Executive Summary / Key Takeaways

• U.S. Global Investors leverages its proprietary Smart Beta 2.0 quantamental strategy to create differentiated thematic ETFs focused on sectors like airlines, gold, and technology/defense, aiming to outperform traditional benchmarks.
• Recent financial performance reflects pressure on operating revenue due to declining assets under management (AUM), particularly in the JETS ETF, although operating expenses are managed, and net investment income provides a partial offset.
• The company maintains a robust balance sheet with significant cash reserves and no long-term debt, enabling it to weather AUM downturns and support its shareholder value strategy.
• A core component of the investment thesis is the company's commitment to returning value through a consistent monthly dividend and strategic stock buybacks, resulting in a high total shareholder yield, particularly as management views the stock as undervalued.
• Strategic initiatives, including expanding the global ETF footprint, launching new products like the WAR ETF, and increasing exposure to the Bitcoin ecosystem, position the company for potential future growth despite facing market sentiment headwinds and competitive pressures from larger asset managers.

U.S. Global Investors, Inc. (NASDAQ: GROW) stands as a distinctive player in the competitive asset management landscape, a firm with a history stretching back to 1968 when it began as an investment club. Over decades, GROW has evolved from a pioneer in areas like no-load gold funds and emerging markets to a modern manager focused on thematic exchange-traded funds (ETFs) and strategic corporate investments. This journey has shaped its core identity: an innovative firm seeking specialized niches and employing a disciplined, data-driven approach to investment management.

The asset management industry is characterized by intense competition, dominated by large players like BlackRock (BLK) and Invesco (IVZ), and facing ongoing disruption from passive investing trends and lower-cost digital platforms. In this environment, GROW positions itself as an agile, specialized manager. Its competitive edge is rooted in its proprietary "Smart Beta 2.0" strategy, a technological differentiator that fuses rigorous quantitative analysis with fundamental research. This quantamental approach involves extensive backtesting, often thousands of hours, across decades of data to identify specific factors – such as momentum in revenue, EBITDA, and cash flow, alongside value metrics like high free cash flow yield and low debt-to-equity ratios relative to industry peers – that are best suited for stock picking and portfolio construction within targeted themes.

The tangible benefits of this approach are highlighted by the performance of its thematic ETFs. For instance, the U.S. Global Jets ETF (JETS) has notably outperformed the NYSE Arca Global Airline Index by a wide margin, demonstrating a significant advantage over a simple market capitalization-weighted approach. Similarly, the U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU) has outperformed the GDX ETF since its launch, and the newly introduced U.S. Global Technology and Aerospace & Defense ETF (WAR) is based on a model that management believes outperforms other defense-focused ETFs through backtesting. This systematic, dynamic strategy, which involves recalibrating portfolios quarterly, serves as GROW's primary moat, enabling it to offer differentiated products that aim for alpha and justify its fee structure, providing a competitive angle against both passive index funds and less systematically managed active strategies. The company's R&D efforts are focused on applying this methodology to new themes, such as the AI applications in defense and cybersecurity targeted by the WAR ETF, and exploring opportunities in the evolving Bitcoin ecosystem.

Despite this strategic differentiation and technological foundation, GROW's recent financial performance reflects the challenging market dynamics impacting its core business. For the nine months ended March 31, 2025, total consolidated operating revenues decreased by 24.0% to $6.492 million compared to $8.544 million in the prior year period. This decline was primarily driven by a 24.3% decrease in advisory fees, a direct consequence of lower average assets under management (AUM). Total AUM stood at approximately $1.2 billion as of March 31, 2025, down from $1.7 billion a year prior, with the JETS ETF experiencing significant redemptions. Management attributes this AUM volatility partly to broader market sentiment, including recession fears and the impact of the inverted yield curve, which they note has recently reversed.

Operating expenses have been relatively stable, decreasing slightly by 1.7% to $8.482 million for the nine months ended March 31, 2025, compared to $8.626 million in the prior year. While general and administrative costs saw a reduction, advertising expenses increased significantly (67.4%) as the company invested in efforts to grow AUM. The company recorded a consolidated operating loss of $1.990 million for the nine months ended March 31, 2025, compared to a smaller operating loss of $82,000 in the prior year period. For the three months ended March 31, 2025, operating revenues were down 18.9% to $2.103 million, resulting in an operating loss of $893,000.

A crucial component of GROW's financial picture is its net investment income, derived from investing its own capital. This segment provided a partial offset to operating losses, totaling $1.819 million for the nine months ended March 31, 2025, a 33.5% increase from the prior year. Net investment income can be volatile, influenced by market fluctuations and the performance of specific holdings, including its investment in HIVE Digital Technologies (HIVE). The company's net loss for the nine months ended March 31, 2025, was $153,000, a significant change from the net income of $1.018 million in the same period of 2024. For the third quarter of fiscal 2025, the net loss was $382,000, compared to a net loss of $35,000 in the prior year quarter. Management estimates that achieving approximately $1.9 billion in average AUM would result in positive operating income.

Despite recent operating losses, GROW maintains a strong balance sheet, a key factor underpinning its investment thesis. As of March 31, 2025, the company had net working capital of approximately $37.5 million and a robust current ratio of 21.7 to 1. Cash and cash equivalents stood at $26.262 million. The company carries no long-term debt and has an unutilized $1.0 million credit facility, collateralized by restricted cash. This liquidity and financial strength provide management with the flexibility to navigate periods of lower AUM, fund strategic initiatives, and continue its commitment to shareholder returns.

A core part of GROW's value proposition for investors is its consistent return of capital. The company has paid a monthly dividend since 2007. The Board has authorized a monthly dividend of $0.0075 per share through June 2025, which translates to a compelling annualized yield. Furthermore, the company actively repurchases its stock under a program authorized through December 31, 2025, with a limit of $5.0 million for the calendar year. Management views these buybacks, particularly on flat or down days, as a strategic move to enhance shareholder value, reflecting their belief that the stock is deeply undervalued. The combination of dividends and buybacks contributes to a high total shareholder yield, which management highlights as an attractive feature compared to alternative investments.

Looking ahead, GROW's outlook is tied to the success of its strategic initiatives and a potential shift in market sentiment. The company is actively expanding the global reach of its ETFs, including the merger of its European airline ETF into the broader Travel UCITS ETF (TRIP) and listing JETS in Latin American markets like Colombia to target institutional investors. The launch of the WAR ETF signals a move into the technology and defense sector, leveraging the Smart Beta 2.0 approach to capitalize on rising geopolitical risks and increased spending in areas like AI, cybersecurity, and data centers. The company also plans to increase its exposure to the Bitcoin ecosystem, utilizing capital from the maturing HIVE convertible debenture (with $2.3 million principal remaining as of March 31, 2025) to invest in Bitcoin ETFs, Bitcoin, and HIVE shares, anticipating a favorable political and regulatory environment for cryptocurrencies.

Management remains bullish on its core thematic exposures. They view the airline industry as transitioning to a growth business, citing strong travel demand, packed flights, and resilient pricing power, with IATA forecasting record revenues and passenger numbers in 2025. The "Go Gold" theme continues to be a focus, driven by macroeconomic factors like global debt growth, central bank buying, and the treatment of physical gold under Basel III, with management expressing confidence in gold's potential upside.

However, risks persist. The company remains susceptible to market volatility and shifts in investor sentiment, which can rapidly impact AUM and financial results, as demonstrated by recent trends in JETS. Geopolitical events and trade tensions could further exacerbate market uncertainty and affect investment valuations. The company also disclosed a material weakness in its internal control over financial reporting as of March 31, 2025, the same weakness reported in the prior fiscal year, although management believes the financial statements are fairly presented. The success of new initiatives like the WAR ETF and increased Bitcoin exposure is not guaranteed and depends on market acceptance and performance.

Conclusion

U.S. Global Investors presents a compelling investment narrative centered on its differentiated Smart Beta 2.0 strategy applied to specialized thematic ETFs and supported by a strong balance sheet. While the company currently faces headwinds from declining AUM and market sentiment impacting operating revenues, its strategic focus on high-growth themes like airlines, gold, and technology/defense, coupled with initiatives to expand its global footprint and capitalize on opportunities in the Bitcoin ecosystem, positions it for potential future growth. The commitment to returning value to shareholders through a consistent monthly dividend and strategic stock buybacks, resulting in a high total shareholder yield, offers an attractive component to the investment thesis, particularly if the market begins to recognize the value management sees in the stock and its underlying strategies. Investors should monitor AUM trends, the performance of new product launches, and shifts in market sentiment towards the company's core thematic exposures as key indicators of future performance.