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Edited Transcript of GROW earnings conference call or presentation 12-Feb-20 1:30pm GMT

Q2 2020 U.S. Global Investors Inc Earnings Call

SAN ANTONIO Feb 26, 2020 (Thomson StreetEvents) -- Edited Transcript of U.S. Global Investors Inc earnings conference call or presentation Wednesday, February 12, 2020 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* 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

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Presentation

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

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Good morning, and thank you for joining us today for our webcast announcing U.S. Global Investors' results for the second quarter of fiscal year 2020. I'm Holly Schoenfeldt. (Operator Instructions) 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 this webcast that don't pertain to historical facts are subject to risks and uncertainties that may materially affect actual results. Please refer to our press release and corresponding Form 10-Q filing for more detail on factors that could cause actual results to differ materially from any described today in forward-looking statements. Any such statements are made as of today, and U.S. Global Investors accepts no obligation to update them in the future.

On Slide 4, you'll see a quick overview of U.S. Global Investors. We are an innovative investment manager with vast experience in global markets and specialized sectors. Founded as an investment club, the company became a registered investment adviser in 1968 and has a long-standing history of global investing and launching first-of-their-kind investment products, including the first no-load gold fund. U.S. Global is well-known for expertise in gold and precious metals, natural resources and emerging markets.

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

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

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Thank you, Holly. Well, this is going in after 30 years living in Texas and launching a China fund, the first China opportunity fund and then the Eastern European fund. So yes, this sort of long experience started in gold in '68. But in the past 30 years, we've truly evolved to have an expertise on global investing. And we strive to be this go-to stock for exposure to emerging markets, resource, gold and digital currencies. We're debt-free. We have a strong balance sheet with a reflexive cost structure and monthly dividends that return the equity discipline.

But even with these strengths, we still want to remind and thank investors for their loyalty and their long-term support. The top institutional holders, The Royce Funds, the Perritt and Financial -- FIM Group, the Financial Investment Management Group have been steady long-term investors as active money managers. And we thank them and also for other pools of capital which is much more index-oriented, is

the BlackRock and Vanguard.

Next, please. So even with this bear market, which we're going to talk a bit more in the mutual fund world, we're still dealing with the growth, and we still try to do everything we can to be innovative in this space. So even during this period, we've been able to maintain 10 years of paying a dividend, and we pay a monthly dividend. It's a modest yield, but it's higher than 5-year government bonds.

Next, please. The Board approved a repurchase of up to $2.75 million of the outstanding common stock in the open market through December 31, 2020. And during the 3 months ended December 31, 2019, the company repurchased only 2,000 shares of its Class A shares using approximately $3,000. And that's because we buy when volatility expands on a daily basis. It's a simple algorithm that buys on down days, and we may suspend or discontinue at any time.

Next, please. The balance sheet. So as you can see, to give you a reflection of both our marketable securities, our short-term bond funds and our cash position. And the other part which is [creating] -- it still remains healthy. We've had some drains on it on cost structures in the past year, in particular, managing the overall stock market. When we have -- several of our funds have, let's call it, a fulcrum fee. And then a fee is when you outperform your index, you get a bonus. And when you underperform, you're going to have to write a check to go back. And that was probably one of the biggest negatives last year as the overall market became very concentrated.

What we're witnessing even the year-to-date is 5 stocks, technology stocks, are almost 20% of the S&P 500. So we're talking about 1% is almost 20% of the market. And if you don't have those stocks in your portfolio, then you're going to be underperforming in S&P. And then automatically, according to the -- the fulcrum fee model, you have to give back. And you can't own in a mutual fund only 5 concentrated bets. You have to have 21 names. So that is something that we continuously wrestle with in our overall funds and want to restrengthen our balance sheet. But we have no debt, and that's what's most important for investors.

Next, please. So earnings per share. And we've experienced lots of volatility. We've come -- been on this many times. Lisa has gone into more greater detail. And if you're a new listener, then you can easily just call up U.S. Global and Lisa can walk you through on the pronouncements that took place last year that basically made what was originally long-term investments all of a sudden have to go mark-to-market every quarter. And that's created greater volatility in our earnings. And so I think it's important, I'm going to try to highlight as we go further on, such as what the write-downs we took in the last quarter. Many of these stocks that had a, 2 of them in particular, GoldSpot has doubled since December 31. And HIVE Blockchain is also up almost 4x year-to-date. And so we've had a major rebound in those investments and they hold their position. Then this is something that's going to continuously create sort of volatility in our overall earnings.

Next, please. So the overall average assets that are seem to have maintained themselves going sideways.

Next, please. Number of mutual funds. This is really important for listeners. The mutual fund world continues to see more exiting than people entering the industry. We're seeing, as you see the red, dark red is merged mutual funds. And then funds being liquidated. So there's an unprecedented number of funds being merged and being liquidated that surpassed the opening of new mutual funds. And this trend is also being witnessed in Europe and it's being witnessed in Canada. And I think this is important for the sort of Uberization of mutual funds because the ETFs are more tax-efficient and people can get in and out all day long rather than once-a-day pricing.

Next, please. So it's another sort of visual to understand the total net assets of ETFs that are on exchanges continues to grow. And it continues to -- most of its growth is taking money away from the mutual fund world.

Next, please. But in that space, we've survived, and we finally had GOAU, our gold quant approach to picking gold stocks. It's -- out of a universe of 100 names, we've distilled it down to 28 names, 3 of them are royalty companies. They're 30% of the portfolio. We've explained many times at webcasts. You can go to our site and listen to the webcasts if you're an RIA. I believe that the last webcast is open to the general public. You can send an e-mail in to us and we'll get it for you. But it's -- what's important to hear is that GOAU, our back testing has suggested that the reason why we launched it is that it would outperform the largest GDXJ and GDX ETFs because it was smarter and it was more selective and it would outperform 92% of the time. And so we launched it, and we've been able to outperform the GDX and GDXJ, and that's what's important.

So it finally started to take off this year with the rally in gold and that -- so we're very happy about it. It's no longer a cash in, cash out. It was a loser in a cash flow positioning. And you have to get over $50 million at 60, 65 basis points to basically stop losing cash and supporting an ETF. So we're happy it's growing. And we're thrilled for the shareholders that it's delivering exactly what the model suggested it would. And we all know that past performances don't guarantee our future results, but I'm thrilled to put my name to GOAU.

Next, please. So the trading volume is also very important, is up almost 700%, the daily trading volume. And last year, in June, new liquidity rules came out for mutual funds, and it's had a collateral sort of damage because you have to write all these reports if a stock doesn't have a very tight spread or it doesn't trade at big-dollar trading volume. And so it's also with that, the collateral risk is that you can't attract money into a great ETF because if it doesn't have good enough trading volume, then the big platforms such as the Merrill Lynches of the world, et cetera, will not put the ETF on the platform. It's a combination of daily trading volume and size of the fund. So the fact that we've gone through $40 million and we have very, very strong daily volume, that's been able to get this -- fast-track the process of GOAU on these other distribution platforms.

Next, please. And this is the visual, Raymond James, Oppenheimer and Janney Montgomery Scott. The fact that GOAU has been added to these trading platforms only enhances its ability to be able to grow.

Next, please. What's really also amazing is that gold ended 2019 again on a high note. Gold has beaten the market so far this century. It's outperformed for the past 20 years 80% of the time and was up last year. And the fact that even that it has still so many CFA money managers, generalists in the marketplace and talking heads on Bloomberg and CNBC are quick to be anti-gold as an asset class, but gold has been a very important asset class especially when governments are trying to use only monetary policy to stimulate growth by funding the system with lots of paper money.

Next, please. So that's the visual showing you that over the past 20 years, 80% of the time, gold has been up.

Next. But what's really important when it comes to these asset classes is to know their volatility. And what you can see here is that gold in the S&P 500 over 1 day or 10 days have almost -- or they have the same volatility. And that's really important for investors because so often, the talking heads say that gold is so volatile when, in fact, it has the same volatility as the S&P 500.

Now gold stocks, that's different. Gold stocks have much more volatility, and they're much more like biotechnology companies if you look at just volatility data points, and emerging markets. So emerging markets, gold stocks and biotechnology are very similar. They have much greater volatility than the S&P 500 or Bullion itself.

Now Bitcoin and Ethereum, that's another case. Bitcoin is much more volatile than the stock market or gold and so is Ethereum. And that is a very important cue for the listeners today to understand our investment in HIVE and how it creates greater volatility with GROW.

Next, please. So I'm wanting to really try to walk investors through the major events that have happened. I just spent a week at Harvard with a group of other CEOs from 50 different countries. And it was interesting for me because a year ago, maybe 10% of the cases were digital on AI and Bitcoin. And this year, 25% of the cases were on Bitcoin, cryptocurrencies, ICOs and AI. And all these digital companies -- all these public companies have had digital errors and how that can be disruptive to your business model or getting hacked and how you're not dealing with it.

And what I thought in that case that's so important to highlight here for you is that Bitcoin moves on a lot of sentiment. And I thought it's also interesting that Bitcoin has gone through what they call a crypto winter. And the crypto winter lasted about 15 months. And most of the coins, in particular Bitcoin, the biggest, and then second-biggest, Ethereum, they fell up to 90%. And what was interesting for me was that the winter for AI was over a decade. But that hasn't happened here. And the dynamics for pricing is very different than, say, AI. The cost of doing AI work in the cloud has dropped by 90%. So that's why AI has taken off as an application. And it was sort of a different factor. But the fact is when costs drop at that amount, it has a big impact on any asset class.

What we're seeing here is at Bitcoin, you can see all of a sudden, Fidelity -- not Fidelity, but during this whole process, Fidelity keeps mapping out their growth. They keep presenting at conferences, which is really important for understanding. What we're looking at is trying to launch an ETF but quickly found out that it was just a no-go due to great concerns by the SEC, and I understand totally, and the Ontario Securities Commission over anti-money laundering laws, AML is the buzzword, concerns. And so we made a pivot and we invested and launched as a coin on the sort of new industry that is exploding. And HIVE Blockchain itself had this incredible success story of growth and then it fell naturally, along with Bitcoin and Ethereum pricing. And most important, I'll try to highlight, is improved recently.

But what you're seeing on this visual is that Facebook came out and stopped advertising. And we also had JPMorgan having many negative articles and anti-Bitcoin during this whole winter season. And it is important for you to recognize that Facebook stopped it because it looks back -- looking back it's because they're coming up with their own stablecoin, Libra. And JPMorgan was working on their own stablecoin. And then when JPMorgan a year ago, in February, launched it, that was the bottom for Bitcoin prices. And Bitcoin prices then surged. And then Facebook came out and announced Libra, and then Bitcoin surged to $14,000. And then we had all the other central banks going against Libra. They were very concerned because they -- would have information on 2 billion people around the world. They become a complete decentralized currency. And too much power of that going to Facebook was of great concern. And we saw Bitcoin and Ethereum sell off.

So it's important to recognize that the sentiment of regulators having meetings in Congress or the SEC with politicians, that news being announced that the coin sells off until the date of that meeting with the government officials and then it seems to rally from there.

Next, please. But the positive news continues and we're seeing that Tether launches a U.S. stablecoin. There's also a gold coin backed by gold. VanEck reports why institutionals should be holding Bitcoin. And we are seeing that some pension funds are allocating to this alternative asset class. And what they want is the virgin coin as it's known, the first coin, the genesis coin. And when you're a miner like HIVE Blockchain is, every time you validate a transaction, you get paid not in cash but you get paid in that coin. So if you're validating a Bitcoin transaction, you get paid in what's called a genesis or a virgin Bitcoin. If you're doing it for Ethereum, then you get a new Ethereum coin every time you validate those transactions. So out of nowhere, you have these coins that have been untainted no AML concerns. And HIVE gets a request for paying a slight premium for their coins, in particular, Ethereum coins.

Next, please. So it's about 18 months ago, I became the interim CEO, took on the responsibilities. U.S. Global basically rented my time to the company, allowed me to go and help turn around the company and reposition.

Next visual, please. And we went through an incredible journey of getting clarity on transparency, on costs and corporate governance issues with the largest shareholder, Genesis Mining. Tragically, it went into a proxy battle. We prevailed, and we signed a peace and prosperity agreement. And we started taking over the facilities. And Sweden was the first of this because it's the largest industrial-scale mining of Ethereum that I'm aware of on the planet, a public mining company. And so we finally got really control of all the cost structures and got all the numbers. And I'm happy to say that you can see there's been a turnaround. And what we're witnessing is that this -- their volume had changed in particular coming into January.

And a big reason for that was that a large institutional client in Canada for whatever reason, redemptions, I'm not sure, but they were just -- which surprised me, a digital computer seller, that is, they didn't try to arrange a -- blocks to sell their big position. They just sold like as a Gatling gun every day, knocking down their price. And they took it right down to $0.10 by year-end. And soon as that's selling, that cloud was taken away. The valuations of HIVE all of a sudden changed dramatically. The volumes start to change dramatically. And you can see the sort of spike. So I'm really happy to see that turn. I'm happy for GROW shareholders because we have a major stake in this company, and we had to deal with those write-downs, with those new accounting rules. So they did hurt our overall position last year, but it looks like we made a big turn.

Next, please. So HIVE has far outperformed. It's the first public company in this space. When it went public in 2017, it attracted -- Canada attracted over $1 billion to -- for other blockchain. Many companies went on to copy what our business model was. But I think that what we did is we truly captured the imagination. And those gold-mining investors and traders that did not want to open an account at some crypto exchange because of all the negative news used HIVE as a proxy. And that's what we've seen. HIVE became the darling. It became the proxy. We suppose it -- as I said, we opened 14,000 accounts in our first year. So it became very liquid trading in Germany, over-the-counter in the U.S. and actively in Canada. And as you can see, in particular, this year and date, HIVE is just -- far surpassed any of the other companies. And it's also tied into transparency and better news, where we can make press releases over change at the company and the vision. And I think last part was the selling overhang. All of a sudden, we started seeing the stock rebound.

Next, please. So when you're mining, one of the biggest costs, you try to lock in your electricity costs. So we made a recent press release this week that electricity costs have been -- we hedged our electricity costs because of the -- an extreme warm, unusual weather in Europe. And that was advantageous. Because it was close to $0.02 a kilowatt, which is a lot cheaper than places in Canada and the U.S.

But the other big cost that you have to do when you're mining is they call it the network hash rate. And the network hash rate is how many people are competing to try to unlock that crypto code and be part of that blockchain process, and you get these new coins. So the more people come in, the more competition there is. Well, it's been very stable. So we've been -- we've had a windfall because energy prices have fallen for us from a year ago; and two, the net -- what they call a network hash rate has remained stable; and three, there were changes to the algorithm for mining free Ethereum that gave us more coins. They basically stopped ASICs chips from being able to mine Ethereum. GPU chips has been the focus. So it's been very beneficial to us.

Next, please. Now this is a big turnaround. This is very significant. As you can see, year-to-date, HIVE has gone from trading at $0.10 to $0.47 yesterday. Friday last week, it traded 30 million shares. I think yesterday it was 17 million or 20 million shares. And the big breakout took place when Ethereum broke out. In mid-January, Ethereum went above its 50-day moving average and HIVE went above its 50-day moving average. And all of a sudden, investors are coming back in at a greater scale to use Ethereum as the -- using HIVE as their proxy for Ethereum. And so we're -- our costs are probably like $125, and now Ethereum is over $225. So we're making $100 for every coin we're mining. So that becomes a very high gross margin business, and that's reflected showing up in the stock.

Next, please. So this is HIVE's performance over 3 months. HIVE did hurt us last year in that mark-to-market rules and it hurt us in the last quarter. But I'm happy to share with you is that we have made a big comeback, and we're above.

Next slide, please. Next slide, please. So latest updates. HIVE Blockchain announces completion of transition of Blockbase on November 7. And on December 18, Blockchain shareholders approved resolutions in Shareholder Meeting. January 14, we announced a 20% increase in Ether coins mined daily, so we got this bump of 20%. Now we get a drop of over -- almost, I want to say 40% in energy costs. So we have expanding profit margin and the coin is also rallying. So we're in that sort of perfect reverse scenario from last year where the stars are aligned for HIVE. Thank you.

Next, please. Now I want to turn it over to Lisa to walk through the financial operation of the mutual funds. As I talked earlier, we're doing everything to streamline our cost structure in the mutual fund world, and we have some strategies for doing that this quarter, which we'll announce later as we fine-tune that strategy. And most important is let's recap last quarter. Lisa?

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

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Thank you, Frank. Good morning. Before I discuss the results of operations for the quarter, I'd like to discuss the pending sale of our 65% Canadian subsidiary, Galileo Global Equity Advisors.

On December 30, 2019, USGI entered into a binding letter of intent with Galileo. Pursuant to its capital restructuring, Galileo agreed to purchase all of the common shares owned by USGI for CAD 1 million. The transaction is subject to regulatory approval and other closing conditions, and it is anticipated that the transaction will close on or about March 2, 2020. The results of Galileo are reflected as discontinued operations in the consolidated statement of operations.

Now I'll discuss the results of operations for quarter ending December 31, 2019. Beginning on Slide 31, we reported total operating revenues of $887,000 for the quarter, which is an increase of $94,000 or 12% from the $793,000 from the same quarter last year. The increase is primarily due to decreases in performance fees paid out, lower fee waivers and higher assets under management in the USGIF equity fund.

Operating expenses for the current quarter were $1.4 million, a decrease of $251,000 or 15% primarily for the following reasons: employee compensation and benefits decreased $155,000 or 20% mainly due to decreases in bonuses, and general and administrative expenses decreased $103,000 or 13% primarily due to decreases in fund expense. We see our operating loss for the quarter ending December 31, 2019, as a loss of $511,000. But this is an improvement of $345,000 as compared to the same period for the fiscal year 2019.

On Slide 32, we see that other income loss for the quarter was a loss of $440,000, and this is mainly related to unrealized losses in investments, as Frank has discussed.

Losses from continuing operations was a loss of $926,000, which was an improvement of $2.6 million from the quarter ended December 31, 2018. Loss from discontinuing operations was $117,000 for the quarter. Net loss attributable to USGI after taxes for the quarter is $1 million. And as you can see on Slide 33, this is a loss of $0.06 per share.

Moving to Slide 34. We see we still have a strong balance sheet, which includes a high level of cash and unrestricted marketable securities that combined to make up 60% of our total assets.

As you can see on Page 35, we still have no long-term debt. Our only long-term liabilities are lease obligations. And the company has net working capital of $10.2 million and a current ratio of 8:1.

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

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

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Thank you, Lisa. All right. As you can see on Slide 38, a majority of our mutual fund assets are in emerging markets and natural resources, while 31% are in domestic equities and fixed income. And then as for distribution, more than 3/4 of assets come from retail investors, with 18% coming 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 ETFs. 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 news outlets like Fox Business, 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 loyal followings and receive millions of visitors every 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, Kitco and equities.com, each with millions of monthly visitors.

Kitco News, the biggest gold website in the world with an audience of over 30 million monthly visitors, in partnership with TheStreet, continues to feature the Gold Game Film show with Frank Holmes' gold market analysis. Since the show's beginning, 177 episodes have aired.

At quarter end, we also like to look at the most visited Frank Talk blog posts published over the past year. And on this slide, you can see that the most visited articles in 2019 are as follows: #1, Hard Truths in Resource Investing, According to Bob Moriarty; #2, This AI Company Is the Future of Gold Exploration; and #3, 3 Mining Stocks for Investors Seeking Gold Exposure. And you can sign up for the blog for free on our home page, usfunds.com.

And all of this coverage helps us leverage our brand by reaching millions of readers, viewers and potential investors. And our website, usfunds.com, was visited 681,000 times in 2019 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 for excellence in investor education. And just last month, we added 3 more awards, bringing the total to 88.

Our subscriber base continues to grow organically. And we currently have over 50,000 curious investors subscribed to our investment newsletters and the Frank Talk blog. We also continue to see a large following across all of our social media platform. Investors can sign up at usfunds.com and join these subscribers to receive the award-winning Investor Alert e-newsletter as well as Frank Talk.

And briefly as we wrap up today's presentation, we do want to open it up to questions. (Operator Instructions)

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Questions and Answers

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

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And I do have a few questions to begin with. The first one is for you, Frank. And it say, "How is the coronavirus impacting investments in some of your global funds or your airline ETF?"

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

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Well, I would say the coronavirus is more negative than SARS because flights were canceled. And it had a bigger impact in particular out of Asia and the Asia airlines. Yes, the U.S. had canceled flights for their airlines, but I don't think it has as significant impact as was forecasted. We did see the JETS ETF sell off on the sentiment of it coming up, but it still in the U.S. is a very strong economy.

Employment numbers when we just -- recently came out. And now we see that PMIs have turned positive on the most recent numbers, which remains -- if they hold above 50 and continue to grow, is very positive and constructive. And I would say that the airlines industry is probably extremely undervalued. And when coronavirus is -- the solution to this horrible tragic disease is -- they find a solution to it that the airlines will probably have this sort of massive move on the upside as Asia turns the corner on it. China is doing everything now to control it. And so I think it will resolve itself.

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Holly Schoenfeldt, U.S. Global Investors, Inc. - Public Relations Leader [3]

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Great. Thank you for that. I also have a question for Lisa that says, "How will the Galileo transaction affect the USGI financials?"

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

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So after the transaction is complete, USGI will no longer consolidate the Galileo assets and liabilities on our balance sheet. And we won't be including the 65% of Galileo's income or loss in our income statement. So when we're looking at the March 31, 2020 financials, there won't be any discontinued assets or liabilities listed on the balance sheet and the statements of operations for the 3 and 9 months. It will only include our portion of income or loss through the transaction date. So after that date, we will no longer be recognizing any portion of Galileo's gain or loss in our income statement.

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Holly Schoenfeldt, U.S. Global Investors, Inc. - Public Relations Leader [5]

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Okay. Thank you, Lisa. Frank, I have another question for you...

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Frank Edward Holmes, U.S. Global Investors, Inc. - CEO, CIO & Director [6]

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I would just like to add that we put up about $1 million -- how many years ago was it, Lisa? 9 years ago? (inaudible) investment?

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Holly Schoenfeldt, U.S. Global Investors, Inc. - Public Relations Leader [7]

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Like 5. 5 or 6 years.

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Frank Edward Holmes, U.S. Global Investors, Inc. - CEO, CIO & Director [8]

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Sorry. Yes, we started talking about it 9 years ago. And I think we've helped that business do as best we can from our ideas for the company. But really, the company had $300 million of pension fund assets. And it just shocked us that the pension fund took the money and redeemed it. That was a good performance for them, and they put into 30-year zeros, the government bonds. I mean I just don't have any idea why someone would do that. When you turn around and see governments like Switzerland printing money and buying stocks, and they're the largest -- large -- top 5 shareholders of Apple. And you're seeing Japan floating money and buying stocks, et cetera, that's -- that a pension fund would buy government bonds.

But be it as it may, that really changed the revenue cost structure, and the funds themselves are experiencing the same sort of virus that the mutual funds have in America. And the virus is just regulatory costs and tax disadvantages of mutual funds. They're just so much more expensive that ETFs are more attractive. And so funds are going into that direction.

So I think that it was a good move because if we -- when we look at it, it's almost a net trade when we take a look at money going in, money coming back. Is that correct, Lisa?

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Lisa Christine Callicotte, U.S. Global Investors, Inc. - CFO [9]

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Approximately, yes.

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Frank Edward Holmes, U.S. Global Investors, Inc. - CEO, CIO & Director [10]

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Yes. Whereas most mutual funds during that period, big funds from Franklin or whatever that are public, they experience also the redemption. So I think that we've exited in a timely way and we'll reassess how we want to be able to be in Canada. It's very important because 60% of all mining finance in the world is in Toronto. So it's important to be here, to get information that's too late by the time you read that newspaper or Bloomberg. Next, please.

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Holly Schoenfeldt, U.S. Global Investors, Inc. - Public Relations Leader [11]

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Okay.

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Lisa Christine Callicotte, U.S. Global Investors, Inc. - CFO [12]

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Thank you, Frank.

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Holly Schoenfeldt, U.S. Global Investors, Inc. - Public Relations Leader [13]

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Yes. So there is another question for you, Frank, that says, "How do you see the recent resurgence in HIVE impacting GROW this year?"

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Frank Edward Holmes, U.S. Global Investors, Inc. - CEO, CIO & Director [14]

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Well, I think it's pretty simple. Directly, we have, I believe it's 10 million shares, Lisa?

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Lisa Christine Callicotte, U.S. Global Investors, Inc. - CFO [15]

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Yes.

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Frank Edward Holmes, U.S. Global Investors, Inc. - CEO, CIO & Director [16]

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That be advised that GROW has. So those 10 million shares have gone from a $1 million valuation to $4.7 million valuation so far this quarter. And I think that, that's sort of the difficulty that we have, but that's just the reality is that, that asset class is going to go mark-to-market every quarter. And so that will show up. So anyone doing the calculation, it's easy for them to make that determination.

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Holly Schoenfeldt, U.S. Global Investors, Inc. - Public Relations Leader [17]

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Okay. Great. And we have time for one more here, Frank. It says, "Overall, what global catalyst do you see potentially moving GROW in 2020?"

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Frank Edward Holmes, U.S. Global Investors, Inc. - CEO, CIO & Director [18]

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Well, I think that our gold funds are doing well. And I think that GOAU, it's just smarter. And it just surprises me that it's not $0.5 billion fund, ETF. And at $0.5 billion, it would throw off $3 million in revenue. And from an operating business of just the asset -- the investment advisory business, we would be profitable -- very profitable from that.

And so the goal is to get that so that's strategic asset class in that people would recommend if they're going to go into gold ETFs. Gold equity ETFs is the first of choice because it's just more [impulsive] of how it operates. And so I think that sort of wake-up call to platforms and positions would be a big catalyst. Gold running back to 1,900 I think is just inevitable. It's going to happen because of monetary policy decision-makers around the world. And fiscal policy, there's no constraint of fiscal policy. There's no initiatives to really lower regulations and taxation but to try to use cheap money, printed money to stimulate economic growth, and that just makes real assets like gold do well.

And then I think when we add on top of that -- but the crypto space is also a part of those alternative asset classes. And then when we look at GoldSpot, AI, GoldSpot has been able to -- the scientists behind GoldSpot have done a remarkable job of -- companies like Gammon have announced gold discoveries because of their AI approach. And I think that their AI approach could be what fracking has done in the oil industry. In the U.S., this could be so helpful for the gold mining industry.

So I -- when we look back, those 2 investments could be very strategic to us in the next year or 2 years, and I'm very happy about HIVE Blockchain. It's been a big sacrifice of time and money, but this is a company that is a leader. It's about 3% of the world's Ethereum production. All these other countries are going to talk about coming out with their own coins. They talk about the backbone of Ethereum. So they're going to be launching other currency coins, et cetera. They're going to -- it's going to be -- have something to do with Ethereum. All the ICOs use it so I think that's -- they call it STOs. They're calling it ICOs. These are new types of traditional securities, think of stocks all of a sudden going digital and having that backbone. So often, it's -- Ethereum is the platform and we are the principal players in Ethereum. So I think that HIVE can be a big catalyst in the growth for it when regulations come out is -- that are more stable around the world regarding digital money, then I think we're going to just continue to see an adoption process. So there's where I see the growth in that end of it.

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Holly Schoenfeldt, U.S. Global Investors, Inc. - Public Relations Leader [19]

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Wonderful. Thanks, Frank, and thank you all for your questions today. This concludes U.S. Global Investors' webcast for the second quarter of fiscal year 2020. This presentation will be available on our website, usfunds.com. Thank you all for your participation today.