by Frank Holmes, CIO, CEO, U.S. Global Investors
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Please note: The Frank Talk articles listed below contain historical material. The data provided was current at the time of publication. For current information regarding any of the funds mentioned in these presentations, please visit the appropriate fund performance page.
September 29, 2017
Between escalating tensions with North Korea and a U.S. Congress in gridlock, it can sometimes be challenging to stay positive. That’s why I’m pleased to share with you this good news: Our China Region Fund (USCOX) was up more than 45 percent for the 12-month period as of September 22, 2017, beating its benchmark, the Hang Seng Composite Index (HSCI), which gained 20.7 percent over the same period. This means USCOX outperformed the index by roughly 25 percent.
Put another way, USCOX has beaten the HSCI in eight of the past 11 months, or 73 percent of the time, with the greatest monthly spread between fund and index occurring in June.
One of the main contributors to our outperformance is our overweight positions in information technology and consumer discretionary stocks, which made up a combined 61 percent of the fund as of September 22. As we see it, these sectors are where the growth is, driven by innovative tech firms, from Sunny Optical to Tencent, and automakers such as Geely Automative, Guangzhou Automotive and Great Wall Motor.
Asian Stocks Look Cheap Compared to the American and European Markets
When measured against the American and European markets, Asian stocks, excluding Japan, have been the top performers of 2017 so far, returning more than 30 percent year-to-date. That’s compared to an 11.7 percent gain for the S&P 500 Index and 20 percent gain for the STOXX Europe 600.
Asian stocks also have a more attractive valuation than these other two regions. With the S&P 500 trading at 21.4 times earnings and the STOXX Europe 600 trading at 21.2 times earnings, the MSCI Asia Pacific ex-Japan Index looks more reasonable at 15.6 times earnings.
The China Region Fund, meanwhile, trades at 15.5 times earnings, making it, I believe, an exceptional value.
Cars, Tech and Sportswear Driving Growth
We believe our exposure to Chinese automakers and tech firms makes USCOX well-positioned for long-term growth. Not only is China the largest passenger car market in the world, it was also the fastest growing. In the first eight months of this year, auto sales in the country were up close to 5 percent compared to the same eight months in 2016, according to the China Association of Automobile Manufacturers. Geely, which completed its acquisition of Volkswagen in 2010, sold 718,000 vehicles during this period, an amazing 88 percent increase year-over-year.
Tech manufacturers, especially those that supply Apple, look very attractive. Our favorite right now is Sunny Optical, which specializes in lenses for a number of advanced applications. The company announced that shipments of handset lenses surged 96 percent in August, while vehicle lenses rose 65 percent. For the 12-month period as of September 22, its stock was up 264 percent.
We’re also fans of Anta Sports Products, China’s largest sportswear company by revenue. By selling pricier athletic gear under its Fila brand, the company is seeking to capitalize on rising incomes and the Chinese government’s push to boost participation in sports. According to Bloomberg, the government aims for 435 million of its citizens, a third of its population, to work out more frequently by 2020. This bodes well for Anta.
The sportswear company is among our top 10 holdings.
See what other companies round out the fund!
Past performance does not guarantee future results.
Please consider carefully a 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. Foreside Fund Services, LLC, Distributor. U.S. Global Investors is the investment adviser.
| One-Year | Five-Year | Ten-Year | Gross Expense Ratio | |
|---|---|---|---|---|
| China Region Fund | 33.80% | 7.01% | -0.35% | 2.76% |
| Hang Seng Composite Index | 28.24% | 9.43% | 4.60% | n/a |
Expense ratios as stated in the most recent prospectus. The Adviser of the China Region Fund has voluntarily limited total fund operating expenses (exclusive of acquired fund fees and expenses of 0.02%, extraordinary expenses, taxes, brokerage commissions and interest, and advisory fee performance adjustments) to not exceed 2.55%. With the voluntary expense waiver amount of 0.38%, total annual expenses after reimbursement were 2.36%. U.S. Global Investors, Inc. can modify or terminate the voluntary limit at any time, which may lower a fund’s yield or return. Performance data quoted above is historical. Past performance is no guarantee of future results. Results reflect the reinvestment of dividends and other earnings. For a portion of periods, the fund had expense limitations, without which returns would have been lower. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance does not include the effect of any direct fees described in the fund’s prospectus which, if applicable, would lower your total returns. Performance quoted for periods of one year or less is cumulative and not annualized. Obtain performance data current to the most recent month-end at www.usfunds.com or 1-800-US-FUNDS.
Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. By investing in a specific geographic region, a regional fund’s returns and share price may be more volatile than those of a less concentrated portfolio.
The Hang Seng Composite Index is a market-cap weighted index that covers about 95% of the total market capitalization of companies listed on the Main Board of the Hong Kong Stock Exchange. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 Index represents large, mid and small capitalization companies across 18 countries of the European region. The MSCI AC Asia Pacific Index captures large and mid-cap representation across 5 Developed Markets countries and 9 Emerging Markets countries in the Asia Pacific region. With 1,034 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. The MSCI AC Asia Pacific ex-Japan Index captures large and mid-cap representation across 4 of 5 Developed Markets countries (excluding Japan) and 9 Emerging Markets countries in the Asia Pacific region.
Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the China Region Fund as a percentage of net assets as of 6/30/2017: Tencent Holdings Inc. 6.20%, Sunny Optical Technology Group Co. Ltd. 6.75%, Apple Inc. 0.00%, AAC Technologies Holdings Inc. 3.00%, Guangzhou Automobile Group Co. Ltd. 4.63%, Geely Automobile Holdings Ltd. 8.96%, Great Wall Motor Co. Ltd. 1.01%, HSBC Holdings PLC 0.00%, AIA Group Ltd. 0.00%, ANTA Sports Products Ltd. 2.57%.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
This post was originally published at Frank Talk.
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