U.S. Global Investors (NASDAQ:GROW) is an innovative investment manager with a long history of providing investor access to niche global industries from gold and precious metals to luxury goods and airlines. What sets the San Antonio, Texas-based firm apart from other fund managers is its unique quantamental approach to investing.
“You won’t hear people talking about quantamental investing every day,” U.S. Global Investors (NASDAQ:GROW) CEO and chief investment officer Frank Holmes tells Proactive. “It’s a fusion of being quant-based, using science and mathematical models, and fundamental analysis.”
Holmes took a controlling interest in U.S. Global Investors (NASDAQ:GROW) in 1989 and became its chief investment officer in 1999. Holmes also serves as the executive chairman of Bitcoin miner HIVE Digital Technologies (TSX-V:HIVE, NASDAQ:HIVE), in which U.S. Global Investors (NASDAQ:GROW) made a strategic investment in 2017.
More than 100,000 subscribers in 180 countries follow Holmes' market commentary in his weekly Investor Alert Newsletter, across his social media channels (he's @bulldogholmes on X), and his Frank Talk blog. A proud Tex-Can (Texas-Canadian), Holmes’ contribution to entrepreneurship has been recognized by his alma mater, Huron University College, a university college affiliated with Western University in Ontario. In 2022, it named a new campus building The Frank Holmes Centre for Leadership, Ethics and Entrepreneurship.
U.S. Global Investors (NASDAQ:GROW)’ approach to investing combines explicit knowledge models, such as statistical and fundamental strategies, with tacit knowledge obtained by its first-hand observations of local and geopolitical conditions and specific companies and projects. “The easiest way to simplify it is that you can get your driver’s license, that’s explicit knowledge, but that doesn’t mean you’re a good driver, which is tacit knowledge,” Holmes explained.
The company uses a matrix of top-down macro models and bottom-up micro stock selection models to determine the weighting of its investments in specific countries, sectors, and individual securities.
Holmes highlighted that the firm believes government policies are a precursor to change and, as such, it monitors the fiscal and monetary policies of the world’s largest countries by both economic performance and population. “It doesn’t matter which political party is in charge, it’s policies that move capital from one sector to another,” he said.
Holmes and the investment team at U.S. Global also looks to the Purchasing Managers’ Index (PMI) as a leading economic indicator. “The PMI anticipates commodity demand and manufacturing jobs six months out, whereas gross domestic product (GDP) is a rearview mirror looking at the past,” Holmes said.
Thematic, smart beta 2.0 ETFs
U.S. Global Investors (NASDAQ:GROW) currently offers nine investment funds, six mutual funds and three exchange-traded funds (ETFs), in specialized global sectors. In 1968, it launched what is now known as the Gold and Precious Metals Fund (USERX), the first no-load gold fund in the U.S. with a focus on “senior” mining companies with established, producing mines.
This is complemented by its World Precious Minerals Fund (UNWPX), which offers investors exposure to junior and intermediate mining companies for added growth potential, and the Global Resources Fund (PSPFX), which invests in companies involved in the exploration, production, and processing of petrol, natural gas, coal, alternative energies, chemicals, mining, iron and steel, and paper and forest products. Its other mutual funds are the Global Luxury Goods Fund (USLUX), Near-Term Tax-Free Fund (NEARX), and U.S. Government Securities Ultra-Short Bond Fund (UGSDX).
U.S. Global Investors entered the ETF space in 2015 with the launch of the U.S. Global Jets ETF (NYSE: JETS), which invests in the global airlines industry. Its thematic ETFs leverage smart beta 2.0 fundamentals, which combine passive investing with a factor-based, quantamental approach.
Holmes told Proactive that when designing JETS, along with its gold royalty ETF with the ticker symbol GOAU, the firm carried out regressional studies for 8,000 hours to see how the funds would perform in upcycles and downcycles. “We take a quantamental mathematical approach to portfolio construction that is rigorously tested back and forth before launching a product,” he said.
“Now, of course, past performance is not going to guarantee future results, but what it does do is give you a higher probability of success.”
Bullish on the travel sector
JETS offers investors exposure to the global airline industry, investing in commercial airlines, airport services companies, aircraft manufacturers, and online booking companies.
U.S. Global Investors is optimistic about opportunities in the broader travel sector and, as such, recently announced a merger between its London-listed JETS ETF, a UCITS product available to European investors, with the Travel UCITS ETF (TRIP), which tracks the Solactive Travel Index made up of airlines, hotels, travel agencies, and cruise lines. The newly-merged TRIP UCITS ETF (TRIP) is expected to increase JETS’ assets under management fivefold.
Exposure to the cruise sector is particularly exciting, Holmes highlighted. He pointed out that this sector is yet to fully recover post-pandemic and U.S. Global Investors hopes to capture the momentum and growth in the cruise sector as individuals return to the seas.
“It was outperforming and we’re delighted that we’re going to be able to actually create a better product with TRIP,” Holmes said. “We never had that strong outperformance with JETS UCITS, and it was exciting for us to take a look at applying a quantamental model to include the shipping companies, hotels, cruise liners, and others supporting the cruise experience.”
The company also captures the opportunities presented by the global shipping industry with its U.S. Global Sea to Sky Cargo ETF (SEA), which tracks the U.S. Global Sea to Sky Cargo Index. Launched in January 2022, the ETF consists of approximately 70% cargo ships and 30% air freight.
Going for gold
U.S. Global Investors also provides investor access to the gold mining sector through its gold royalty ETF, the U.S. Global GO GOLD & Precious Metal Miners ETF (GOAU). This ETF offers access to precious metals production through active or passive means, such as owning royalties or production streams.
Gold hit a record high price above $2,400 per ounce in April and is set to go higher, Holmes believes. “This century gold has outperformed the S&P 500 by 50%,” the CEO said. “By having a 10% weighting in gold and rebalancing each year, you have the potential to outperform. It’s been a prudent and wise investment strategy.”
Holmes pointed out the significance of gold’s breakout not just against the U.S. dollar but in various currencies, from the Japanese yen to the Chinese yuan and Indian rupee. “Gold hitting all-time highs in the currencies of the most populated countries in the world with the highest GDP per capita growth is another dimension that’s very bullish for the world of gold,” he said.
In addition to individuals buying up gold as a form of “portable wealth,” central banks have been adding to their gold reserves too. This trend is set to continue with 70% of the world’s population, about 5 billion people, including the United States due to hold elections this year. “That’s creating all sorts of disruption and is another reason why central banks have been buying gold,” Holmes said. “It’s a decentralized asset.”
Evaluating new investment themes
U.S. Global Investors continues to deliver strong returns for its investors. For the first quarter, which ended March 31, 2024, the company’s shareholder yield was approximately 8.32%, exceeding the yields on the five-year and 10-year Treasury for the quarter. The company ended the three-month period with $1.7 billion in assets under management.
While he can’t talk specifically about what U.S. Global Investors is working on due to regulatory restrictions, Holmes said the company sees thematic ETFs continuing to grow in popularity in the U.S. and Europe. “We are looking at other themes and we’re always back-testing to see if they are relevant,” he said. “And we’re looking at acquisitions to grow our asset base as well as strategic relationships.”