US Global's Golden Strategy
Frank Holmes, CEO of US Global Investors, explains the stock selection process behind the World Precious Minerals Fund (UNWPX), a fund that has returned 135% over the past year. He also highlights several specific minerals stocks that stand out in his proprietary ranking system.
Steve Halpern: Our special guest today is Frank Holmes, CEO of the top-rated fund management company U.S. Global Investors. How are you doing today, Frank?
Frank Holmes: Excellent my friend, excellent.
Steve Halpern: Mines & Money recently recognized U.S. Global World Precious Minerals Fund along with both you and manager, Ralph Aldis, as the number one gold fund in the world. Can you give our listeners an overview of this fund -- and also, congratulations.
Frank Holmes: Well thank you, thank you, and we had lots of competition, and one of the things we have discovered we received this away back in 2006 also. That process is reinventing yourself and trying to identify what's driving these gold stocks at the level they're going in. We have a Rubik's cube we like to call it of factors that we look for catalysts.
What we saw is that fundamental quant analysis makes up more than 55% of the trading. It is not your normal gold fund manager; there's not been that many assets going into the gold funds.
There's been gold mining funds — GDX and GDXJ — which we outperform. How you do that is appreciating how the quants look at gold stocks which is very different then most of the brokers analysts that sell the ideas to you.
Steve Halpern: Explain what this portfolio manager's cue is and expand on what makes that up.
Frank Holmes: What we did is we did regressional studies and looked at the factors that gave you better performance, and so we said in trying to understand as a change, as a momentum, as a catalyst. You see that it shows up in the revenue per share. Production per share drives a lot of that revenue per share and the price of the commodity gold.
The most important overarching factor is the value per share. A lot of gold mining companies do so many silly transactions and financings they diluted the gold value per share faster than they increased the reserves or production. Those that didn't had much, much better performance.
With that, we said okay let's identify the key factors and let's start doing some quantitative approach on it, and looking at data that says if I use this factor such as cash flow per share for the past quarter or the past four quarters, those stocks that have the past quarter over the four quarters rising do they outperform, and they outperform.
Another factor we looked at, which was unique, was the GNA to revenue.