Global Equity
Advisors
On January 17, Toronto-based Galileo Global Equity Advisors, of
which U.S. Global owns 50 percent, agreed to sell an additional 15
percent of the company. U.S. Global plans to proceed with the
purchase in the third fiscal quarter. After this purchase, the
company will own 65 percent of the outstanding shares of
Galileo.
“I’m pleased with the partnership that’s developed between U.S.
Global and Galileo and I’m looking forward to Galileo’s continued
growth,” says Holmes. “Its flagship fund continues to be highly
rated by Morningstar and pays dividends, both of which are very
attractive to Canadian investors.”
Share Repurchase Program, Continued Strong Balance Sheet, and
Monthly Dividends
The company continued repurchasing outstanding stock in the
second fiscal quarter totaling 28,227 class A shares using cash of
$72,528. The company is using an algorithm to purchase shares on
down days, following the rules and regulations that restrict the
amounts and times when shares can be purchased on any given day,
such as at the opening of the day and in the last half-hour of
trading. The share repurchase plan is set to expire at the end of
calendar year 2014 but may be suspended or discontinued at any
time.
As of December 31, 2013, the company had net working capital of
approximately $23.5 million. Cash and cash equivalents totaled $4.6
million and marketable securities totaled $26.0 million as of the
end of the quarter.
The change in cash and cash equivalents compared to last quarter
was due to the company’s investment in the U.S. Government
Securities Ultra-Short Bond Fund. This is the fund that converted
in December from a money market fund to an ultra-short bond fund.
Therefore, on the balance sheet, the amount invested in this fund
in December 2013, approximately $14 million, was transferred from
cash and cash equivalents to trading securities.
In addition, the company has had no long-term debt since 2004
and owns its headquarters building.
Market Commentary
The global synchronized easing cycle continues, particularly in
China, Japan and the U.S., which bodes well for global
equities.
“Throughout my travels, I often tell investors to follow where
the money is going. Too often people get caught up in their
political allegiance or parties, focus on the negative and lose
confidence in stocks,” says Holmes. “One example from 2013 is all
the pessimism surrounding Obamacare, yet S&P 500 health care
companies benefited, as the sector was the second-best
performer.
“One opportunity we are seeing for 2014 is in gold stocks.
Following three years of straight losses in the gold mining
industry, miners are approaching the historical limits of
multi-year declines,” says Holmes.
“Ralph Aldis, portfolio manager of the Gold and Precious Metals
Fund and World Precious Minerals Fund, believes the best time to
buy gold is when the market hates it. Pessimism has reached a
maximum level and historically, when consensus is this strong, it
has been a turning point in the market,” says Holmes. “We have
always advocated that shareholders allocate 5 to 10 percent of an
overall portfolio to gold and gold stocks and rebalance
annually.
“Investors have seen significant gains in domestic markets, and
while there may be short-term corrections, we continue to see
opportunities in U.S. stocks,” says Holmes. “For the remainder of
2014, we believe the market will continue to favor high-quality,
growth-at-a-reasonable price stocks. This trend bodes well for U.S.
Global’s domestic equity funds.”
In 2013, the All American Equity Fund (GBTFX) outperformed its
benchmark S&P 500 Index, climbing 35.6 percent while the index
rose 32.4 percent. The fund commits a portion of its assets to
stocks with superior shareholder yield metrics, seeking companies
that pay cash dividends, repurchase stock and reduce their
debt.
In the last calendar year, the Holmes Macro Trends Fund (ACBGX)
also outperformed its benchmark, rising 39.4 percent, while the
S&P 1500 Composite Index returned 32.8 percent.
“We believe the Holmes Macro Trends Fund has a recipe for
success for shareholders. It combines a bottom-up approach to find
great, fast-growing and shareholder-focused companies while seeking
the best stocks in the sectors experiencing positive momentum,”
says Holmes.
Earnings Webcast Information
The company has scheduled a webcast for 7:30 a.m. Central time
on Monday, February 10, 2014, to discuss the company’s key
financial results for the quarter. Frank Holmes will be accompanied
on the webcast by Susan McGee, president and general counsel, and
Lisa Callicotte, chief financial officer. Click here to register or
visit www.usfunds.com. The earnings presentation can also be
accessed by dialing 1 (855) 282-0375. The confirmation number is
53325727. Please dial in at least 5 minutes prior to the start of
the call.
Selected financial data
(unaudited):
Three months ended 12/31/2013
12/31/2012 Operating Revenues $ 2,739,744 $ 4,973,223
Operating Expenses 4,204,476
4,811,168 Operating Income (Loss) (1,464,732 )
162,055 Other Income 40,646
160,987 Income (Loss) from Continuing Operations
Before Income Taxes (1,424,086 ) 323,042 Tax Expense (Benefit)
(466,412 ) 145,310 Income
(Loss) from Continuing Operations (957,674 ) 177,732 Loss on
Discontinued Operations (net of tax) (207,533 )
(11,747 ) Net Income (Loss) $ (1,165,207 )
$ 165,985 Net income (loss) per
share from continuing operations (basic and diluted) $ (0.06 ) $
0.01 Net income (loss) per share from discontinued operations
(basic and diluted) (0.02 ) $ 0.00
Net income (loss) per share $ (0.08 ) $
0.01 Avg. common shares outstanding (basic)
15,472,370 15,487,207 Avg. common shares outstanding (diluted)
15,472,370 15,487,207 Avg. assets under management
(billions) $ 1.11 $ 1.68
About U.S. Global Investors, Inc.
U.S. Global Investors, Inc. (www.usfunds.com) is a boutique
registered investment adviser specializing in actively managed
equity and bond strategies. The company has a longstanding history
as experts in gold and precious metals, natural resources and
emerging markets. Headquartered in San Antonio, Texas, the company
provides advisory and other services to U.S. Global Investors Funds
and other clients.
With an average of $1.11 billion in assets under management in
the quarter ended December 31, 2013, U.S. Global Investors manages
domestic and offshore funds offering a variety of investment
options, from emerging markets to fixed income.
Forward-Looking Statements and Disclosure
This news release and other statements by U.S. Global Investors
may include certain “forward-looking statements” including
statements relating to revenues, expenses and expectations
regarding market conditions. You can identify these forward-looking
statements by the use of words such as “outlook,” “believes,”
“expects,” “potential,” “opportunity,” “seeks,” “anticipates” or
other comparable words. Such statements involve certain risks and
uncertainties and should be read with corporate filings and other
important information on the company’s website, www.usfunds.com, or
the Securities and Exchange Commission’s website at
www.sec.gov.
These filings, such as the company’s annual report and Form
10-Q, should be read in conjunction with the other cautionary
statements that are included in this release. Future events could
differ materially from those anticipated in such statements and
there can be no assurance that such statements will prove accurate
and actual results may vary. The company undertakes no obligation
to publicly update or review any forward-looking statements,
whether as a result of new information, future developments or
otherwise.
Total Annualized Returns as of 12/31/13
One-Year Five-Year
Ten-Year
GrossExpenseRatio
ExpenseRatio
AfterWaivers
Holmes Macro Trends Fund 39.38% 15.69% 6.89% 1.86% NA S&P 1500
Composite Index 32.79% 18.37% 7.77% NA NA All American Equity Fund
35.55% 14.87% 7.16% 2.72% 2.20% S&P 500 Index 32.39% 17.94%
7.41% NA NA
Expense ratios as stated in the most recent prospectus. The
expense ratio after waivers is a voluntary limit on total fund
operating expenses (exclusive of any acquired fund fees and
expenses, performance fees, taxes, brokerage commissions and
interest) that U.S. Global Investors, Inc. can modify or terminate
at any time, which may lower a fund's yield or return. Performance
data quoted above is historical. Past performance is no guarantee
of future results. Results reflect the reinvestment of dividends
and other earnings. Current performance may be higher or lower than
the performance data quoted. The principal value and investment
return of an investment will fluctuate so that your shares, when
redeemed, may be worth more or less than their original cost.
Performance does not include the effect of any direct fees
described in the fund's prospectus (e.g., short-term trading fees
of 0.05%) which, if applicable, would lower your total returns.
Performance quoted for periods of one year or less is cumulative
and not annualized. Obtain performance data current to the most
recent month-end at www.usfunds.com or 1-800-US-FUNDS.
Please consider carefully a fund’s investment objectives, risks,
charges and expenses. For this and other important information,
obtain a fund prospectus by visiting www.usfunds.com or by calling
1-800-US-FUNDS (1-800-873-8637). Read it carefully before
investing. Distributed by U.S. Global Brokerage, Inc.
Gold, precious metals, and precious minerals funds may be
susceptible to adverse economic, political or regulatory
developments due to concentrating in a single theme. The prices of
gold, precious metals, and precious minerals are subject to
substantial price fluctuations over short periods of time and may
be affected by unpredicted international monetary and political
policies. We suggest investing no more than 5% to 10% of your
portfolio in these sectors.
Tax-exempt income is federal income tax free. A portion of this
income may be subject to state and local income taxes, and if
applicable, may subject certain investors to the Alternative
Minimum Tax as well. The Near-Term Tax Free Fund may invest up to
20% of its assets in securities that pay taxable interest. Income
or fund distributions attributable to capital gains are usually
subject to both state and federal income taxes. The Near-Term Tax
Free Fund may be exposed to risks related to a concentration of
investments in a particular state or geographic area. These
investments present risks resulting from changes in economic
conditions of the region or issuer. Bond funds are subject to
interest-rate risk; their value declines as interest rates rise.
Though the Near-Term Tax Free and U.S. Government Securities
Ultra-Short Bond Funds seek minimal fluctuations in share price,
they are subject to the risk that a decline in the credit quality
of a portfolio holding could cause a fund’s share price to
decline.
The Galileo Mutual Funds are not offered for sale in the United
States. They are represented across Canada by independent financial
advisors.
All opinions expressed and data provided are subject to change
without notice. Some of these opinions may not be appropriate to
every investor. The S&P 500 Stock Index is a widely recognized
capitalization-weighted index of 500 common stock prices in U.S.
companies. The S&P 1500 Composite is a broad-based
capitalization-weighted index of 1500 U.S. companies and is
comprised of the S&P 400, S&P 500, and the S&P 600. The
Philadelphia Stock Exchange Gold and Silver Index (XAU) is a
capitalization-weighted index that includes the leading companies
involved in the mining of gold and silver.
U.S. Global Investors, Inc.Susan Filyk, 210-308-1286Public
Relationssfilyk@usfunds.comorJune Falks, 210-308-1202Public
Relationsjfalks@usfunds.com
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