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Niche Firm Adopts Growth Strategy

Frank Holmes thinks he has a recipe to expand what has been a niche mutual fund firm.

Holmes, CEO of U.S. Global Investors of San Antonio, Texas hopes a combination of monthly performance incentives for portfolio managers, a high-performing money market fund and a new marketing and distribution campaign will combine to attract new assets to his $1.4 billion mutual fund firm. The efforts come as U.S. Global, a direct sales company previously known for its gold funds, tries to increase assets under management which have risen only modestly in the past five years.

U.S. Global has added approximately $100 million in assets since 1995, according to SEC filings. The company's funds have suffered net redemptions of approximately $61 million through May 31, according to Financial Research Corp. of Boston.

But, the firm plans to become more aggressive to capture assets, Holmes said.

"We're basically going from a herding culture to a hunting culture," Holmes said in a recent interview.

The effort to increase assets has begun with heightened scrutiny of fund performance. Holmes - a former money manager who owns a controlling interest in U.S. Global - named himself chief investment officer of the company and promoted general counsel Susan B. McGee to be president last year. McGee now handles day-to-day operations.

The firm began rewarding performance internally in the past twelve months by paying bonuses to portfolio managers based on monthly performance, with managers ranking in the top half of their peer groups receiving extra pay. On July 7, the firm named Gil Atzmon, a former portfolio manager, to the newly-created position of chief investment strategist to support Holmes' oversight of fund performance.

"Our goal is consistent superior performance," Holmes said.

Currently, no U.S. Global fund has a five-star rating from Morningstar of Chicago, the fund tracking firm. Only U.S. Global's All American Equity and the Near-Term Tax Free funds have four-star rankings, Morningstar's second-highest rating, according to a Morningstar spokesperson.

Morningstar does not rate money market funds. U.S. Global's Government Securities Savings fund consistently has ranked among the top of its peer group, according to Lipper, the fund tracking firm in Summit, N.J. The fund ranks 10th out of 122 funds through June 30 and has a five-year track record which places it 4th out of 87 U.S. government money market funds, according to Lipper.

On July 7, U.S. Global said it would extend the fund's cap on total fund operating expenses to 0.40 percent through June 30. That should improve fund performance. U.S. Global hopes that the Government Securities Savings fund's performance will attract investors. It then hopes to cross-sell its other funds to Government Securities Savings fund investors, Holmes said.

The Government Securities Savings fund, with assets of approximately $745 million according to FRC, accounts for more than half of U.S. Global's assets under management. U.S. Global also plans new distribution and marketing efforts to help sales. Holmes declined to disclose details, but said that U.S. Global has hired Precision Marketing Partners, LLC of Milwaukee, Wisc., to help the firm develop distribution among registered investment advisors.

U.S. Global's gold-oriented funds and its Bonnel Growth Fund could attract interest from registered investment advisors, said Rochelle Lamm Wallach, president and CEO of Precision Marketing. The firm's two gold-oriented funds are in a niche where competition is limited, Wallach said. And Bonnel Growth Fund's portfolio manager, Arthur J. Bonnel, is well known and has a strong long-term track record, Wallach said.