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Edited Transcript of GROW earnings conference call or presentation 9-Nov-18 1:30pm GMT

Q1 2019 U.S. Global Investors Inc Earnings Call

SAN ANTONIO Dec 20, 2018 (Thomson StreetEvents) -- Edited Transcript of U.S. Global Investors Inc earnings conference call or presentation Friday, November 9, 2018 at 1:30:00pm GMT

TEXT version of Transcript


Corporate Participants


* Frank Edward Holmes

U.S. Global Investors, Inc. - CEO, CIO & Director

* Holly Schoenfeldt

U.S. Global Investors, Inc. - Public Relations Leader

* Lisa Christine Callicotte

U.S. Global Investors, Inc. - CFO




Holly Schoenfeldt, U.S. Global Investors, Inc. - Public Relations Leader [1]


Good morning, and thank you for joining us today for our webcast announcing U.S. Global Investors' results for the first quarter of fiscal year 2019.

I'm Holly Schoenfeldt. If you have any questions during the webcast, you can enter them in the questions area of the control panel side bar, 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; Lisa Callicotte, Chief Financial Officer; and myself, Holly Schoenfeldt, marketing and public relations Manager.

During this webcast, we may make forward-looking statements about our relative business outlook. Any forward-looking statements and all other statements made during the 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 the 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.

Now let's go to Frank Holmes, CEO and CIO, for an overview of the period, but really briefly, let me go over about GROW before I pass it on.

U.S. Global Investors is an innovative investment manager with vast experience in global markets and specialized sectors. We were founded as an investment club, and 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.


Frank Edward Holmes, U.S. Global Investors, Inc. - CEO, CIO & Director [2]


Thank you, Holly. I give you an interesting history taking place in San Antonio, Texas, is USAA, which is a fantastic company, had sold their fund business, their mutual fund business, and I think what's interesting is that they started a gold fund because they had so many military people call them and ask them about our gold fund because our gold fund, the first no-load gold fund, was created by a Colonel from the Air Force, who fought in World War II, Colonel Clark Aylsworth, and he had built this investment club that became a mutual fund as a big believer in gold. And I think it's so interesting that now we are still here and USAA is getting out of fund business.

But it's been a tough go. I'm going to try to talk through some of our strengths and challenges we're all dealing with in the fund industry as a whole, but the big strengths for our survivorship is we strive to be the go-to stock for exposure in emerging markets and resources and then expanded that into digital currencies, which has become as -- gold is always a form of money, the fourth most liquid asset class in the world -- digital currencies has grown; still only a dwarf compared to the gold markets or the cash markets, but growing.

We're debt-free. We have a strong balance sheet and we have this reflexive cost structure and we have a monthly dividend and return on equity discipline. I want to thank our top institutional holders, particularly Royce Funds, have been up and down and they themselves have experienced the contraction in active fund management that has taken place. And I'm going to comment about cheaper is not better, and financial and investment management group out of Michigan, they've been just great long-term investors and I thank them for their support. And we have the Vanguard group and the BlackRock, which as we all know are indexing funds. The other interesting part is Perritt Capital Management come back into small-cap, microcap and they are contrarian and they run a great shop. And I want to thank them for looking at GROW as a way to play in the gold space.

Dividends, we consistently paid for more than 10 years. The yield is 2.16%. It's a small number, but it's the consistency that is important. We do have a repurchase program in motion and the Board has approved us to buy $2.75 million. And for the quarter-ended, we bought very little because of volatility. Our modeled buying back GROW stock is based on the volatility, and the greater the volatility, the more stock we buy back, if it's on a daily basis, this model. So we bought very little of it back and so it means basically the price action has declined with the cryptocurrency world and the gold world, but it's not as volatile as it was a year ago.

And we may suspend this or discontinue it at any time as the normal disclosure goes with a stock buyback. So this next one is a visual showing our balance sheet. We're going to probably spend more time, and you can see on the press release, on investment in HIVE Blockchain and its impact and there is some changing in accounting, which I'll leave it over to Lisa Callicotte, our Treasurer, to be more articulate in explaining, but there is a big movement that's taken place since 2007, 2008, to go to mark-to-market. And it was part of FASB 157 they called it. And when FASB 157 was being implemented, it created lots of dislocation of capital in the capital markets so that was suspended in March of 2009, which was basically the turning point for the capital markets, the bull market to start.

And so now it's coming back, it is eking its way back into the system. And it is just important to recognize there's probably an easier way of dealing with it, but it does create a disruption and increase of volatility in your earnings and in your cash flow. But our balance sheet, as you can see, most important it still remains healthy and robust and we are looking at how do we streamline the cost as we ourselves have outsourced a lot of our heavy costs and our building now, which is, at one time, was a huge, huge win for us because it was a lot cheaper for us to have our building than it was to be leasing. And now we're looking to lease out more or sell the building so that -- we just need less space.

So where this reflects our cost structure that's how we're looking at these capital markets. In that interim, we still have to deal with what takes a cycle for leasing out or selling a building or making a long-term investment, just takes time. But every quarter, every quarter, every 90 calendar days, we have to pump out earnings and show cash flow, and so there is some volatility that takes place with this. As you can see that we've had to take a $0.08 hit. Most of this had to do with the new accounting rules of how a long-term investment we made, all of a sudden has to show up short-term.

But let's take a look at the next one as the assets continue to slowly just seem to dribble out. It doesn't help when you have gold going through an event. 18 months ago, we had a big event when Van Eck, a gold ETF, which seems to capture most of the assets even though we out-perform it, they had -- it that was very disruptive and selling billions of dollars worth of gold stocks in a short period of time because all the money seemed to go into this ETF of the gold money and it wasn't active management, which is more diversified for investors and for the overall ecosystem of the gold equity market, it all became concentrated. And that concentration all of a sudden, that they started owing more than 20% of companies and because of that they'd have to do take-overs so what did GDXJ have to do, blow out these names. And that really hurt a lot the gold stocks and that hurt our performance, too. And then, we've had it again this past September with Van Eck getting out of the gold equity business.

So it seems to be these sort of one-offs and everyone getting out of the businesses maybe is a turning point. I do not know for sure, but it seems to have that smell to it of when Van Eck blasts -- sorry, when Vanguard, the V's of the world -- made this transition of getting a change to their gold name. Now they're getting out of the gold equity business, period. So it does impact our gold funds, but I'm happy to say that we continue to perform and that's the most important part.

Flipping up, flying at 35,000 feet in the air, to give you an idea of what's happened this past decade, the regulatory push, the marketing push of indexing, you can see there is actively fund managers are seeing $2 trillion is the number I've read from both institutions and mutual funds, that've gone into some form of indexing. And so this is rotation. And it really doesn't matter if you're an active fund manager and you will perform the index, the S&P 500, it doesn't matter, money is still going into them because the thought process is, cheaper is better. We know that's not true because otherwise, there'd be no luxury goods and everyone would be wearing Wal-Mart clothes and everyone would be buying the cheapest (technical difficulty) in the marketplace. So that's just not true.

But in the financial markets, there is a push for this -- and there is no regulations in the car industry for say a -- and that you have to go push cheaper is better or in luxury goods. So we do see this sort of transition and it's what it is and that's part of the reason why USAA has sold their fund business and the valuations on those assets are less than 1%. And that's what's taking place in this sort of industry. So are we headed for a passive index meltdown?

I've commented this on the gold when you get what's called a crowded trade, all the money goes into 1 ETF. Then it becomes very disruptive to the overall ecosystem of raising capital, performing, et cetera. And it has nothing to do with the value metrics of picking a stock. It all has to do -- can you capture the direction of fund flows because the funds are going to buy anything that's in that space. I've written about it extensively, that there are more indices than there are public companies, that the IPO market has shrunk by 50% and with no more M&A work that the overall number of stocks to buy is shrinking, but money keeps borrowing into the S&P 500 and the Vanguards and the BlackRocks of the world are offering products that are free or next-to-nothing, but they still have to pay their legal bills and I'm teased about the fact that I can't sell you, induce you to buy our funds with a toaster, but I can induce with no fees. So that inducement of no fees is creating a very crowded space, which will become a difficulty. It always has been when it becomes crowded.

I noticed the opportunities in the gold markets when I've written that, earlier this year, that everyone was short the gold market and historically, we get a big rally from that. So what this visual is trying to show you is that in the past little period, the percentage of assets leaving active and going into indexing continues to grow and I don't know which stage it will be, but cheaper is not better.

The next visual is showing a race to the bottom. As a seismic shift in the indexing has come with some unexpected consequences, including price distortion. Buying cheap often comes with a high price in the long run. There is no free lunch is the sort of things I've heard. But I do have this sort of big concern because you think about this year, that $1 trillion of stock buyback is taking place. That means in the S&P 500, the liquidity has to be shrinking, but every day, people are leaving to go in to buy the S&P 500. And when the pension funds, et cetera, all want to rebalance, sell stocks to buy bonds, what's going to happen? You're going to get what took place in 2000, when you had the tech bubble, they call it, but it was also a fact that Dell Computers, et cetera, had small-market caps and people just couldn't rebalance and you had this crash that took place.

So I think, we have to be just cognizant that in -- coming January of this year, there is a greater risk of this rebalancing that the ability to sell shares by the indexes to rebalance the portfolio and their underlying holdings, is just not there. So I think, there's got to be some push for active management. And it's also had its impact in distorting capital that all the adventure capital doesn't go into small cap or microcap. A lot of the big money banks I've found -- money bank brokers won't give you margin for stocks under $10. They won't let you buy a market cap under $200 million. So therefore, where do companies go to raise capital for their new growth idea, the new Apple idea -- the new cable operator start with penny stocks in Denver, that're now the biggest cable companies in the world when you think of some of these companies and the sheer magnitude.

So this distortion is going to have its impact. But we remain steadfast in being the microcap we are and looking for opportunities. And I think it's interesting that Wells Fargo said that, "Late-cycle market characteristics could present many opportunities for investors who hold high quality actively managed funds." I'm a big believer of that.

I know that Vanguard got out of the gold fund business -- and we looked at the first no-load gold fund in America and it outperformed the Vanguard gold fund for 1, 3, 5 and 10 years, but the Vanguard gold fund was much bigger, why? Because it's cheaper, it's cheaper, and it's on the platforms. Oh, the platforms mean it's better. No, it's just not true. Usually, people go to sports teams and watch sports teams for performance and that's what happens in active management. But as Warren Buffet says, "Only when the tide goes out do you discover who's been swimming naked," and he remains cautious on balanced risk.

So but in this whole end of it, in this sort of bear market we've dealt with, we continue to share insights with the financial media and continue to do research and write and comment regarding what's happened in the capital markets on a timely basis. And I always shock people when I remind them that you know that for the past decade, beginning of this century, gold has outperformed the stock market 2:1. And gold's volatility, bullion's volatility is the same as the S&P 500, but it's perceived -- because of talking heads and media are always negative bullion. It's always, if bullion is outperforming, it's got to be bad and if it's underperforming, it's got to be double bad. You know that it's just not true. And I still maintain and advocate the 10% golden rule and that is you should have 10% rebalancing each year of gold and bullion into good active fund managers.

So happy Diwali season. It's a new year in India. It's the season of lights. It's the time of great gold giving. And I think it's important to remind investors that demand for gold is either fear or love and love is the bigger part of this equation. It's more than 60% of gold is purchased for love and it has to do with the most populated parts of the world. So it's so important to recognize that. But short term, it has to do with fear. And it's so important to realize for this visual that government policies are either -- it's a binary model, monetary fiscal -- monetary is real interest rates and money supply and fiscal is tax and regulation or spending.

So when we look at a Jerome Powell, rising real interest rates are a headwind to the stock market and they are a headwind to gold. In unwinding, QE has actually probably been a good support for gold, whereas QE, the creation of QE, was an ability to depress the price of gold and there is many people that believe there is suppression in the gold market and there's been lots of litigation that's prevailed that's shown that there was suppression of the gold price, and I think the unwinding is probably positive for it.

And then when we look at fiscal policy, I guess trade wars and lower corporate taxes. So I think, President Trump did an incredible job with lower corporate taxes and we are the largest GDP consumer economy in the world, $14 trillion. We're the envy of the world. And what the trade wars is basically wants 0 trade -- not 0 trade, but 0 tariffs. And it's been an unlevel playing field with China and America. And China in particular, other countries in Europe. So he's been on a tear because everyone wants to sell to our huge open economy, but we're not allowed to sell our products to their open economies.

(technical difficulty)

There's no doubt and it affects emerging markets and we have written about this. If you're not a subscriber, I highly recommend, we write about PMI every month. It's always a precursor, 6 months out, reset button, when 1 month is bumped out to 3 months, copper prices are falling, oil prices have been falling, we did have a spurt in oil prices but the only reason was geopolitics with Iran and all of a sudden it's rolling over. And we're seeing that trade with China has dropped off dramatically. And I think that it's really important to recognize that the trade wars could be the economic unwinding for President Trump unless China acquiesces and makes changes. But I think, it's a interesting time for all of us. I think there is more worry about when looking at investing of picking good quality stocks that will survive and thrive.

A strong dollar historically has always been a dent to exporting from our high-quality industrial products. It usually is a drag to Boeing. Airbus becomes cheaper. It becomes a drag to many of the -- they call the rust belt, the beltway that takes place from Michigan, Indiana, they're manufacturing high-quality precision products, they become uncompetitive with a strong dollar and that is starting to show up. So I think, that rates will probably peak between now and March and we'll get a mean reversion taking place. But let's jump back into gold because that's our expertise.

And I have been saying that I am so impressed with the strength and resiliency of gold. The resiliency of gold is that when historically, whenever we have 2-year government bonds offering such a high real rate of return, relative to Europe and relative to Japan, that the price of gold would be falling much more. In fact, on a historical basis, I would've expected gold to be in $700 to $900, but it is not happening. And I think the unwinding of the QEs 1, 2 and 3 is another supporting factor for gold. We are witnessing central banks that have not been bullion buyers, from Eastern Europe coming in and buying gold. Hungary, Poland all of a sudden show up buying 6 tons of gold, particularly Poland, Turkey. If you look at Turkish lira, the best hedge for anyone in that country was owning gold. The country was a net buyer and to deal with their currency woes, they had to sell gold. It didn't matter, Poland bought it.

So gold, if you look at this visual, since 2006 is in fact is actually doing quite well. And I think that it's also important to look at that real interest rates in the U.S. have been rising, but gold on a relative basis is very resilient. And I think that any peak in interest rates in the U.S., in a blink of an eye, gold will be $1,500, $1,800 again. So stay tuned for this. Vanguard is getting out of the business, that's positive. Volatility is like all about managing expectations. It's important to look at gold stock's volatility is 3x what bullion is, or sorry, 2x what bullion is. And oil is much more volatile than the stock market and I'm seeing here this sort of change in volatility, but it's important for investors to recognize that what the talking heads say on television is very different from just a quant approach, which we publish and update on a regular basis.

Now we've moved into the crypto world. It was very difficult to launch an ETF in the space. I understand why the concerns of anti-money laundering laws, the AML concerns that there is some thief who was able to get bitcoin and then sell it into a fund that was listed in New York. So that's not going to happen. And even though that drug lords deal with the US dollars everywhere, and there's many of the lesser trades done with US dollars, that's unable to track that, it's a real concern that bitcoin from hackers could be able to do so.

But the long-term picture is really bullish. We had a bear market and I want to walk you through that, but what's really important here is to recognize the daily volatility of bitcoin, Ethereum is just substantially greater than bullion or the S&P 500 and it's showing up in gross stock, it's showing up in our investment in high blockchain. It just has much more volatility and that's going to impact our quarterly earnings, especially add that with the accounting rules.

So people want to understand why, these are the reasons why. So life is all about managing expectations. As Warren Buffett said, "If you want to have a long-lasting marriage, have low expectations." That means everything is on the upside. And the same thing here, I want to make sure all of you here recognize that.

Now major events suppressing the price of bitcoin, it all has to do with regulations. I've written about this, the G-20 finance ministers prior to 2008 were focused on global trade and economic growth. Since then, it's both synchronized taxation and regulation. The growth of bitcoin, if you recall, after the 2008 crash, what came out of that was a bunch of protesters, hippies and radicalists, Wall Street, Portland, all over the place, protesting, and quietly, the geeks created bitcoin. And the geeks turned around and from bitcoin they created other cryptocurrencies and that ecosystem has continued to grow globally.

That was the concern of governments covering up their poor policies, taking taxpayer dollars and covering them up and that concern was the creation of bitcoin. But most important is show that you can actually have transactions close every 10 minutes without any failure and you can't have any counterfeiting, you can't have any illegal shorting in the stock market and you wouldn't have the crisis that took place in 2008 because if everything closed every 10 minutes, 24/7, you would have something that's much more stable.

So what we've seen is in the G-20 countries, their finance ministers have had a war on cryptocurrencies, and I think what's interesting is the U.K. is the most bullish with the most balanced way of looking at it. We had it a couple of weeks ago, that the government of India went to Supreme Court and the Federal Reserve of India, prevailed and immediately, a week later, they say you can't have exchanges, but the government is going to come out with their own cryptocurrency in their research.

So there is a push. There is a push because if you wanted to have the ultimate AML, it would be the countries on a bitcoin, an Ethereum type of format at cryptocurrency because then they can monitor every transaction, collect all taxes, and I think that's the long-term push that's taking place.

But in the interim, we had, you can see here, the visual walks you through. Facebook was pressured by the Feds to ban bitcoin advertisements and same with Twitter, et cetera. Now that's sort of reversed itself. The G-20 countries were supposed to come out in July with some global pronouncements. They delayed that to October. Bitcoin rally rolled over. So we have some regulatory issues as headwinds. But I think, what's taken place underneath that is some very significant positive developments, such as Fidelity.

"Our goal is to make digital native assets, such as bitcoin, more accessible to investors," and they've launched a crypto trading platform. This was announced last month. Coinbase, which you would see made a significant investment at very low cost base, I think, it was around $75 million in 2015, is now valued at $8 billion and they now have a wallet and they've been approved in New York, which is the most difficult state to be able to get approved in the digital space, approved for trading. So I think, these are positive developments and you have the CFA society, which the CFA society is more significant than the CPA society because the CFA society is global.

If you get your CFA designation in the U.S., it's accepted in Singapore, in the U.K., in Germany, South Africa, São Paulo, Brazil, you name it, whereas, a CA and the CPA, there's just different accounting and you have to recognize that. So now we have the CFA Institute is now making part of their educational curriculum. And then we have the Fed in St. Louis start creating an index. And so this is all something that's very positive. There are many other things that I can go on with you that is taking place in this crypto space that is positive and constructive.

What we did is we made an investment in HIVE Blockchain and HIVE Blockchain mines the digital currency. What does that mean? It means it validates the transaction. It gets paid cryptocurrency by solving the mathematical problem every 10 minutes for bitcoin, and I think it's just really a remarkable industry, but it's highly volatile and HIVE basically tracks the cryptocurrency market, the cryptocurrency market besides the headwinds of global regulations coming in. And by the way, I do believe that the SEC going after a lot of these ICOs that are really massive securities, they're not real digital currencies. I think that's been a great cleanup of the industry. But it's showing you that there is a hunger for small-cap investing. And this world has basically captured $5 billion last year of small-cap, microcap investing that went into these ICOs. And I think we have to try to even make it easier for crowdfunding for small microcap entrepreneurs because America is just consumed with (technical difficulty) every night on television and having a high percentage of women watch the program and little girls watching it according to data sources, from Kevin O'Leary sharing with me at dinner. I think we're just unleashing, incubating more and more entrepreneurs.

So for that end, I want to go into -- say that HIVE, the volatility seems to have stabilized. I've taken on the interim as CEO and repositioned the company for HIVE 2.0 in this sort of bear market and hopefully be able to announce that very, very shortly, but stay tuned. It looks very, very exciting what's taking place with regard to HIVE. Now I've been long winded, I apologize, but I tried to explain the volatility. I've tried to explain to you and lead you into a more granular story of what's taking place with the capital markets in our company, in particular. Here is Lisa Callicotte, our CFO. Lisa?


Lisa Christine Callicotte, U.S. Global Investors, Inc. - CFO [3]


Thank you, Frank. Good morning. Before I summarize our results of operations, I'd like to discuss the investment accounting pronouncement that we adopted this quarter.

Slide 34 notes changes in the accounting rules related to our investments and that are expected to cause our earnings to be more volatile. We adopted accounting standard update ASU 2016-01 recognition and measurement of financial assets and financial liabilities effective July 1, 2018. ASU 2016-01 updating accounting standards codification subtopic 825 or ASC 825. This amended the guidance on the classification and measurement of investments in equity securities and certain disclosures. So starting in this fiscal year, some of our corporate investments were accounted for differently than in the past. As part of the adoption of the new standard, we made a required cumulative effective adjustment and reclassified $3.1 million of unrealized net gains and $1 million of related deferred tax expense out of accumulated comprehensive income and into retained earnings.

There no longer is an available-for-sale security or -- I'm sorry, there no longer is an available-for-sale classification for equity securities with readily determinable fair value. Effective July 1, 2018, changes in the fair values of these investments formerly classified as available-for-sale are reported through earnings, rather than comprehensive income. This includes any changes in market value in our investment in HIVE. The impact to earnings for this change for the quarter ending September 30, 2018 was an investment loss of $954,000. This loss related to declines in unrealized gains of securities formerly classified as available-for-sale and previously would have been recorded in other comprehensive income, rather than investment income. Of that amount, $987,000 related to a decline in market value in our investment in HIVE. And though we had an investment loss related to HIVE for this quarter, at quarter-end, the market value of the company's investment in HIVE was approximately $2.2 million higher than our cost.

What shareholders should try to understand is that no matter if an investment is short term or long term in nature, the change in market value will be recorded quarterly causing our investment income to be more volatile.

Slide 35 summarizes our investment in HIVE. And at September 30, 2018, the investment in HIVE was included in investments in securities at fair value noncurrent on our balance sheet. We owned 10 million shares of HIVE, which is approximately 3% of the outstanding shares at quarter-end. The cost of the investment was $2.4 million and the market value at September 30, 2018 was $4.6 million.

Now I'll discuss the results of operations for our quarter ending September 30, 2018. Beginning on Page 36, we note that we recorded operating revenues of $1.2 million for the quarter, which is a decrease of $267,000 or 18% from the $1.5 million in the same quarter last year. The decrease is primarily due to a decrease in assets under management related to market depreciation and shareholder redemption.

Operating expenses for the quarter were $1.9 million, a decrease of $63,000 or 3%, primarily due to the following reasons: employee compensation and benefits decreased $103,000 or 11%, mainly due to decreases in bonuses; and this decrease was somewhat offset by an increase in general and administrative expenses of $52,000 or 7%, primarily due to the increases in fund expenses and research costs. We see our operating loss for the quarter ending September 30, 2018 as $683,000.

On Slide 37, we see that other income loss for the quarter ending September 30, 2018 was a loss of $905,000, which was discussed earlier and was mainly related to a decrease in unrealized gains on investment formerly classified as available-for-sale. Other income loss decreased $2.6 million from the same quarter in the prior year. Investment income decreased $1.1 million compared to the first quarter due to unrealized losses of $951,000 and $29,000 of impairment losses in the current period compared to unrealized gains of $686,000 and realized losses of $647,000 in the prior period.

Also in the first quarter of 2018, we recorded income from equity method investments of $1.5 million versus a loss of $7,000 in the first quarter of fiscal year 2019. Net loss attributable to USGI after taxes for the quarter was $1.1 million, a loss of $0.08 per share, which is a decrease of $2.4 million compared to the income of $1.3 million or $0.08 per share in the same quarter in the prior fiscal year.

Moving on to Page 38, we see that we still have a strong balance sheet, which includes a high level of cash and securities that combine to make up 76% of total assets. And as you can see on Page 39, we still have no long-term debt, the company has a net working capital of $15.5 million and a current ratio of 13.3:1.

With that, I'll turn it over to Holly.


Holly Schoenfeldt, U.S. Global Investors, Inc. - Public Relations Leader [4]


All right. Thank you, Lisa. As you can see a majority of our mutual fund assets are in emerging markets and natural resources, while 35% are in domestic equities and fixed income.

As for distribution, more than 3/4 of assets come from retail investors and the other 1/4 from institutional investors. Our sales and marketing efforts have continued to focus on our mutual funds, including those concentrated on gold, natural resources and emerging markets as well as our exchange-traded funds. The company and our funds continue to receive an invaluable amount of viral publicity gained through media interviews. Frank Holmes often shares his insights with financial outlets like CNBC Asia, Bloomberg Radio and Kitco News, just to name a few.

We continue to receive recommendations by influential financial newsletter writers as well, along with sharing and syndication of our award-winning original content by third-party publishers. The newsletters have a loyal following and receive millions of visitors each month.

Frank Holmes' CEO blog, Frank Talk, continues to grow in popularity as well. His commentary is often featured by prominent publications, including Forbes, Seeking Alpha, The Crux and Business Insider with millions of monthly visitors. We like to call Frank Holmes our globetrotter because he, along with others on our investment team, travel around the world to share our thought leadership. We also interact frequently with our loyal followers through Facebook, Twitter, LinkedIn, Instagram, YouTube and Pinterest.

Last December, we launched a new video series to supplement 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. We feature other members of our investment team as well in similar short video clips. Since implementing these new videos, we've already witnessed syndication to several third-party sites as well as an increase in subscribers to our YouTube page and the Investor Alert newsletter.

Kitco News, the biggest gold website in the world with an audience of over 30 million monthly visitors, in partnership with The Street, continues to feature the Gold Game Film show with Frank Holmes' gold market analysis. Since the show's beginning, 152 episodes have aired.

At quarter end, we like to look into the most visited Frank Talk blog posts over the last year, no matter what year they were actually written in. So on this slide, you will see that the most visited articles include: number one, "The Top 10 Countries With the Largest Gold Reserves"; number two, "What Does It Take To Be In The Top 1%?"; and number three, "11 Reasons Why Everyone Wants to Move to Texas," which as you can see was posted back in 2016, but continues to receive clicks and shares. And as a side note, we did a similar article on Texas recently called "6 Reasons Why Texas Trumps All Other U.S. Economies" just last month, which actually got retweeted by the Texas governor, Greg Abbott.

All of this coverage helps us leverage our brand by reaching millions of readers, viewers and potential investors. Our website usfunds.com was visited 527,000 times from September 2017 through September 2018 by curious investors from all over the world. U.S. global is well known for timely, balanced and positive market insights and our thought leadership. The company has been awarded numerous STAR awards by the Investment Management Education Alliance over the years, adding 3 more this year, including best educational campaign within the small funds category.

The IMEA STAR awards recognize excellence in investor education. To date, the company has earned a total of 85 STAR awards. Our subscriber base continues to grow organically and we currently have over 43,000 curious investors subscribed to our investment newsletters in the Frank Talk blog. We also continue to see a large following across all of our social media platforms, including LinkedIn and Twitter, most notably.


Frank Edward Holmes, U.S. Global Investors, Inc. - CEO, CIO & Director [5]


No, just to add to that Holly is that the 43,000, it's in 180 countries and a lot of them are -- most of them are credit investors and hedge funds. I know when I'm traveling abroad is hedge fund managers come up and talk to me, they're subscribers.


Holly Schoenfeldt, U.S. Global Investors, Inc. - Public Relations Leader [6]


Yes, exactly. Investors can sign up for any of these at usfunds.com and join these subscribers to receive our award-winning Investor Alert e-newsletter as well as Frank Talk. And as we are about to wrap up today's presentation, we just want to offer attendees of the live webcast, the opportunity to drop us a line. We love hearing from our shareholders and our subscribers. So if you'd like a free enjoy capitalism t-shirt, please shoot us a quick note to info@usfunds.com after today's presentation.

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


Questions and Answers


Holly Schoenfeldt, U.S. Global Investors, Inc. - Public Relations Leader [1]


And as a reminder, you can enter the questions into the control panel on your screen. And I have a few to start off with. Lisa, I think you might like to answer this one. It says, "You explain that the new accounting standard now requires you to include changes in fair value of investment in the income statement starting this quarter? Where are the gains/losses as of the implementation date included?"


Lisa Christine Callicotte, U.S. Global Investors, Inc. - CFO [2]


Well, the accounting rule change require companies to implement this change by wherever they were as of the transition date and for us, that was July 1, and move any unrealized gains and losses into retained earnings and then going forward, record that through our income statement. So we reclassified $3.1 million in unrealized gains and $1 million in related deferred tax expense from accumulated other comprehensive income into retained earnings as of July 1. So we moved that unrealized gain from one equity account to another equity account. But what is important to note is that those unrealized gains of $3.1 million as of 6/30/2018 will never run through our income statement. But we are going to have to record any changes from that point on through our income statement quarterly.


Frank Edward Holmes, U.S. Global Investors, Inc. - CEO, CIO & Director [3]


And I think a big part was, this came out 2 quarters ago, these changes with Berkshire Hathaway, that they had a $1 billion charge for something volatile according to this.


Lisa Christine Callicotte, U.S. Global Investors, Inc. - CFO [4]


Yes. So most companies, they would be implementing it in their first quarter. This just so happens to be our first quarter for fiscal year 2019, which is why it is affecting us now.


Frank Edward Holmes, U.S. Global Investors, Inc. - CEO, CIO & Director [5]


This started showing up -- and I talked to the auditors, they said that many of the financial companies and particularly the insurance companies were making long-term and short-term investments. It's caused a bit of a disruption and it's increased the volatility.


Lisa Christine Callicotte, U.S. Global Investors, Inc. - CFO [6]




Frank Edward Holmes, U.S. Global Investors, Inc. - CEO, CIO & Director [7]


Of the earnings, the short-term earnings. The biggest risk to all of that long term is will it deter people from making long-term investments if all of a sudden it has to create a short-term volatility to your earnings and that's -- hopefully doesn't take place.


Holly Schoenfeldt, U.S. Global Investors, Inc. - Public Relations Leader [8]


Great. Frank, maybe you can answer this question. It says, "It seems like the cryptocurrency market has been in a lull. Do you think the price range right now is the new normal? Or do you see more upside potential moving forward?"


Frank Edward Holmes, U.S. Global Investors, Inc. - CEO, CIO & Director [9]


We saw it in July. It was anticipated that G-20 were coming out with the regs and we had a big surge, 10% a day -- and high roll, pop, pop, pop -- and then all of a sudden, they made an announcement in late October and everything rolled over. So I think that once we get some clarity on the regulatory world, then I think the reset button is going to be like gold. It's going to just surge and it is a complete different ecosystem and that ecosystem is it trades 24/7. And so how people look at it, it is the millennial world is very different -- in my research in going around that a lot of these young kids, it was calculated that there was 10,000 millennial millionaires from Ethereum. And many of them have their knapsacks on, they're going to travel the world and they don't want to pay taxes. So it is the weirdest part of as a group of people, but they have a global ecosystem. I know for Ethereum alone is 30,000.

So there is, there are coders that are involved, they have conferences. These conferences are packed every week. If this was in gold -- if gold fell from $1,300 to $200 like Ethereum, there would be no one in the world having a gold conference, but there are conferences everywhere and they are spending thousands of dollars. And I've attended and spoken at several in the past 3 months. So I don't think that energy has gone away. I think we're groping with this bear market. And I think it is nice that it has been going sideways. The big headaches that you have here in the mining business, the challenges you have is these hash rates. The cost of mining is getting -- the chips have fallen dramatically. So what HIVE when it went to spend money last year and buy Bit's A6 chips to mine these coins. These chips are costing $2,100 a chip. They're now $400. And so that has -- that means more players can come in, but a lot of players are just basically licking the wounds, they have no money to come in. They never redeploy and continue with their investing.

So I think, that what we're seeing is that this is much more like fracking natural gas. That the frackers start off, and let's say it's oil, and they hit 1,000 barrels a day in South Texas. A year later, it's 50 barrels a day. So they continuously have to maintain the 1,000 barrels a day, they have to continue producing cash flow and buy -- drill more and drill more and drill more and if they get into that treadmill they can keep that production up and they could have great positive and free cash flow from it, but that's what you have to be thinking of in that space. So I think that in a New York second, this thing can change with government regulations. I think it's finding a bottom here and a lot of people are now leaving the industry. I know that Genesis mining, which sells their things on the cloud, the biggest in the world, it's slowed down. People are all momentum traders. They all want to subscribe to have their own coins, it's all momentum. So I think, as long as it's here, we're getting washed up.


Holly Schoenfeldt, U.S. Global Investors, Inc. - Public Relations Leader [10]


Great. Thank you. All right. This concludes U.S. Global Investors' webcast for the first quarter of 2019. The presentation will be available on our website at usfunds.com. Thank you all for your participation today.