Winners Circle

[tagthatstock]

ugly day,, stocks I believe have upward momentum anyways

GEB-phase 3 neck/head cancer
LUCY-cheese/milk- food comodities are rising -soybeens up big again

GROW- been pounding the table on this-- value+growth expotentually when you consider how high gold can go.
Recent write up in barrons,, small float, but NOT A PUMP AND DUMP:
http://webreprints.djreprints.com/914850100032.html

MONDAY, JANUARY 19, 2004
FEATURES....................................................................................................
By CHRISTOPHER C. WILLIAMS

All That Glitters

U.S. Global Investors' funds are shining as commodity rally
spreads beyond gold

By CHRISTOPHER C. WILLIAMS

BEING A GLOBAL COMMODITY INVESTOR has its perks, such as flying off to exotic locales. But Frank Holmes can readily relate the downsides. The chief investment officer for U.S. Global Investors, a San Antonio firm that boasts some top-performing natural-resources funds, recalls a friend who had an AK-47 stuck under his chin by a rebel while visiting a copper mine in the Congo.

Holmes himself experienced the exhilaration of his plane running out of gas and setting down on an Alaskan highway 10 years ago. He made a new rule: "Anything I fly must have twin engines and instruments," he says. That harrowing trip ultimately proved worthwhile. Not only did Holmes live to tell about it, his investment in the Alaskan mine he was visiting eventually increased seven-fold.

Such adventures have paid off in other ways. His $250 million Global Resources Fund is the No.1-ranked natural-resources offering for the past one, two and three years, returning 99.56%, 135%, and 103%, respectively, over those spans, according to fund tracker Lipper. Global Resources has begun 2004 in fine shape: It's up 2.46%, surpassing the 1.90% gain of its peers and the Standard & Poor's 500's 0.84%.

The fund's getting a tremendous boost from the commodities jump. If you're thinking of springing for some bling-bling this Valentine's Day, get ready to dig deep into your pocket. Platinum increased 40% in the past year to over $850 an ounce. Switching to gold offers little relief. An ounce of the yellow metal now fetches $420, up from $351 a year ago. While consumers sweat the prices, commodity and natural-resources mutual funds are hotter than a smelter. They were the top-performing sector equity funds in the fourth quarter, returning 18%, according to Lipper. The sector posted a 33% return for all of 2003, while gold stocks sparkled with a 58% gain.

But can natural resources funds be world-beaters again in 2004? It's risky to chase last year's winners. But industry bulls like Holmes are convinced the sector will continue to shine. "We are in a secular bull market in commodities that began in 2001 and could last to 2010," he says.

The popularity of natural resources after many years on the investment sidelines is providing a growth spurt to U.S. Global, which has seen assets increase to $1.7 billion from $1.1 billion a year ago. U.S. Global offers 12 no-load funds, all team-managed. Holmes, the CIO since 2000, has developed a highly adaptive investment strategy that has allowed his six-analyst team to stay atop the quickly shifting trends of the global commodity markets.

There's a confluence of factors driving commodity pricing. China is gobbling up the world's resources, from nickel to steel, to feed white-hot industrial growth. Prices for many metals have shot up as producers scurry to ramp up production to meet demand. As Holmes notes, environmentalists are preventing mining in many areas of the world; Iraqi and Venezuelan oil production are lagging; and a weakening dollar makes gold "a respectable asset class."

The surge in commodity prices could cool a bit from a torrid 2003. Indeed, gold and gold shares appear to be correcting now.


Frank Holmes of U.S. Global Investors devoutly wishes for continued gains in gold and commodities, along with many happy landings.


Holmes thinks gold could dip to around $400 in the near term, but believes it will ultimately test the $440 to $460 level over the next 12 months. Holmes' pure play on the metal is his Gold Shares Fund, in which he recently raised cash (as he did in the Resources fund), in anticipation of this correction. Gold Shares, which has $82 million in assets, returned 65% over the 12 months ended Jan. 12, surpassing the 53% gain of other funds in the Lipper gold category. The fund scored big with Ghana-based Ashanti Goldfields , which is being bought by South African AngloGold .

The firm's largest fund, the World Precious Minerals also is basking in gold's glow. The fund has 35% of its $300 million assets in gold producers such as Wheaton River Minerals and Northern Orion and has zoomed 101% over the past year, according to Lipper, outpacing 97% of its rivals.

Started in 1968, U.S. Global has been riding the fortunes of the gold business since launching the first no-load gold fund in the 1970s, according to Holmes. The 20-year depression in gold shrank the firm's assets to around $250 million in 1989 from $1.3 billion. That's when Holmes, a Toronto-based portfolio manager, bought a controlling interest in the investment firm for $2.2 million, becoming its CEO and chairman. Happy to move to warmer climes ("Snow is only for skiing," he says), the 48-year-old Canadian native now lives in San Antonio with his wife and two sons.

Holmes's investment strategy uses a "matrix of many fundamental and statistical models" to identify the different cycles defining countries, sectors, and companies: "We use cycles to create themes and monitor them to see if they're on track;" his models "pick the best companies within those cycles." China, for example, is going through a 10-year to 20-year capital-goods cycle, where it's looking to buy Caterpillar tractors, and that could quadruple its gross domestic product to $4 trillion, according to Holmes.

He plays the growth in China through his China Regional Opportunity Fund, which has about 22% of its $70 million assets in finance firms, such as HSBC Holdings . He also owns copper-producer Jiangxi Copper, which saw a fivefold gain in the past year on the Hong Kong exchange.


The China fund was the top-performing China-region fund for the one-year and two-year periods ending Dec. 31, returning 81% and 59%, respectively. China, in fact, was the best-performing emerging market for 2003, according to Lipper, soaring more than 150% in U.S. dollars. Despite their run-up, Holmes contends Chinese equities remain attractive, trading at 12 times earnings, cheaper than the U.S. market's 20 times multiple.

Holmes looks for the last two years of the U.S. presidential cycle to produce a strong market, robust economy and a falling dollar. Hence, looking to buy sectors that stand to benefit from a lower currency, his firm overweighted technology companies, to positive effect, for his All American Equity Fund, which invests in blue-chip growth stocks.

Holmes, a marathoner and hoops junkie, admires the creativity in great athletes that allows them to respond to the action before their less-talented rivals. In the same way, he says his system is highly dynamic and flexible, allowing the team to buy chemical stocks, for example, when the prices of oil and gas are falling and rotate into energy when oil and gas prices rise.

These strategies have helped Holmes' Global Resources Fund stay ahead of the game. So has placing 45% of its assets in basic materials. Energy and precious metals also consume 45% of the fund. The fund's analysts have lowered its gold exposure over the past year to 15% to 20% and increased exposure to nickel. Holmes agrees with a recent Barron's article ("Gold's Bugs," Dec. 8) that gold coins might be a better bet now that some gold stocks are getting a bit overvalued. Holmes has also increased the portion of assets in Canadian income/royalty trusts to 20% from 5%, because he was attracted to their dividend. Two such holdings: Enerplus Resources (which was featured in "Yield Gusher," July 21) and Bonavista Energy Trust, a new addition to the fund. Each stock offers a dividend yield above 10%.

Holmes also favors companies whose stocks correlate with the direction of the commodity they specialize in, and that generate increasing growth in cash flow and reserves. Furthermore, he also targets what he calls "bio-metallic" companies — those that produce two metals. One of the fund's biggest gainers, Vancouver-based Wheaton River Minerals, for example, is a gold and copper producer. Traded on the Toronto Stock Exchange, it's up 148% over the past year to a recent $3.85. That return pales in comparison to the 400% return Holmes realized on his bet on Apollo Gold . He bought shares of the zinc and copper producer in bankruptcy two years ago for 80 cents a share, becoming its largest shareholder. The stock now fetches $2.94 a share. He now owns less than 10% of the company's shares, down from 15%.

Holmes has had an easier time prospecting for investments than investors for his funds. He notes that U.S. Global had four of the top-50 performing funds of 2002. But "no one put money in them," he laments. "No one cared about the asset class."

Another significant turnoff might have been the fund's high expense ratios. Several months ago, Global Resources fund, for example, hit investors with a whopping 3.75% annual cost. Holmes has since lowered that to 1.52%, below its peer's average of 1.92%. Assets in the fund have more than doubled over the past 60 days, half of it new money — proving that while diamonds might be a girl's best friend, as the saying goes, for fund investors, it's low costs.


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At A Glance

Global Resources
7900 Callaghan Road,
San Antonio, Texas 78229
800-873-8637

Top 10 Holdings

Percentage
Company Of Portfolio*
Northern Orion Resources 2.69%
Wheaton River Minerals 2.37
Bonavista Energy Trust 1.89
Energy Savings Income Fund 1.72
EOG Resources 1.72
Enerplus Resources 1.70
Burlington Resources 1.54
PetroChina Company 1.32
CNOOC Limited 1.30
Acclaim Energy Trust 1.29
T O T A L 17.54%

*as of 12/31/03

Sources: U.S. Global Investors; Thomson Finl/Baseline