Every morning when I meet with the investment team, we review the news of the previous day, the movements of the markets around the world, and corporate actions that may affect our funds. This is how we keep our ears open in order to manage money that shareholders like you have entrusted us with. We meet again at lunchtime, daily, to share ideas, because something happening in China may affect the U.S. markets, or an energy company might have news that can benefit our domestic funds as well as our resources funds.
One critical factor that we always watch is government policy. Because we know that government policy is a precursor to change, we are constantly following global politics and analyzing how shifts can affect your investments.
Here are five government policy factors that we are watching to manage our fund portfolios:
- New Federal Reserve chair Janet Yellen is going to affect interest rates.
Janet Yellen has been attracting a lot of attention since taking over as Federal Reserve chair. The Fed sets monetary policy, so everyone is looking to her to see when tapering might start or when interest rates will rise. As Iâ€™ve written about before, negative real interest rates are positive for gold. Interest rates have been hugging the line lately, and weâ€™ve seen gold react with moves up and down.
What weâ€™re watching: The Fed will likely keep interest rates low, to encourage investment. Rates may rise with inflation, but the net effect on real interest rates will likely remain about the same. This is bullish for gold, so weâ€™re watching how the gold mining companies in theÂ Gold and Precious Metals Fund (USERX)Â andÂ World Precious Minerals Fund (UNWPX)Â may be able to use this to their advantage.
- China is revising its one-child policy.
Chinaâ€™s government realizes that it needs to loosen the one-child policy in order to create a sustainable workforce. Longer term this means population growth in China as more babies are born.Â Take a look at the visual on page seven of my recent Investment U speech. Currently, every American born will consume 2.9 million pounds of minerals, metals and fuels in their lifetime. Chinaâ€™s middle class is growing, and we see rising demand for energy and all sorts of resources in China. Chinese babies will consume even more throughout their lifetime than their parentsâ€™ generation will.
What weâ€™re watching: demand for natural resources of all kinds. Look at thediverse approach of the Global Resources Fund (PSPFX). Metals, food, transportation of goods, and fuel are all potential beneficiaries of this population growth.
- We are in year two of the presidential election cycle.
We are approaching the mid-term Congressional election cycle. Looking at the pattern of four-year presidential terms from 1953 through 2013, we see that generally in year two, the S&P 500 Index trends sideways to down for a few months in the Spring, before trending upward again in the Fall. These are patterns to be aware of as leaders make plans before wooing the electorate. But looking at a longer period of history, from 1928 through 2013, April itself is usually a positive month.
What weâ€™re watching: Past performance doesnâ€™t guarantee future results, but it helps to keep the long-term trends in mind. Our management strategy for theÂ Holmes Macro Trends Fund (MEGAX)Â takes advantage of these trends in the domestic market. We look for companies with robust fundamentals that are participating in the leading sectors and leading industries of the market.
- The conflict between Ukraine and Russia is changing the European markets.
Geopolitical conflict has the potential to shake up the markets, and the recent declines in the Russian stock market bear that out. Fortunately we have the benefit of a long history of investing in the Russian market, and tacit experience as a minority shareholder. We have taken these events as an opportunity to reposition the amount of risk weâ€™re willing to take after the Crimea situation.
What weâ€™re watching: Â Other European markets hold particular opportunities. Greece has been making great strides in its economic recovery, and we are looking to the banking industry, which we believe is in a good position to benefit. Also, Turkey has been one of the best-performing markets overall this year, up 10 percent year-to-date.
- China is pushing for cleaner energy.
Itâ€™s no secret that China has problems with smog and pollution, and the Chinese government is taking an active approach in addressing this issue. Iâ€™ve written before about how China is supporting multiple forms of alternative energy. Coal is heavily used in China, but the government has a plan to increase usage of natural gas, which is a cleaner form of energy. Also, China plans to add 10 gigawatts of solar capacity each year for the next couple of years.
What weâ€™re watching: Solar stocks in the U.S. and in China are benefiting from this support. Weâ€™re watching this energy niche grow, and weâ€™ve positioned some of our funds to benefit from companies that manufacture solar components, like First Solar and Trina Solar. We are also participating in companies like NRG Yield Inc. and Pattern Energy Group Inc., which are solar and wind farm companies that sell energy into the grid, and pay out a dividend.
These are five government policies that weâ€™ll be watching this week and in the weeks ahead. This is another reason why I believe in the importance of active management. Our team is attuned to these sorts of global government policies, in our daily efforts to maximize the growth and protection of our shareholdersâ€™ assets.
Please consider carefully a fundâ€™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.
Foreign and emerging market investing involves special risks such as currency fluctuation and less public disclosure, as well as economic and political risk. Because the Global Resources Fund concentrates its investments in specific industries, the fund may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries.
Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5% to 10% of your portfolio in these sectors.
Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Gold and Precious Metals Fund, World Precious Minerals Fund, Global Resources Fund and Holmes Macro Trends Fund as a percentage of net assets as of 3/31/2014: First Solar (Global Resources Fund 0.19%); NRG Yield Inc. (Global Resources Fund 0.22%); Pattern Energy Group Inc. (Global Resources Fund 0.85%); Trina Solar (Global Resources Fund 0.98%, Holmes Macro Trends Fund 0.87%)
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.