A rocky history notwithstanding, the U.S. Global Investors
Global Mega Trends Fund (MEGAX) hopes to turn the corner in 2009 by focusing heavily on infrastructure-related investing.
"At this point, global infrastructure build-out is the biggest trend in the world," said John Derrick, co-manager of the $25 million fund.
The global-infrastructure story — from the rapid pace of economic development in China and India to the billions of dollars in infrastructure spending proposed by President-elect Barack Obama — is an argument the portfolio management team can easily make.
It might be more difficult, however, to sell advisers and investors on an 18-year-old mutual fund with just $25 million under management.
The fund, managed by U.S. Global Investors Inc. in San Antonio, had been subadvised from its launch in 1991 until October 2007, when it was taken over by internal portfolio management.
At that point, which happened to mark an all-time high for U.S. equity markets, the fund had just $10 million under management.
The fund's assets grew to nearly $50 million by the middle of last year, representing a 400% increase in less than a year. But much of that growth was given back during the third and fourth quarters, which accounted for virtually all of the fund's 47.7% 2008 loss.
By comparison, the average large-cap-growth fund lost 40.7% in 2008, according to Morningstar Inc. of Chicago.
Morningstar does not have an infrastructure fund category or an analyst covering that particular area. However, utility sector analyst David Kathman said the fund, which has a three-star rating, has received low marks for its above-average expense ratio of 2.49%.
"It's not uncommon for a fund with low assets to have a high expense ratio, and that's really the biggest issue we have with the fund," he said.
According to Michael Dunn, U.S. Global's director of institutional services, part of the expense ratio is currently being waived to bring it down to 1.85%. But even that is nearly double the 0.95% median expense ratio for large-cap open-end mutual funds, Mr. Kathman said.
The decision to bring the portfolio's management in-house is part of an evolution that turned the domestically oriented fund into one that now follows global trends, according to Mr. Derrick, who manages the fund along with Jack Dzierwa, Frank Holmes and Romeo Dator.
"We recognized the beginning of a phenomenal theme that had a lot to do with underinvestment in infrastructure during the 1990s," he said. "This is virtually an infrastructure fund right now."
The definition of modern-day infrastructure is broader than it once was, running the full gamut from utilities and transportation to industrial machinery, construction engineering and steel production.
The portfolio is currently exposed to investments in more than a dozen countries, with United States companies representing the largest weighting at 40%. The Hong Kong/China market represents 12% of the portfolio, Brazil makes up 10%, and the Canadian market totals 5%.
Mr. Obama has presented plans to invest hundreds of billions of dollars in infrastructure projects as a means of boosting the U.S. economy, which is an effort Mr. Derrick applauds.
"The new president's monetary and fiscal policy seems to involve a pretty good outlay of money for infrastructure," Mr. Derrick said. "That kind of emphasis can't be anything but positive for our strategy."
Globally, the infrastructure story centers on the long-term economic expansion of China and India, where emerging middle-class markets are driving production and consumption growth in those countries.
One of the ways the fund is tapping into that growth is through buying shares in Hong Kong-based China Mobile Ltd. (CHL), which is the largest wireless-communications provider in that country.
While the Chinese telecommunications category is a segment that has been beaten down by recent market conditions, "the wireless theme is a huge growth opportunity in China, because we believe China will recover more quickly than most other countries," Mr. Derrick explained.
China Mobile shares, which are traded on the New York Stock Exchange as American depository receipts, declined by 38.4% in 2008. That compares with a decline of 38.5% by the Standard & Poor's 500 stock index last year.
The fund will use cash as a tool to maneuver through turbulent times as it did in the past year. During the second half of 2008, the fund's cash weighting swelled to 40%, but that has since been reduced to less than 10%.
Questions? Observations? Stock tips? E-mail Jeff Benjamin at [email protected].
