Executive Summary / Key Takeaways

• Profitability Inflection Point: GROW returned to net income of $1.5 million in Q1 2026 after a $334,000 loss in FY2025, driven by a 148% surge in investment income and positive fund flows into gold mining funds, suggesting the cyclical bottom may be behind it.

• Scale Disadvantage vs. Strategic Differentiation: With just $1.4 billion in average AUM and $8.5 million in annual revenue, GROW's micro-scale creates a binary outcome—either AUM recovery drives dramatic operating leverage, or persistent outflows render it a value trap despite its $37 million net working capital fortress.

• Cyclical Tailwinds Aligning: Gold reaching all-time highs has reversed fund outflows, the WAR ETF (launched December 2024) is positioned to capture record $2.4 trillion global defense spending, and JETS may benefit as airlines transition from cyclical to growth businesses using AI for pricing power.

• Capital Allocation Discipline: Management's "two-pillar strategy" of monthly dividends ($0.0075/share) and algorithmic buybacks on down days has produced an 8.32% shareholder yield, demonstrating commitment while the balance sheet carries zero debt and 76% liquid assets.

• Critical AUM Hurdle: CFO Lisa Callicotte's guidance that $1.9 billion in average assets is needed for positive operating income at current expenses reveals the stark math—GROW must grow AUM by 36% just to break even operationally, making every dollar of net flows decisive for the investment case.

Setting the Scene: A Thematic Specialist in a Passive World

U.S. Global Investors, founded in 1968 as an investment club and headquartered in San Antonio, Texas, operates as a boutique asset manager navigating an industry dominated by passive giants. The company makes money through advisory fees on its thematic ETFs and mutual funds, charging an average 71 basis points on AUM (82 basis points for equity funds). This fee structure sits between traditional active management and ultra-low-cost index funds, reflecting its "Smart Beta 2.0" positioning—rigorous backtesting of quantamental strategies that blend macro and micro factors.

The asset management industry has undergone a structural transformation, with ETF assets approaching $11 trillion and active mutual funds facing persistent redemptions. This environment creates a barbell: passive providers like Vanguard and BlackRock (BLK) dominate with scale, while niche specialists survive by offering genuine differentiation. GROW occupies the latter camp, but its micro-scale—$1.4 billion AUM compares to competitors managing hundreds of billions—creates inherent cost disadvantages. Why does this matter? Because fixed costs like compliance, technology, and distribution consume a larger percentage of revenue for small players, compressing margins unless they can command premium fees through superior performance or unique access.

GROW's historical DNA shapes its current strategy. The firm launched the industry's first no-load gold fund and co-founded HIVE Digital (HIVE), the first public cryptocurrency mining company, in 2017 as a direct response to the SEC's refusal to approve a Bitcoin ETF. This pattern—identifying regulatory arbitrage opportunities and moving early into emerging themes—defines its product development. The Eastern European fund's growth from $4 million to $1.4 billion demonstrates the potential when themes align, while its subsequent closure after Russia's invasion illustrates the geopolitical risks inherent in global investing.

Technology, Products, and Strategic Differentiation: Smart Beta 2.0 as a Double-Edged Sword

GROW's quantamental strategy involves "thousands of hours" of backtesting to create sustainable thematic products, combining momentum factors (60-70% weighting on revenue/EBITDA/cash flow growth) with GARP characteristics (value discount, high free cash flow yield, lower debt-to-equity). This approach aims to optimize returns while managing risk through quarterly recalibration. This approach is significant because, unlike traditional market-cap-weighted ETFs, Smart Beta 2.0 seeks to exploit systematic factor premiums , potentially generating alpha in inefficient markets like gold mining or emerging industries.

The product portfolio reflects this philosophy. The U.S. Global Jets ETF (JETS), which grew from $40 million to a $4 billion peak, uses a revenue and cash flow-focused methodology to select airlines, airports, and manufacturers—beating the NYSE Arca Global Airline Index by 26% since inception. The GOAU gold miners ETF similarly emphasizes revenue and royalty models over market cap, helping it outperform during gold's recent rally. The newly launched WAR ETF (December 2024) positions itself to benefit from rising geopolitical tensions and AI applications in military, defense, and cybersecurity (e.g., Palantir (PLTR)). The SEA ETF (August 2025) targets the $500 billion AI data center buildout and related AI applications in military, defense, and cybersecurity (e.g., Palantir).