Transcript Document

U.S. Global Investors
Searching for Opportunities, Managing Risk
Global Infrastructure
A Sustainable Global Theme
Presented by:
Jack Dzierwa, Global Strategist
Prepared for the Austin CFA Society
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1.800.US.FUNDS
For Investment Professional Use Only
January 2010
10-15
U.S. Global Investors
People
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Publicly traded (NASDAQ “GROW”)
Based in San Antonio, TX
Established 1968
Experienced Portfolio Management Teams with Both Academic
and Tacit Knowledge
Specialists in Natural Resources, Hard Assets and
Emerging Markets
Process
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Top-Down and Bottom-Up Fundamental Analysis
– Fundamental and Technical Analysis of Country, Sector
and Currency Trends
– Stock Screens and Valuations
– Quantitative Risk Management
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Investment Professionals
Jack Dzierwa
- Joined U.S. Global Investors as global strategist
and portfolio manager in 2007
- Performs analysis of individual companies and
macro-theme development in both the developed
and emerging markets
- Fluent in 5 languages
- Earned an MBA at the University of Chicago
and BSc from the London School of Economics
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Investment Models
 Dynamic models
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Directional, responsive and designed to quickly generate
meaningful discussions and courses of action
 Probability based
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Our models include statistical price action and probability analysis
 Matrix of Models
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We have created a matrix of connected models that analyzes the
inter-market relationship
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Government Policy Model —
Precursor for Change
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E7 and G7 Population vs
GDP — Inverse Relationship
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E7 Countries
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G7 Countries
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Monetary Policy
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Monetary Policy
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Demographics is the Key
Deng Xiaoping
 Half of the global population (>3 billion) is estimated to live in urban areas
 Projected urban population is larger than the entire world population in 1965
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Total Projected Cumulative Infrastructure
Spending 2005-2030: $41 Trillion
Source: Booz Allen Hamilton, Global Infrastructure Partners, World Energy Outlook, Organisation for Economic
Co-operation and Development (OECD). Boeing, Drewry Shipping Consultants, U.S. Department of Transportation
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China Dominates Asia ex-Japan’s
Infrastructure Spending
Morgan Stanley estimates infrastructure spending in Asia ex-Japan will reach US$3.1
trillion over the next five years (2008-12E), about 6.2% of GDP. By comparison, annual
spending in the US was just 1.7-2% of GDP over the past 10 years.
E = MS estimates
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Source: CEIC, Morgan Stanley Research
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25-30m People a Year Urbanizing
in India and China from 2000-20
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China’s Electricity Growth
China added the equivalent
capacity of the entire U.K.
power grid in 2005-2007
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The Three Pillars of Growth
Source: CEIC
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Oil Consumption — Infrastructure Driver?
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Uneven Growth in Infrastructure Spending
 China projected for 36.5%
Year-over-Year growth in
infrastructure spending
in 2009, but is moderating
into 2010
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Macro Trend-Tailwind
for Infrastructure Spending
Shanghai, China
Source: PIRA
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Gulf Countries Oil Revenue
But the coming oil windfall will likely dwarf anything we have seen yet. At an oil price of
$70 per barrel, new research by the McKinsey Global Institute finds that Gulf oil export
revenues will likely add up to $6.2 trillion over the next 14 years—more than triple the
amount they earned over the past 14 years. At $100 oil, this will rise to almost $9 trillion.
* Based on spot prices. Realized
prices may vary by producer
** Assumes $50 barrel of oil;
Bahrain has negligible net oil
supply, but does get allocated
reserves from Saudi Arabia’s Abu
Saafa offshore field and
also purchases discounted oil from
Saudi Arabia’s Dammam field.
Source: Bp World Energy Report; Global Insight; Business Monitor International; McKinsey Global Institute Energy Demand Model;
McKinsey Global Institute Capital Flows Database; McKinsey Global Institute Analysis
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Global Shift Due to Commodities
Government Wealth Accounts
Source: SWF Institute, International Monetary Fund, TheAsset.com
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China Is Redefining Urbanization Scale
From 2005-25, Chinese cities will
add more than 350 million people…
… the population of the entire
United States
There will be more than 200 Chinese
cities with more than 1m inhabitants
… in Europe today there are
only 35 cities of that size
There will be up to 50,000
new skyscrapers…
… the equivalent of building
ten New Yorks
There could be up to 170 new mass
transit systems…
… in Europe today there are
about 70
By 2025, two-thirds of China’s citizens
will live in cities…
… that’s nearly 1 billion people
Source: McKinsey, September 2008
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Auto Sales, BRIC vs U.S.
BRIC = Brazil, Russia, India and China
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Future Traffic Growth
 China has just over 50 million
automobiles, against a
population of 1.3 billion.
 U.S. has a population
of 300 million, with 248
million automobiles.
 China’s total car ownership
would rise to 590 million if per
capita rates rise to U.S. levels
Source: Wall Street Journal
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Car Ownership Likely to Rise in Asia . . .
 Less than 5% of the
population has a car
in China versus a 74%
penetration in the U.S.
 Much lower penetration
in India with lower per
capita income
 Car penetration shoots
up as per capita income
crosses US$3,000
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Generally Comfortable Public Debt Levels
 Japan’s public debt at
around 200% of GDP
 India at 80% and the
Philippines at 65%
may be constrained
 China’s public debt is
low and enjoys high
national savings
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Asia’s Regional Stimulus
 In the next five years, there will
be $2.5 trillion infrastructure
spending for Asia ex-Japan
(a 15% CAGR)
 The global downturn impacts
current infrastructure needs,
e.g., power generation and ports
 Longer-term needs remain,
e.g., road, rail, green energy
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Transport Dominates Infrastructure Plans
 Roads and rail comprise
almost half of the region’s
infrastructure spending
 Power, together with
utilities, account for
35% of estimated
infrastructure spending
 Composition varies by
country, e.g., China is
investing more on rail
than roads, but India
the opposite
Source: CLSA Asia-Pacific Markets
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High speed rail network —
planned and operating
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Geographical distribution of airports
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Long-Term Power Demand Likely to Grow
 China’s per capita power
consumption is only 16%
that of the U.S.
 India’s is only 4% of per
capita U.S. consumption
 As per capita income
rises, power consumption
is likely to grow
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India Proposed Ultra Mega Power Projects
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Global MegaTrends Fund – MEGAX
FUND STRATEGY – “Infrastructure Picks and Shovels”
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The fund seeks to invest in companies that are positioned to grow by providing
capital goods, basic materials, professional services or other key inputs to
facilitate the design, construction, maintenance, financing, or servicing of global
infrastructure properties.
In addition to this focus on investments in infrastructure, the fund seeks to invest
in companies that meet suitable measures of return on cash flow, growth in
revenue, earnings growth and return on equity.
There is no constraint upon the market capitalizations that the fund management
will consider.
Fund management characterizes its strategy as a “picks and shovels” approach:
not only investing in the underlying infrastructure asset itself, but also investing
in the companies that help to build it or to service it.
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Disclosures
Please consider carefully the fund’s investment objectives, risks, charges and expenses. For
this and other important information, obtain a fund prospectus by visiting www.usfunds.com
or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing.
Distributed by U.S. Global Brokerage, Inc.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and
political risk. Holdings in the Global MegaTrends Fund (MEGAX) as of 9/30/09: Rio Tinto (0%).
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