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U.S. Global Investors to Focus on Global Infrastructure Investment Opportunities

By , Money Morning •

From Staff Reports

In a move that underscores the profit potential of global infrastructure projects, mutual-fund manager U.S. Global Investors Inc. (GROW) has installed a new global strategist who will focus exclusively on these opportunities.

U.S. Global Investors - a stock that's favored by several of Money Morning's analysts - said this week that it has hired Jack Dzierwa, a citizen of Poland, Canada and the United Kingdom who has substantial experience in the international investing arena.

"The infrastructure theme will remain on the radar screens of investors worldwide for many years to come," Dzierwa said. "Recent events highlight the need for directing more attention to infrastructure, and this is already reflected in the order books for many companies. We will work to identify the main beneficiaries of this global trend, which is being supported by both the public and private sectors."

As countries such as China and India and others work to make the jump from "developing" to "developed" economies, infrastructure will be a key focus. By infrastructure, analysts are generally referring to highways, airports, water and wastewater systems, power-generation facilities such as hydroelectric dams, and even specialized projects such as industrial parks or business-incubator facilities.

These countries will have to install modern water and sewerage systems to modernize their cities as both places to live and as locales in which foreign companies - such as those from the United States, Japan or Europe - will want to set up shop. Rivers will have to be dammed up to divert water for drinking and irrigation, and also to generate power through the construction of hydroelectric power plants like China's Three Gorges Dam, a project so massive that it's taken more than a decade just to build. Located on the Yangtze River in the Hubei Province, the $23 billion dam is currently the largest hydroelectric river dam in the world - more than five times the size of the huge Hoover Dam in the United States. It's about 7,700 feet long and 620 feet high (for purposes of comparison, the Golden Gate Bridge Towers are about 760 feet tall, meaning this Dam is a bit more than eight-tenths the height of San Francisco's Golden Gate. That's tall).

China just reported that investments in fixed assets - factories, property, plants and equipment - soared 26.6% to $747 billion in the first seven months of this year, as the country tries to build needed facilities and capitalize on most opportunities as its economy continues to rocket along. Not all of this investment is related to infrastructure, but a lot of it is.

For investors, this kind of basic development creates all sorts of investment opportunities, many of them less-volatile and with a longer run of so-called earnings "visibility" than, say, a tech company whose core strength could be leapfrogged and made obsolete overnight by a garage startup.

Investors can invest directly in the foreign domestic participants - investing in, say, a Chinese power company or a Korean steelmaker that might benefit from the infrastructure development - or indirectly via a U.S.-based company such as equipment makers like a Caterpillar Inc. (CAT) or Deere & Co. (DE) whose products will be needed on these big development projects.

In fact, when the Moline, Ill.-based Deere recently reported that its second-quarter profits had jumped 23%, the company said a 5% decline in U.S. sales was more than offset by a 30% increase in sales overseas.

The San Antonio-based U.S. Global Investors (www.usfunds.com) is boutique investment-management firm that focuses on profitable niches around the world. With an average of $4.83 billion in assets under management during the quarter that ended March 31, U.S. Global manages domestic and offshore funds that offer investors investment options ranging from natural resources, emerging markets funds, and even money-market funds. It also has one of the highest-rated China mutual funds in the industry, the China Region Opportunities Fund (USCOX).

Indeed, four of the company's mutual funds were listed among the top-performing funds in the industry, according to a recent report published by The Wall Street Journal. Most notably, U.S. Global's China Region Opportunity Fund (USCOX) ranked #35 in total return among all U.S. mutual funds for the three-month period ending June 30, according to The Journal's quarterly fund report.

GROW's Eastern European Fund (EUROX) - another Money Map Report recommendation - ranked fifth out of all funds in terms of total return for the five years that ended June 30.

Two of U.S. Global's natural resources funds both fared extremely well in The Journal's survey. GROW's Global Resources Fund (PSPFX) ranked #13 and the World Precious Minerals Fund (UNWPX) ranked #54 over the same period.

In summary:

  • Eastern European Fund: 5th-best over the past five years.
  • Global Resources: 13th-best over the past five years.
  • World Precious Minerals: 54th-best over the past five years.
  • China Region Opportunity: 35th-best over the past three months.

Dzierw, a former director in the emerging markets research department at ING Financial Markets in London, will focus now on infrastructure investment opportunities.

Dzierw's "unique explicit and tacit knowledge combined with our investment process will enhance our capacity to grow with the massive and sustainable global infrastructure boom," says Frank Holmes, U.S. Global Investors' chief executive officer and the chief investment officer.

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