shareholder report - u.s. global · pdf fileshareholder report 2014 vol. 1 ... distributed by...

Shareholder Report2014 Vol. 1

4 Resources Revved Up | Time for a Gold Stock Breakout?

Innovation Meets

Tradition in China

2 Volume 1, 2014 • www.usfunds.com

INSIDE

We want to hear from you. Send your questions, comments or suggestions for the Shareholder Report to [email protected]. For account information, call 1-800-US-FUNDS (1-800-873-8637) or email [email protected].

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.All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio. Because the Global Resources Fund concentrates its investments in specific industries, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries. 14-156

www.usfunds.comThe arrow inside means you can find expanded coverage online.

Letter from the CEOWe are always on the lookout for the sweet spot in the market.

About the Cover:A Chinese junk boat sails along Hong Kong’s Victoria Harbour, a true contrast of traditional China against the backdrop of a modern city skyline. As early as 2nd century B.C. and later adopted in the design of Western shipbuilding,the junk boat was used to sail long distances, using a hull design and sail plan to do so efficiently. The backdrop of skyscrapers highlights the

development and remarkable growth of urban life in Hong Kong since the day of the junk boat. China has used innovative design and technology for centuries, and as depicted in this very scene, continues to

do so today.

3

6

7

12

14

8 Natural gas was on top in 2013, but we think there is still room for growth. Our global resources expert, Brian Hicks, CFA,

steers our readers toward four areas that we believe are gearing up to accelerate.

These Cities May Surprise You Can you place these architectural landmarks?

China Online Competition is hot among China’s Internet and mobile players.

Time to Hang on to Gold?What the three-year losing streak in the XAU means for gold.

Minute with the ManagerXian Liang assumes his new role as portfolio manager, and we learn from his perspective.

http://www.usfunds.com


Volume 1, 2014 • www.usfunds.com 3

LETTER FROM THE CEO

Dear Shareholder, Americans have been enduring an intravenous drip of negative messages about Obamacare. A TIME cover showed Obamacare as a busted pill, the New York Post called the law a disaster, and The Economist featured the president sinking in water.

However, savvy investors realized health care companies weren’t broken, in ruins or drowning. In fact, many of these stocks turned out to be the greatest opportunities in the U.S. stock market.

We’re pleased our models were able to help our team overlook the negativity to recognize the significant strengths materializing out of the health care reform. Over the past year, the Holmes Macro Trends Fund (MEGAX) had significant stock-picking success in this sector, as well as consumer discretionary and industrials, compared to the benchmark index.

The fund had a stellar year in 2013, with a return of 39.38 percent through December 31, 2013. The fund outperformed its benchmark, the S&P 1500 Composite Index, by a spread of over 6 percent. So far this year, the fund is still going strong, beating its benchmark for the one-year period through March.

I believe the tremendous rise in health care stocks represents the American entrepreneurial spirit at its best. With great minds and ingenuity, health care businesses competed to have the first-mover advantage. They innovated, streamlined their organizations, and built new software. As a result, these companies have been on fire.

We need to overlook negativity

and recognize strengths in the market

Frank Holmes, CEO and Chief Investment Officer

How to Pick

TRIFECTA WINS

continued •

24.25% 22.01%

0%

5%

-5%

10%

15%

20%

25%

30%

35%

Feb-14 Jan-14 Mar-14 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Dec-13 Nov-13

Holmes Macro Trends Fund vs. S&P 1500 Composite Index

Past performance does not guarantee future results. Source: Bloomberg

Total 1-Year Return through 3/31/2014

Holmes Macro Trends Fund (MEGAX) S&P 1500 Composite Index



Specifically, we want to own businesses with robust fundamentals that are growing revenues at more than 10 percent, generating at least 20 percent earnings growth, and providing a

20 percent return-on-equity.

Many CEOs I know can relate to this model because they want their own businesses to grow quickly, earn more and return a healthy amount of income to shareholders.

However, owning growing companies isn’t the entire recipe for the Holmes Macro Trends Fund’s success.

In the Venn diagram of overlapping circles, you can see the ultimate sweet spot of the market.

A stock with robust fundamentals is only one of these ingredients. The other two are stocks that are in strong sectors and stocks in strong industries within sectors. If a stock falls in all three categories, we call it a trifecta win.

That’s where we found many health care companies, even as the mainstream media criticized Obamacare.

Last year wasn’t an anomaly for outstanding health care stock performance. In fact, we’ve seen sustained leadership from the sector for the past three years.

Prior to that, from 2004 through 2007, energy sector returns were consistently strong compared to the other S&P 500 Index sector returns. Four years in a row, energy was

either the best-performing sector or second-best. All years showed double-digit returns.

Robust Fundamentals

SectorLeadership

IndustryLeadership

Sweet Spot

We seek these types of entrepreneurial companies for the Holmes Macro Trends Fund.



Energy’s multi-year run was significantly influenced by government policies, as China was undergoing a tremendous infrastructure buildout and massive urbanization. Its economy quickly matured, and that growth significantly changed its energy structure. Oil consumption increased significantly, and the country’s growth trickled down to other commodity- dependent countries, such as Brazil, Russia and the Middle East.

I’m pleased to say that this approach to finding trifecta wins is applied across U.S. Global’s fund family. For example, the Global Resources Fund (PSPFX) looks for resources companies with robust fundamentals that offer low price-to-cash-flow, high sales growth and high returns on equity. We also like equities that are in areas of sector and industry leadership, as they have a tailwind at their back.

This process has produced some amazing results over time for our fund shareholders.

Looking ahead over the next several years, we suggest investors change their center of focus from the negativity in the media to the strengthening areas in the market.

Go to www.usfunds.com to see how it’s working today.

Sincerely,

Frank Holmes CEO and Chief Investment Officer U.S. Global Investors, Inc.

www.usfunds.comTake a look at our latest video! John Derrick, Director of Research, describes the Periodic Table of Sector Returns.

•

Total Annualized Returns as of 03/31/14 One-Year Five-Year Ten-Year Gross Expense Ratio

Holmes Macro Trends (MEGAX) 24.25% 17.04% 6.39% 1.86%

S&P 1500 Composite Index 22.01% 21.62% 7.74% n/a

Expense ratios as stated in the most recent prospectus. Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. For a portion of periods, the fund had expense limitations, without which returns would have been lower. 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.

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 index was developed with a base value of 100 as of December 30, 1994. MSCI World Index is a capitalization weighted index that monitors the performance of stocks from around the world. MSCI World Energy Index is an unmanaged index composed of more than 1,400 stocks listed on exchanges in the U.S., Europe, Canada, Australia, New Zealand and the Far East. The MSCI World Energy Index is the Energy sector of the MSCI World Index. 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.

Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the funds mentioned as a percentage of net assets as of 3/31/2014: Amazon 0.00%; Baidu 0.00%; eBay 0.00%; Energy Select Sector SPDR ETF 0.00%; EOG Resources (PSPFX 2.37%); Google (MEGAX 0.52%); Pioneer Natural Resources 0.00%; Qihoo 360 (USCOX 3.31%, MEGAX 1.11%); Southwestern Energy (PSPFX 1.77%, MEGAX 1.88%); Tencent Holdings (USCOX 3.50%); Twitter 0.00%; Wal-Mart 0.00%; Yahoo! 0.00%.

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

28.77% 29.14% 32.13% 32.38% -17.66% 59.92% 25.72% 14.84% 26.26% 40.96%

19.60% 12.75% 22.21% 19.99% -24.48% 45.22% 23.92% 10.53% 21.87% 38.74%

15.97% 4.85% 17.23% 15.81% -31.55% 38.76% 19.92% 10.18% 15.19% 37.63%

15.95% 3.72% 16.87% 15.53% -33.61% 17.27% 17.86% 4.41% 13.15% 33.21%

12.14% 2.15% 16.16% 11.60% -34.72% 17.07% 12.30% 2.77% 12.49% 26.23%

10.79% 1.34% 15.73% 9.83% -35.93% 14.81% 10.83% 1.33% 12.46% 22.73%

8.23% 0.38% 11.76% 8.45% -41.52% 11.29% 10.67% 0.84% 12.24% 22.68%

6.04% 0.36% 11.02% 5.39% -43.68% 11.21% 9.13% -2.92% 7.52% 22.27%

2.14% -7.35% 7.70% -14.32% -47.05% 6.80% 0.85% -11.64% 2.33% 8.75%

0.23% -9.05% 5.78% -20.84% -56.95% 2.63% 0.71% -18.41% -2.91% 6.49%

Periodic Table of Sector Returns Annual Returns of S&P 500 Sectors

Sector Color Key

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

Industrials

Information Technology

Materials

Telecommunications

Utilities

Source: Bloomberg, U.S. Global Investors




http://www.usfunds.com/


Are you someone who always has your passport on hand since you never know when a good travel opportunity might come up? Or maybe you experience other parts of the world vicariously, reading travel blogs and vacation brochures. Whether you’re exploring in person or virtually, how familiar are you with the architecture in other parts of the world?

We’ve created a preview of our quiz to whet your global-traveling appetite. Take a look at the architectural structure, and choose the city where it is located.

DO YOU RECOGNIZE THESE WORLD CITIES?

a. Saint Petersburg, Russiab. Istanbul, Turkey

a. Santiago, Chileb. Sao Paolo, Brazil

Located in the most populous city in China, this unique structure holds the record for the world’s third-tallest TV and radio tower.

This residential building has its own zip code and is

located in the city whose economy is the largest by GDP among all other Latin

American cities.

The port of this Japanese city, about 25 miles southwest of Osaka, was one of the first places to welcome foreign ships and establish foreign communities.

These impressive skyscrapers are located in the only Eastern European city in the world

that is positioned on two continents: Europe and Asia.

a. Saint Petersburg, Russiab. Istanbul, Turkey1 2

43

a. Beijing, Chinab. Shanghai, China

a. Santiago, Chileb. Sao Paolo, Brazil

a. Saint Petersburg, Russiab. Istanbul, Turkey

a. Yokohama, Japanb. Kobe, Japan

We invite you to check your answers and take the full quiz on our website at usfunds.com/SurprisingCitiesQuiz. Share your score with your friends, and let us know how you do! Tweet your score with the Twitter hashtag #SurprisingCitiesQuiz. Or just drop us a line to [email protected].

Share it and wear it! Be one of the first 30 readers to share your score with us, and we’ll send you one of our “Enjoy Capitalism” t-shirts.

•



“ ”

Many Americans “Google” for directions, post to Twitter, and shop online at Amazon or eBay, but in China, users’ online experiences are shaped by different innovative technology companies.

So while many U.S. investors are getting excited about the growing number of initial public offerings in the tech sector, they would be remiss if they didn’t look beyond Silicon Valley.

For example, Baidu is the search engine leader in China with an 81 percent market share, significantly overshadowing Google, which has only a 12 percent revenue share, according to CLSA. The research firm anticipates Baidu will “sustain 35-40 percent revenue growth,” due to its monetization in search advertising, mobile games and mobile videos.

Competition is heating up though. When Portfolio Manager Xian Liang visited his family in Shanghai, he noticed the Internet search page automatically populated to Qihoo (pronounced “chee-hoo”). Qihoo, which has only about 15 to 20 percent traffic share in China today, bundles its own search engine along with its Internet security software. After installing the anti-virus software, the search engine becomes the default on users’ computers.

When purchasing goods online, Chinese residents usually head to Alibaba. This site processes about 80 percent of China’s total online retail businesses, and allows small businesses to set up virtual storefronts, similar to eBay.

Its volume of sales is so massive, Alibaba may overtake Wal-Mart as the world’s largest retail network by 2016, according to CNBC.

As an “undisputed market leader,” Alibaba enjoys revenues that are growing 60 to 70 percent year-

over-year, says CLSA. Yahoo! has benefited because of its 24-percent stake in Alibaba and looking ahead, investors could get in on the action if the company follows through with its plan for an initial public offering.

Meanwhile, the company “best positioned for mobile” is Tencent Holdings due to its app called WeChat, says CLSA. While users of Tencent’s phone applications may not be familiar with the SnapChat app, they are feverishly downloading WeChat. Boasting 236 million monthly active users, WeChat is a mobile social networking application that allows real-time, multi-party voice messaging and location sharing.

With this booming and innovative tech market, comes a lively, entrepreneurial spirit. In today’s highly connected and competitive world, innovation is one way companies grow and thrive.

It’s especially exciting to see the Chinese government encourage young entrepreneurs who are growing up in China, creating new companies and achieving incredible success. In fact, according to the government, the startup of new companies in the private sector increased 30 percent in 2013, reaching 233 million businesses!

For the China Region Fund (USCOX), we’re bullish about the long-term opportunities that should develop from China’s removal of the hukou system that restricted the mobility of many of its residents and suppressed urbanization trends. In addition, as China eases its one-child policy, Internet companies are likely to see an even greater increase of users in the years ahead.

www.usfunds.comLearn more about China’s surprising tech boom in the Frank Talk blog.

•

GoogleChina?

Do They

in

Chinese Tech Companies to Watch

E-commerce on a global scale

Mobile messaging leader

Search engine leader



FOR A RESOURCES BOOM

4Commodity returns vary wildly, as experienced resource investors can attest.

In 2013, natural gas was the top-performing commodity, increasing 26 percent. Crude oil was the second-best performer, rising just over 7 percent. Meanwhile, corn fell to the bottom of the commodities barrel, dropping 40 percent. Precious metals also disappointed investors, as silver lost nearly 36 percent while gold declined 28 percent.

Individual commodity returns also differ substantially from year-to-year: While wheat was the best performer in 2012, increasing 19 percent, it gave up all those returns and more in 2013.

This inherent volatility can spell opportunity for the nimble investor who can look past the mainstream headlines to identify hot spots. Our global resources expert, Brian Hicks, CFA, identified four we believe are revved up for a resources boom. Turn the page to learn more. •


Revved UpAREAS



Because of the previously low expectations of global growth and oil demand, energy stocks have been shunned by investors and have languished in recent years. In fact, according to Goldman Sachs, oil equities held in the Energy Select Sector SPDR ETF have underperformed the broader market by 32 percent since 2008!

Global energy stocks have also suffered: In a comparison of the price-to-book valuations of the MSCI World Energy Index to that of the MSCI World Index, the ratio is at a level we haven’t seen since the late 1990s and early 2000s. Back then, crude oil plummeted to a very low price of $10 per barrel.

Today, with oil hovering around $100 a barrel and improved economic conditions in the U.S., energy stocks appear to be a tremendous bargain compared to overall stocks.

When it comes to natural gas, the cold, snowy winter has caused inventories of the commodity to rapidly decline. As the U.S. is experiencing the coldest winter in 13 years — some parts of the

country have had the coldest weather in nearly three decades — natural gas inventories have been drawn down to levels we haven’t seen in 10 years.

Still, Old Man Winter hasn’t been persuasive enough for companies to respond with supply.

Based on data from the research firm IHS, 384 gas-directed rigs were online in the lower 48 states to refill storage and meet new demand coming online from the industrial sector in 2013. However, looking ahead over the next few years, the rig count is going to have to rise dramatically “as the gas market tightens in late 2014 and 2015,” which is a tremendous opportunity for investors, says IHS.

IHS estimates that the number of gas-directed rigs will need to increase by 280 to 320 by the year 2017, nearly doubling the current count.

Before rig counts can increase, higher natural gas prices are needed to incentivize operators to invest in natural gas. Based on last quarter’s earnings reports, many major producers, such as EOG Resources, Southwestern and Pioneer Natural Resources, are not planning on increasing their natural gas budgets. Bill Thomas, Chairman and CEO of EOG, explained his reasoning that is part of the collective thought process across the industry:

“For the sixth year in a row we are not [trying to] grow EOG’s North American natural gas production. This is reflective of our view of low returns on natural gas investments. We won’t drill any dry gas wells in North America during 2014 because we don’t see a change in the gas oversupply picture until the 2017–2018 time frame.”

After this winter season, the complacency toward adding to rig counts may amplify the deficit in natural gas inventories.

THESE 4 AREAS ARE REVVED UP FOR A RESOURCES BOOM

One upside to the low natural gas prices in North America is that they equate to relatively cheap feed stock for U.S. chemical companies. Whether it’s Asia or Europe, gas prices outside of the U.S. tend to be benchmarked to the higher price of crude oil.

Along with the global economic recovery, natural gas is giving the U.S. a competitive advantage. We’re seeing chemical companies coming back to the states, creating jobs, expanding exports out of the U.S., and helping the nation’s current account deficit.

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Relative Valuation of Energy Sector Back at 1999 Levels When Oil Was $10 per BarrelPrice-to-Book Ratio of MSCI World Energy/MSCI World

Source: Barclays, U.S. Global Investors

In Real 2011 U.S. Dollars per One Million British Thermal Units$20

$15

$10

$5

$02000 2005 2010 2015 2020 2025 2030 2035

Source: IHS CERA, U.S. Global Investors

North American Natural Gas Is a Global Bargain

Europe Oil

Asia Gas

Europe Gas

U.S. Gas

PLENTY IN THE TANK FOR ENERGY STOCKS

U.S. CHEMICAL INDUSTRY HAS A COMPETITIVE EDGE


THE DIVERSE APPROACH OF THE GLOBAL RESOURCES FUND (PSPFX)


The prices to ship commodities around the world have been hovering around the lowest we’ve seen in five years. However, demand for shipping is starting to overtake the supply of new ships, which bodes well for shipping companies.

Take a look at the chart showing the Baltic Dry Index over the past five years. The index is made up of various sizes of carriers including the Baltic Capesize, Panamax, Handysize and Supramax indices and measures the price of moving raw materials by sea. Primarily, these vessels transport iron ore and grains, i.e., wheat, corn and soybeans, which are especially vital goods for China.

To keep its population of 1.3 billion fed, China needs to import millions of tonnes of wheat, corn, rice and soybeans. As this demand is recognized, shipping companies should benefit.

We believe these areas of the market offer the most exciting opportunities today. They have the wind at their back, giving us the confidence to overweight the companies within these areas of the market that are also showing extremely robust fundamentals.

Because of the diversity and volatility of each commodity, we believe investors benefit by holding a diversified selection of commodity stocks actively managed by professionals who understand these specialized assets and the global trends affecting them.

THESE 4 AREAS ARE REVVED UP FOR A RESOURCES BOOM

In China, residents have been dealing with increasing cancer-causing pollutants and vehicle congestion on roads, and public discontent is rising. This winter, as pollution grew to be 10 times higher than the acceptable rate, Beijing University students protested the conditions by putting surgical masks on iconic statues.

The effect that pollution is having on China’s economy benefits certain industries, including renewable and clean energy, whether it’s solar or wind power.

You can see just how dramatic the investment has been over the last five years. Specifically, wind power and solar look especially attractive. Take a look at CLSA data: In 2009, the country had about 0.2 percent of the global market. By 2014, it’s estimated to grow to over 30 percent of the global market.

China isn’t the only country with a growing renewable energy market. With the Fukushima nuclear reactors incident after the massive earthquake in Japan, the solar market is taking off there too.


0

1,000

2,000

3,000

4,000

5,000

Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14

Baltic Dry Index (BDI)150-Day Moving Average

Baltic Dry Index Poised for a Significant Rebound

Source: CLSA, U.S. Global Investors

Chinese Solar: From 3% of the Global Market to 30% in Three Years

0.2 0.5 2.0 5.0 12.0 13.0

0%

5%

10%

15%

20%

25%

30%

35%

0

10

20

30

40

50

09 10 11 12E 13E 14E

Gigawatts

ChinaJapanRest of WorldChina Share of World (Right axis)

SHIPPING COMPANIES AT A POSSIBLE INFLECTION POINT

ALTERNATIVE ENERGY COULD GET YOU MORE GREEN

• TAKE A LOOK AT PSPFX TODAY AT USFUNDS.COM



After three years of pain, can gold stocks break their losing streak and see a gain in 2014?

History says chances are good.

The most recent string of losses in the gold mining industry was brutal, causing many investors to give up on the sector and sell their holdings. Since the beginning of 2011, many gold stock indices declined more than 60 percent.

However, ditching this sector may not be the best action to take in 2014, as we believe miners have reached the historical limits of multi-year declines.

Take a look at the Philadelphia Gold & Silver Index (XAU) during prior periods of stress. While gold stocks have a history of higher volatility compared to the overall U.S. market, consecutive periods of declines are rare. There were only three times in three decades that gold stocks had a losing streak of three years.

The first period that the XAU saw a three-year period of losses was back in the early 1990s, when the index fell 19.09 percent, 16.75 percent and 11.75 percent in 1990, 1991 and 1992, respectively.

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

In 30 Years, the XAU Never Experienced a Losing Streak of More Than 3 YearsPhiladelphia Gold & Silver Index Annual Returns


1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014

?

WILL GOLD STOCKS BREAK THEIR LOSING STREAK IN 2014?



What’s striking about this period is the incredible rebound that followed: In 1993, the XAU rallied 85 percent.

Could we see a similar stunning performance?

Perhaps. A key is watching government policies, as they can be precursors to change.

Let’s take a look at the other period of weakness. A three-year loss occurred in the late 1990s, with a muted rebound in 1999. At that time, the Bank of England (BOE) was auctioning off a significant amount of its gold reserves when bullion prices were at their lowest in 20 years. From 1999 to 2002, the central bank in England sold off 400 tonnes at a value of about $3.5 billion.

If the BOE had held onto this gold, it would be worth around $16 billion today.

Following the period when the BOE sold its gold, the XAU rebounded. While the index gained only about 6 percent in 2001, gold stocks rose 41 percent in 2002 and about 42 percent in 2003.

During this time, gold and gold stocks were again influenced by a change in government policy. In this case, the liberalization of gold purchases was occurring in China, which was positive for the metal.

So where will gold and gold stocks head in 2014?

We believe investors benefit from being contrarian. The best time to buy gold is when the market dislikes it, and by the end of 2013, there was an extreme pessimistic view toward gold and gold stocks.

It helps to think of the metal’s historical movements like a rubber band. When the market keeps pulling, pulling, pulling the price up or down, the condition is temporary and the price will tend to snap back to the average over time.

Regardless of where gold ends up at the end of this year, we remind investors that it is prudent to maintain a consistent 5 to 10 percent weighting in gold and gold stocks and rebalance each year.

WILL GOLD STOCKS BREAK THEIR LOSING STREAK IN 2014?

www.usfunds.comRead our Special Gold Report on how gold mining companies are responding positively to recent challenges.

•




MINUTE WITH THE MANAGER

How does your background in English relate to investment? One of the best decisions I have made in my life was being an English major in college. Humanities is often deemed as “soft” education, and yet Mitt Romney (former Bain Capital CEO), Henry Paulson (former Goldman Sachs CEO), and Michael Eisner (former Disney CEO) all received their undergraduate degrees in English. In-depth study of a language and literature relates to investment in at least two ways — analytical reading and situational empathy.

Decoding an obscure metaphor in fiction is very similar to interpreting what today’s price-volume

action means — both are inherently ambiguous and require critical thinking. Word choice by policy-makers and company executives may send important messages to investors and an analytical habit informs decision making by asking the right questions.

Great works of literature strike a common chord by creating empathy. On the theatrical stage, em-pathizing means always “staying in character,” as I learned while acting in “A Streetcar Named Desire” in my sophomore year. Sometimes we forget that the market is as human as it is rational, and emotions of fear and greed can spread like wildfire because empathy causes contagion which sustains price

Xian Liang assumed his new role as co-portfolio manager of

the China Region Fund (USCOX) after serving as a research

analyst on Asia for nearly 10 years. A native speaker of Mandarin

and an English major in college, Xian brings a unique perspective

to evaluating investment opportunities in the China region that we are excited to learn about.

Shanghai, China



www.usfunds.comTake a tour of Xian’s trip to Indonesia with a slideshow of his visit to a palm oil production plant.

•momentum in the markets. When momentum goes to an extreme, there can be an opportunity.

How did growing up in China help?Born and raised in Shanghai, I witnessed the sea change in the city (and the country in general) over the past three decades. Apart from cultural and linguistic familiarities, first-hand living experiences help tune out inevitable biases in the mainstream media, and local connections make valuable supplements to formal research. Being China’s first-generation “only child” also makes me sensitive to the aspirations of my contemporaries and their lifestyle preferences.

Growing up in China, I was also excited to visit Indonesia for the first time last September. When I saw the inadequate roads and homes in Jakarta and heard about average residents still buying edible oil in bulk rather than standardized packages, my head became flooded with childhood memories of 1980’s Shanghai.

Having personally experienced China’s development trajectory, I felt more confident about the long-term upside potential of Indonesia, despite intermittent growing pains. The broader emerging Southeast Asian story, including the Philippines, remains com-parable to what China underwent in the 1980s and 1990s when a continuous influx of foreign direct investment helped its economy expand. Knowing China’s past has given me a preview of what the future may look like for emerging Southeast Asia.

What are your thoughts on investing in today’s China? You have to be selective. Certainly we need to be mindful of the after effects from over-investment and resource misallocation, especially in the wake of the global financial crisis in China. However, by being selective in sector exposure, not only can we avoid chronically weak areas, but also capture more promising themes which benefit from government policies.

In an interesting way, widely broadcast negativities in China may even turn out to be a blessing for certain industries, if we follow where the money is going. One example is the air pollution in China, which has worsened to such an extent that Chinese Premier Li Keqiang declared war on pollution in his recent Government Work Report to the National People’s Congress in early March. Whereas polluting industries continued to de-rate in performance, well- managed health care and clean energy companies have outperformed, as they provide solutions to the problem and enjoy favorable policy support.

Traffic congestion and elevated property rents in major Chinese cities invited many concerns and criticisms. However, thanks to lower-cost, congestion- free subway transportation enabling rapid, intra-city delivery of online or mobile shopping orders, vendors are able to pass on savings in operating expenses to consumers who enjoy the convenience of taking delivery at home. Incentives are aligned for further migration of transactions online.

GET TO KNOW

Xian Liang, CFA Co-Portfolio Manager

Tenure at U.S. Global Investors: 10 years

Education: Masters of business administration degree from University at Albany, State University of New York and bachelor’s degree in English from Fudan University in Shanghai, China; CFA chartholder since 2008.

What is the best piece of advice you’ve ever received? “The cure for boredom is curiosity. There is no cure for curiosity.” — Dorothy Parker

If you could meet anyone, past or present, who would it be? Louis Cha, one of the finest Chinese- language novelists today of romantic and historical martial arts, because his literary genius crystallized what it means to be Chinese for generations.

What is the last book you read? What Works on Wall Street by James P. O’Shaughnessy



Shareholder Report U.S. Global Investors 7900 Callaghan San Antonio, TX 78229

Presorted Standard

U.S. Postage PAID

U.S. Global Investors

MAPPING IT

100M+

20M+

10M+

1M+

100K+

20K+

No data

How Connected Are We?

Internet Users Across the WorldBelieve it or not, it wasn’t too long ago that people around the world had never even heard of a thing called the Internet. Worldwide, however, Internet usage has exploded. There are now users in every country, with the highest percentage seen in North America and Asia. Advances in technology, innovative additions, along with a change in consumer wealth and behavior, have all led to the massive adoption of the Internet. Now people feel truly connected, even thousands of miles away.

Data from International Telecommunications Union (ITU).

shareholder report - u.s. global · pdf fileshareholder report 2014 vol. 1 ... distributed by...

Documents