US Global Investors (GROW) – AUM Growth – 40%+ Upside

Current Price: $2.56

Target Price: $3.7 (update: now materially higher)

Upside: 45%

Expiration Date: Q4 2020/Q1 2021

Annual report


Update: The situation has improved since the write-up. See discussion below.

US Global Investors manages a number of mutual funds and two ETFs (gold and airlines). Earlier this year, the COVID-19 triggered the airline industry crash, which has subsequently attracted a lot of investors/speculators betting on a swift recovery. As a result, GROW managed airline ETF JETS saw its AUM increasing from less than $100m to $1.7bn. Investors likely expected that this increase in the AUM would be instantly reflected in the upcoming GROW financial results finally turning the company profitable. However, the recently released annual report (FY20, ending in June) left the market disappointed as it appeared that operating expenses were higher than anticipated, and operating profitability wasn’t reached. As a result, GROW fell by 40%.

I believe the market overreacted and is overly pessimistic:

  • Fee revenues from ETF during the reported quarter (Mar-Jun 2020) reflect an average AUM of only $858m whereas for the quarters going forward this figure will be closer to $1.8bn, resulting in 2x higher fee revenues.
  • It is likely that at least some of the expenses were one-off driven by net capital inflows into the fund and new EFT unit creation. 80% operating margin for incremental revenues seems to be justified going forward.
  • The latest quarter also saw a drop in net revenues from the mutual fund segment (USGIF). This drop partially overshadowed the positive impact from the growth in the ETF segment. However, mutual funds AUM has recovered from the March lows and fee revenues are likely to follow turn. Also, USGIF segment revenues appear to fluctuate on a quarterly basis and had a similar decline during the previous fiscal Q4 only to recover during the subsequent quarters.

By my count, with stabilized AUM and Opex, GROW operating income for FY21 will be around $4.0m-$4.5m which compares to a loss of $2.4m during FY20. At 10x multiple and a further $12m of non-operating assets on the balance sheet, I arrive at a value of $55m vs $38m market cap currently, indicating 45% upside to the current market cap.

Moreover, a substantial further upside is likely to be achieved when the airline industry starts recovering. Airline stock prices are still c. 40%-50% below their pre-covid levels and not too far from the March lows. AUM would increase together with the improvement in the airline share prices driving additional fee revenues. It is not too difficult to envisage an optimistic scenario where AUM would double from the current levels if we see a full recovery of the industry. A free option on top of already discounted valuation.

There are 3 main risks here:

  • Operating expenses still turning out higher than expected. This is definitely the biggest caveat, however, the comments from the management and the OPEX dynamics in fiscal Q4 (a relatively low increase compared with advisory fee growth) give some assurance;
  • Significant deterioration of the investment portfolio ($10m of non-operating assets).  The majority of it is placed in a safe fixed-income fund, which mitigates this risk;
  • The second wave of COVID/travel restrictions decimating the airline industry one more time, which would induce investors to withdraw funds from JETS. Nothing much to say here, however, I don’t think the chances of this becoming a reality are significant.

For more details and further background, you can also refer to this VIC article written in June – currently GROW trades just slightly above the levels at the time of that write-up.


GROW Background

US Global Investors provides investment management services to 9 small mutual funds, together called USGIF (natural resources, precious metals, minerals, China region, emerging European markets, etc.). Until recently, this was their main revenue source. Primarily due to shareholder redemptions, in 2016/2017/2018 USGIF faced significant AUM deterioration ($700m to $450), however, during the last 2 years the company has managed to stay consistently above the $400m mark. GROW charges a base management fee of 0.76% – 0.97% for its mutual funds and a performance fee (only for equity funds).

GROW also manages 2 ETFs: US Global Go GOLD (GOAU), which focuses on precious metals, and US Global JETS (JETS) – with portfolio. The expense ratio for both ETFs is 0.60%.


Comments from Management

During the fiscal Q3’20 conference call (in May, when JETS AUM was expanding) management clarified on the delay between AUM growth and the effect on the financial results and hinted on the supposedly positive quarter ending Sep’20 (results have not been reported yet):

But since revenue is based on assets under management, operating revenues will increase. But these will be offset by increased business development costs related to the ETF creation. Consequently, there is a delay in when the increase in AUM is notable in net income. And this delay can be a few months. Therefore, we would expect that the net positive result of the recent increases in JETS will probably fully be represented in net income after a few months, which is going to most likely be in a quarter ending September 2020.
During the latest call (fiscal Q4’20) management added that there are certain one-off expenses related to new unit creation when the ETF is growing and also some variable costs directly related to the size of AUM.

But the – as far as where JETS AUM comes in, that really hit our revenue line item. And so we saw a significant increase in our revenue in the quarter ending June 30. Now, how it works for us is that, we do get those 60 bps that Frank had talked about earlier, but we also pay all of the expenses related to the ETF.

So with that, some of the expenses are based on AUM and will increase as AUM increases, plus we have some distribution costs that are related to inflows. And as you know, we had significant inflows during that quarter. So that did increase our expenses. But some of those distribution costs are like one-time costs, so we were seeing that.



The table below shows the projected financial performance for the next fiscal year (ending Jun’21) assuming the current level of ETF AUM remains unchanged. The key points:

  • Fiscal Q1’21 (Sep’20) ended with ETF AUM of almost $1.8bn. So since the last results (June), the average ETF AUM will be almost 2x higher, which should elevate the Q1’21 revenues.
  • The company doesn’t provide many details regarding its operating expenses, so it is not always clear why the expenses are going up or down. However, it is visible (table below) that the main increase in OPEX took place in fiscal Q3. Management confirmed that most of this was due to the increase in ETF AUM: “And it was primarily due to an increase in general and administrative expenses of $338,000 or 45%, primarily due to business development costs related to increase in ETF assets”. Some part of that was likely the result of various one-off costs (as mentioned in quotes above). So although AUM growth in fiscal Q4 was even more intense, the OPEX increase was way more moderate and I would expect opex to stabilize in the upcoming quarters.
  • I have attempted to model the split between overhead costs, variable ETF expenses (taking 20% of AUM, or in other words 80% profit margin on incremental revenues) and one-off costs related to ETF unit growth (0.03% of AUM delta between quarter ends). The model is far from perfect and as you can see does not really explain the sharp Opex jump in fiscal Q3’20, however, I think it points in the correct direction, i.e. costs will remain elevated slightly above current levels.
  • USGIF AUM is likely to stay around the $425m mark going forwards, where it has remained during the last two years except for the covid driven March sell-off. However, to stay conservative I have modeled $30k decline in quarterly USGIF net revenues relative to FY’20 (a similar drop was in the previous year).

GROW forecast

With 15.1m outstanding shares and 10x multiple, the operating business should be worth between $40.3m and $44.7m.

Aside from the operating business, GROW also has on the balance sheet:

  • $2.2m net working capital (mostly cash).
  • $7m invested in their own USGIF funds (mostly fixed income).
  • $5.6m in public listed Canadian equities including $2.6m in HIVE Blockchain, $1.85m in Thunderbird (content production studio) and $1.13m in Goldspot (gold exploration). Due to lower liquidity (and being listed on Venture exchange) I am marking these at 50% discount to their market for the SoTP valuation.

The company also has about $9m of NOLs. These undoubtedly are worth something, especially when the company is going to turn profitable, however, I haven’t included in the SoTP valuation.

The combined valuation of operating businesses (at status quo, without further AUM growth) and non-operating assets results in GROW value of $3.5 – $3.8/per share.




117 thoughts on “US Global Investors (GROW) – AUM Growth – 40%+ Upside”

  1. The catalyst is hard to pinpoint given that it’s subject to many things like the recovery of airlines and where we will be with the pandemic and etc.. tough to say and inherently I think making assumptions hinging on the recovery of the economy will carry an inherent risk that’s a little higher than other ideas here on SSI.

    It’s not a bad idea. Perhaps buying the JETS ETF might be better if one is confident in the recovery of the airlines and interested in benefiting from a similar upside.

    • Disagree. IMHO the catalyst here will be the improved financial results from the already existing AUM base (see projections in the table). This is not dependant on airline recovery – that would come as additional upside due to incremental AUM growth.

      By buying JETS you are betting only on the airline industry recovery.

      The only reason to buy JETS instead of GROW, is the risk of costs going up together with increased AUM. However, I think there should be significant operating leverage in this type of business. Next quarter results will shine more light on this.

  2. Interesting progression of webcast announcements below which looks favorable. Comparing this quarter to last quarter, “performance” has changed to “strong performance” and “growing assets” replaced by “profitability”.

    From press release announcing Friday’s earnings webcast (Fiscal Q1’21):
    Frank Holmes, CEO and chief investment officer, will provide an update on the company’s profitability and strong performance of its investment products.

    From prior quarter announcement (Fiscal Q4’20):
    Frank Holmes, CEO and chief investment officer, will provide an update on the company’s growing assets under management and performance of investment products.

    From two quarters ago (Fiscal Q3’20):
    Frank Holmes, CEO and chief investment officer; Lisa Callicotte, chief financial officer; and Holly Schoenfeldt, marketing and public relations manager, will participate in the webcast.

  3. GROW reported earnings last week with revenues and operating profitability rather in line (or slightly ahead) vs the conservative forecast indicated in the write-up.

    – Quarter end AUM of $2.2bn;
    – Average AUM of $2bn;
    – Revenues of $3.2m;
    – Operating profit of $0.9m;

    The operating leverage of this business is now clearly evident.

    I believe that going forward the results will be even rosier than indicated in the forecast table, mainly from the continued growth in JETS AUM.

    As of September end JETS AUM stood at $1.6bn compared to $2.2bn as of today. This incremental move was driven by the spike in airline stocks after vaccine news as well as new flows into the fund.

    Gold ETF adds another $118m and mutual funds a further $480 of AUM (Sep’20).

    This brings total AUM to $2.8bn at the moment and the average AUM during the current quarter is likely to be above $2.5bn. This would cause revenues to grow by another 25% QoQ to $4m.

    Costs are likely to stay somewhat elevated and above the levels indicated in the table as long as ETFs continue to grow from new fund flows (although my forecast was rather accurate for the current quarter). But even with eleveted costs, net income is quite likely to exceed $1.5m already this quarter and potentially reach $2m over the next ones.

    I think it is not overly optimistic to expect forward profit before tax to reach $8m soon. Slapping 10x multiple on this and adding other assets ($17m) results in equity valuation of $97m or $6.5/share, which is still double from the current levels.

    Although shares are up 25% from the write-up levels, the upside seems to have increased more than that.

    The biggest issue here seems to be not the operational performance but management and their capital allocation strategies. They have not repurchased any stock when it was cheap and visibility for operational improvement was high. CEO continues to ramble about investments in crypto and other exciting areas (in the quarterly presentation apparently there even was a picture of him visiting Icelandic crypto mining facilities two years ago). The risk is that cash generated from the booming ETF business will be invested into projects of questionable value and GROW shareholders will not see a dime. Probably that is the reason why the company is still so cheap despite strong operational performance.

  4. JETS AUM continues to grow and currently stands at $2.6bn (vs $2.2bn a week ago) half of this comes from continued improvement in airline share prices and another half from ETF unit growth. So everything continues to move in positive direction.

    However, I think the airline stocks are now close to fully valued (or even overvalued) as most of them trade at 80%-100% of their Dec’19 enterprise values. Although next year we might see a rush of travelers, the normalized passenger traffic going forward is likely to be below the 2019 levels mostly due to reduced business travel.

    Thus I do not expect any further upside from improvement in airline stocks (actually the opposite might happen if investors suddenly realized how richly the airlines are valued relative to pre-covid valuations)

    Having said that, GROW remains cheap and if the upcoming quarterly earnings are as good as I am expecting, shares should re-rate.

    So far the stock has reached the initial target and delivered 40% return.

    • A lot will depend on how much of incremental expenses will be reported with Q4’20 and Q1’21 earnings as well as what are the normalized expenses at current AUM.

      Back of the envelope calculations suggest run-rate AUM of $3.8bn which translates into $23m of annual revenues. I am guessing normalized opex will be about $13m annually. This leaves $10m in EBIT. Thus at 10x multiple (quite conservative), the asset management business alone should be worth $100m. Then you have cash and other investments which after HIVE share price runup (GROW owns 10m shares of HIVE) are worth another $30m+.

      Altogether this translates into $130m equity value or $8.6/share. And after couple of quarters of growth in earnings, I would not be surprised if GROW trades above these levels and markets starts valuing the operating business at more than 10x multiple.

      The biggest question marks here remain opex levels as well as management’s capital allocation strategy.

      • Thanks. Any intel on the CEO Frank Holmes? There may be some conflict of interest due to related party transactions/cross holdings.

  5. Worth pointing out this new variant of COVID discovered in the UK has probably spread to many countries already (was identified as early as September 2020, and I just read there are confirmed cases in Italy now). This could send airline stocks into the toilet once again, especially if the vaccines do not produce immunization against the new strain of COVID.

    I still like the margin of safety though.


    5-year $15M unsecured loan at 8% interest made to HIVE Blockchain by US Global. HIVE will also issue 3-year warrants at $3 strike to US Global. Debt can be converted into HIVE shares at $3 per share, which is beneficial to US Global if the share price is greater than $3. Holmes says some HIVE shares were sold in order to give this loan, but it’s unclear whether the sale covers the entirety of the loan.

    This transaction has aggressive and conservative elements to it. Selling shares after the recent run-up and turning it into debt would be directionally conservative, whereas the warrants and the option to convert to stock are aggressive. Not sure how to feel about the transaction, on balance.

    • Thanks for sharing. Hopefully the debt won’t be converted in the future if shares are trading <$3.

    • More details reported now: $18M of gains from the sale of 10M shares of HIVE, $15M of which may be loaned back. Now I feel the debt transaction is conservative on balance, which is a minor consolation regarding the capital allocation risk.

  7. The drop today looks like a huge overreaction to the crypto crash. HIVE went from ~$3.40 to ~$2.70, which means GROW’s 5M warrants a strike of $3 lost about $2M of value. The conversion option of the $15M debt to shares at $3 would have also been worth $2M when HIVE was at $3.40. So a total decrease in value of about $4M, versus the market drop of ~$10M.

    Unless I’m not seeing other news. JETS AUM is still $2.8B, but I didn’t see what it was on Friday.

      • The warrants have a strike of $3, so they were in-the-money by 40 cents. 5 million warrants x 40 cents = $2M. The time value of the warrants didn’t change much over the weekend, and the insurance value of the warrants I assume didn’t change either.

        The option to convert $15M of debt into shares at $3 was in-the-money also by 40 cents (i.e. $15M turns into 5M shares, which have a market price of $17M), which yields $2M of value.

        After HIVE dropped below $3, both those options went out-of-the-money so $4M of value was lost.

      • Actually I guess the time value would have decreased by 20%. Assuming a risk-free rate of return of 6% (which is excessive nowadays): on Friday, with HIVE at $3.4, the time value of the warrant would have been (1.06^3 – 1) x $3.4 = $0.65. Today, with HIVE at $2.7, the time value would be $0.52 (since time value is proportional to share price). So the drop in value has another $0.13 per warrant and perhaps another $0.13 for the time value of the debt conversion option. 6% risk-free rate is excessive so let’s call it an even $0.20 total, which is another $2M of value lost ($0.20 x 5M warrants + $0.20 x 5M debt conversion options).

        So perhaps $6M of value was lost, whereas market took out ~2x that by end-of-day.

        This is relative analysis, which much always be taken with a grain of salt. But dt’s valuation above provides an absolute level to compare to. We are still well below.

    • GROW is getting hammered again today on HIVE weakness (HIVE down 15% to 2.42; GROW down 10% to 4.8). Seems like a 6.5M marketcap loss is overdone given that those warrants probably lost ~1M in value.
      JETS AUM currently stands at $3B.

      • Seems overdone to me too. Sometimes these stocks with crypto exposure (or perceived crypto exposure) exhibit an undue level of correlation with crypto. And one day that stops when Mr. Market snaps out of his trance.

        That said, I know nothing about HIVE’s solvency situation if crypto falls into another multi-year rut. Maybe the value of the debt itself needs to be discounted?

  8. I continue to think GROW is a good investment at these levels (even though the stock is up 100%+ from the write-up levels)

    – After selling HIVE shares the company has c. $35m in non-operating assets (cash, investments and loan to HIVE). I ignore the value of HIVE warrants.
    – Current AUM stands at c. $3.5bn, which as per my comment in December is likely to translate into at least $10m of normalized run-rate EBIT. Slap any multiple you like on those earnings (10x is probably quite conservative) and the valuation of asset management business should be at least $100m.

    This sums to up $130m in total EV vs $82m market cap.

    Q4 earnings might act as catalyst if we do not see too much of incremental operating expenses.

  9. Strong results as expected. Stock was up to $9.00 in AH trading.
    Expenses are also up. Looks like the company is achieving scale but employee bonus compensation is an overhang. Employee compensation increased primarily due to the realized investment gain from HIVE – hopefully it doesn’t continue to skyrocket.

  10. It’s kind of funny that GROW went from overreacting to underreacting to HIVE. Now HIVE can shoot up to almost $5/share and the share price of GROW doesn’t seem to react. The 5M warrants plus the additional implied 5M warrants in the debt conversion option are now almost $2 in-the-money. That should be a $20M increase in value for GROW, yet the share price has not moved as of this moment. Am I nuts?

      • Oh good point, R. I believe the TSX-Venture HIVE is the one. Your question made me notice that the debt issued was quoted in the press release as being 15M USD convertible into stock at 3 CAD/share. So with the exchange rate, it seems there are more than 5M implied warrants in the debt.

        Note the debt transaction has conditional approval right now, and the debt & warrants can’t be traded until May 13, 2021:

      • Thanks jwestern – if my math is correct using the CAD 5.96 close from yesterday and a USD 1 = CAD 1.27 exchange ratio, warrants and convertible debt are in the money by approx. USD 26.5 million as of 2/17. Assuming USD 15 million debt convertible to 6.35 million CAD HIVE shares (15 million x 1.27 / 3) .

    • Agreed. Do you know how the warrants will be accounted for in the coming report? Will a gain flow through the income statement?

      • I imagine they would appear on the balance sheet as a current asset under a “marketable securities” account.

  11. I agree on your numbers above, R. I have still been adding to my position at this level ~$7.20.

  12. Same here jwestern, I was adding today too. dt, curious to hear your latest view as well on GROW post earnings with HIVE now more than 2x the CAD 3 strike/conversion price.

  13. I was reading the comments on the VIC write-up for GROW. The best bear case I can extract with my limited viewing privileges is that management may be extremely greedy with compensation, and they control the shareholder vote so they can do whatever they want. Something to keep in mind.

    • Yeah I’m a bit worried about that too. We didn’t really get a clear picture of normalized expenses.

  14. My thoughts on GROW following FYQ2’21 results:

    – Total assets under management today stand at $4.4bn vs $3.5bn at the end of the previous quarter.
    – Revenues are obviously in line with expectations as the figure is fully driven by AUM, which is visible to everyone.
    – Expenses remain elevated and continue to increase together with revenues. However, this is at least partially driven by one-off bonuses as well as continued growth in AUM and market maker fees related to this expansion. I am guessing the main reason why the stock remains cheap (in my opinion) is that the market is skeptical on GROW’s operating leverage and does not believe the company will reach a decent operating margin when the business stabilizes (i.e. management will just siphon any incremental revenues for their own compensation). I am of the opinion that the asset management business could reach operating margins of 40%+ (either as stand-alone or for potential acquirers).
    – During FYQ1’21 the company achieved almost 30% operating margin. For FYQ2’21 the reported operating margin was only 10%, however, this was affected by bonuses (likely around $2m) related to HIVE stake sale. Adjusting for this operating margin would have been close to 50%.

    Aside from the operating business, the company had the following non-operating assets:
    – $6.6m in cash
    – $12.5m in securities at fair value (mostly investments in own funds)
    – $15m – HIVE convertible debentures. 8% rate with the option to convert into common at $2.34. If converted these are now worth $26m (HIVE at $4.03/share)
    – 5m HIVE warrants with an exercise price of C$3.0. Intrinsic value of these currently in-the-money warrants stands at $8m.

    Total non-operating assets sum up to $34m (or $53m if HIVE warrant and debenture conversion is taken into account at current HIVE prices). Today the total market cap of GROW stands at $104m – so investors are valuing asset management business at only $70m.

    If the operating margin for the asset management business stabilizes at 40% (vs 50% achieved in the current quarter excluding one-off bonuses) and AUM at $4.4bn, the operating profit will be c. $10.5m annually, suggesting GROW is trading at 7x earnings.

    The big question is whether management will always find some one-off expenses and siphon funds away from minority shareholders. Frank Holmes has full control through voting shares and only 16% economic interest in the company. Obviously, incentives were not well aligned when GROW had a market cap of only $15m. And most probably the same applies today just to a lower degree, as Frank’s stake in the company now stands at $16m and he can easily double it (or more) by delivering good financial results instead of taking a couple of million through incremental compensation.

    • Based on a few interviews I’ve watched and some reading, Frank comes off as promotional.

  15. $2.56 to $11.84, from the write up time till now, exactly 6 months. This thing really “grows”! Must be the greatest stock idea of all time.

    • While definitely not the greatest stock idea of all time, it is clearly the best-performing one posted on SSI so far.

      Trading over the last few weeks was driven significantly (5x-10x) higher volume. Not sure what might be causing this – there was an SA article with a title “U.S. Global Investors: An Undiscovered Crypto Gem With Massive Upside Potential”, so maybe that had something to do with how the stock doubled in a single week.

  16. Anyone have insight on why the drop in price today? Results didn’t look bad to me. Still waiting on them to send me a transcript copy though (I missed the call).

  17. Here’s a replay:

    And here’s a transcript:

    Frank’s a goofball. Makes me chuckle.

    A couple sentences regarding increased operating expenses:

    “Operating expenses for the quarter were $3mm, an increase of $1.1mm or 59%, primarily for the following reasons. Employee compensation and benefits increased $667,000 or 93%, primarily due to increased bonuses due to improved company and fund performance. General and administrative expenses increased $437,000 or 40%, primarily due to increased ETF fund expenses — and that was due to the ETF AUM increase.”

    They also have a big chunk of income coming from unrealized capital gains from the HIVE warrants. Wasn’t clear to me whether they have to pay taxes on that — would be crazy to me if they did.

    Lately I’ve been pondering how easily the JETS ETF AUM could be threatened by a competing, lower-fee airline ETF. It occurred to me that, if a lot of JETS investors are sitting on substantial unrealized capital gains, they’d be hesitant to switch to a different ETF because they’d incur taxes doing so. Just a small point to consider.

  18. I am also quite puzzled by yesterday’s price movement and I think that the sell-off was unwarranted.

    FY Q3 results:
    – Average assets under management were $4bn and ended the quarter at $4.6bn;
    – Revenues reported at $6.4m;
    – Operating expense was a bit higher than expected due to the bonuses for realized investment gains and positive company performance. However, it was materially below the last quarter and the company has finally made a meaningfull profitability breakthrough with the operating profit at $3.3m and operating margin at 52%.

    The company still has room to lower its opex (as AUM stopped growing) and given that the current AUM stands at $4.5bn, we can also expect higher revenues in the current/upcoming quarters vs the recently reported one. I think assumption of run-rate annual operating profit at $14m going forward is quite conservative. Adding a 10x multiple on that (again very conservative in the current environment for such a stable business), we get $140m for the operating business alone.

    Besides that, the company reported:
    – Working capital surplus of $14.1m;
    – USGIF investment – $7.2m;
    – HIVE debentures – at current prices these are worth close to $19m. However, it seems that Hive has started repaying the converts. GROW did not covert them at much higher prices and will likely not convert now, so it seems that the debentures should be valued at their face value – $14.3m;
    – HIVE warrants – $3.1m
    – Thunderbird – $4.4m
    – Goldcorp – $0.5m
    – Other investments – $2.9m

    Adding all of this together, GROW equity seems to be worth around $187m vs the current market cap of $103m. In the current market a stable business, such as ETF management, could easily be worth 15x operating profit instead of the 10x used above.

    I’ve seen some comments that the share price drop might have been due to the conference call not living up to investor’s expectations regarding HIVE. This doesn’t really ring a bell to me and I don’t know what they were expecting, however, CEO’s statement of HIVE’s uplisting to NASDAQ “very shortly” seemed quite positive to me. Besides that, HIVE is only a small part of GROW’s total worth and most of it (debentures) have a downside protection at $14.3m with 8% annual interest. The fact that HIVE is apparently able to and has already started repaying that debt seems positive.

    There are also some worries regarding JETS AUM crash. This is definitely a risk, however, JETS is already an established ETF with a strong brand name and so far the AUM has stabilized at $3.8bn. Even with this risk, at current prices there is a substantial amount of safety as GROW now trades at only 4.3x operating profit and seems very cheap given all the points mentioned above.

    Finally, some quotes from CEO in the yesterday’s conf. call:

    “So, I remain very committed, bullish and we are going to educate investors why we are undervalued at trading at less than 5 x of earnings. I think we should be trading closer to 20 x earnings and that means that GROW is huge on the upside, huge potential.”

    “And so, I think that of the opportunity when we sell off, then investors are not really capturing and why we are trading at such a good multiple. The huge embedded value of the ETF business we are in and I think that going forward, this is going to be unlocked.”

    “Well, we are working on some – I think an excellent new product that fits up to our expertise in global natural resources. And we’d be the only product out there. So, we are fast tracking the execution of that. So, we can also tell us the story and we think it’s a great product for investors for many reasons from retail to institutional and we can at least stay lean and mean.”

  19. Price action these past few days have been absurd (essentially following in line with crypto prices). JETS aum stands at $3.9b so the company should generate a lot of cash this quarter. The only good thing about the decline in share price is that, hopefully, the company bought back a lot of shares. Would be interested to see if anyone has any additional thoughts on this…

    • Yea it’s nuts, I’ve begun buying Sept and Dec calls.

      Buybacks may be happening but they don’t look big to me. $2.75mm is authorized thru December, and at the last earnings presentation Frank said they bought back $127k during the three months ended Mar 31st. A lot more went to bonuses. So we’ll find out more about Frank’s priorities in the next report.

  20. At$5.90 a share, downside protection is so strong. Total AUM for all funds standing at close to $4.6B. GROW trades with crypto, despite having such a wonderfully profitable and growing ETF/mutual fund business. I continue to be a major buyer at these levels.

  21. Given the CEO’s interest in non-operating investments and DeFi, does anyone else think a sale of the ETF/mutual fund business to unlock significant value allowing the company to pivot and focus on the current non-operating component of the business with significantly more capital to deploy could happen?

    • A listed company with mostly non-operating assets is vulnerable to outside activist shareholders. I don’t think the insider CEO would like to take this risk.
      And such a transition may lead SEC to classify GROW as an Investment Company, which is subject to more onerous regulation.

  22. I like the idea in selling JETS, but it won’t happen. 1. frank owns all the voting shares and 2. He wouldn’t want to give up a permanent source of capital that the ETFs offer. Yes he could sell it for $100mm+, but he might as well keep JETS and use the consistent money coming in to continue investing

  23. HIVE up 17% with up-listing coming in this Thursday, GROW didn’t budge on the news. The shares remain absurdly undervalued. Even though JETS dipped below $3.7B, the overall travel trend is up. GROW is in a sweet spot with room to appreciate considerably.

  24. With crypto surging, it is hard for the market to continue to ignore GROW. Their stake in HIVE is nearing $30MM – 1/3 their market cap.

  25. GROW posted an explanation regarding the delay in the annual report. Seems like no material impact and nothing to be concerned about. With adjustments done annual report is expected shortly.

    “The delay is due to additional time needed by the Company to fully evaluate the fair value calculations performed by a third party on certain corporate investments. This process is substantially complete, and the Company is working diligently to file the Annual Report in a timely fashion.”

    • And yet the latest financials we have so far are as of the 31st of March. By this time last year GROW had reported quarter-ending September results already.

      Anyone care to guess what is happening behind the scenes?

      The only two I can come up with are:
      – Takeunder offer by management or a third party is being negotiated;
      – GROW has made so many new investments in various crypto assets over the last few months that accounting really became overly complicated and requires additional time.

  26. I simply think they are restating financials due to an incorrect assessment of their investment in HIVE. I’m hopeful that by year end well have a restated q3 10q and fiscal year end 10k. Jets approaching $4 billion and HIVE at all time highs. Stock is as cheap as its ever been.

  27. GROW published restated Q3 results, as already pre-announced only non-cash adjustments related to HIVE investment. Annual results will be announced within a few weeks.

    The main impact of these adjustments to previously reported financial statements is an increase in the Company’s assets of approximately $5.8 million and a decrease in its net income of approximately $5.6 million. The change in the valuation method increased the unrealized gain on the balance sheet for the debentures and decreased the unrealized gain on the income statement for the warrants.”


    The Company has also begun the finalization process of its 10-K and expects to file within a few weeks.

  28. Let me play devil’s advocate here.

    The last time JETS was trading below $21 was Nov 2020. Here we are again, after Friday’s sell-off.

    GROW was then trading at $3.3 (admittedly undervalued) vs $5.7 today , and Bitcoin at $18k (HIVE at C$0.72) vs $55k (C$4.76) today.

    Except Bitcoin, other fundamentals have not improved much since end 2020.

    With JETS price depreciation in recent months, GROW’s total AUM could have fallen below $4 billion (JETS AUM fell by $700 million from $4 billion in Mar 2021 to $3.3 billion today), below year end 2020 level.

    The 5 million HIVE warrants are in the money for $6.9 million (or $0.46 per GROW share). The convertible loan’s embedded option adds another 6.4 million warrant-equivalent, and is in the money for $8.8 million (or 0.59 per GROW share). But as @Ilja mentioned above, HIVE has been repaying the loan; and if GROW does not convert, these intrinsic values will be lost.

    Anyway, despite being painted as a bitcoin/HIVE proxy by some (see SA article for example), GROW’s value is not much about Bitcoin ( maybe contributing about $1/share), but mostly about the ETF business’s EBIT and its valuation multiple.

    If JETS continues to lose AUM (from price depreciation and outflow), will GROW remain cheap at $5.7 per share ( or $86 million market cap) ?

    Will the redemption/outflow process also add some “one-off” expenses? Will the operating leverage work in the opposite direction as AUM declines?

  29. As long as there is capitulation regarding the airline industry, Jets, and by extension, grow, will stay relevant. Over the summer, Jets averaged roughly 145mm shares outstanding. Now that figure is 161mm and hit 166mm a few weeks ago. People will continue to place their bets on the long side and the short side and that will keep the ETF relevant. AUM will likely oscillate between $3 billion and $4 billion for the next 2 years as covid ramps up and slows back down (over and over again). Keep in mind also, today the HIVe stake might be worth $25-30mm, but if HIVE continues upward and grow converts the debentures the value of those shares can rise to the $50mm – $100mm figure. They are also announcing another ETF within the next few days. Shares remain cheaper than ever before.

  30. The European version of JETS ETF launched in July by hanetf jointly with GROW, has so far attracted a total AUM (across 4 listings) of merely US$1.7 million (no, I don’t think I have missed three zero’s), hardly a success.

    Why do I see a very large number of $0.7 billion being mentioned by some commentators, including the June 2021 article published in VIC? Am I missing something?
    I guess they have either mistaken 700k for 700million, or mistaken “issuer AUM” (Combined AUM of all products issued by HANetf ICAV, HANetf ETC Securities plc, and ETC Issuance GmbH, which is around 0.7 billion) for fund AUM.

    • In the VIC comment section, the author explains how he came to the erroneous number (mistook the total).

      Thanks for playing devil’s advocate, that’s always valuable to see. My biggest red flag is the lack of buybacks — makes it seem like Holmes doesn’t believe what he’s saying.

      • I can think of several reasons why GROW is not doing much buyback so far:
        (1) GROW is not very liquid, making open market buyback difficult to execute. Holmes may want GROW to accumulate more cash before doing a large tender instead.
        (2) He’s planning to take private the company, at as low a price as possible.
        (3) Company buyback benefits all shareholders. He would rather add to his personal stake in GROW, but hasn’t found the capital yet (the bonus may help, in addition to dividend income) .

  31. Can we read anything into Frank Holmes’ decision (according to Wikipedia entry) in 2021 to become a naturalized US citizen at the age of 66 (born in 1955), after having lived in the US for 32 years?

    Does this have anything to do with estate/succession planning at GROW?

    Although certainly a private/personal matter, this is relevant to the investment thesis because one of the bullish scenario for GROW is the potential sale of the company or its operational business (ETF/asset management), which can unlock value.

    Considering his keen involvement in crypto and Canadian businesses, maintaining Canadian citizenship only (vs. dual citizenship) seemed to be more natural a choice (with US more restrictive in crypto regulation) , in particular considering that he’d been doing that for 32 years before the sudden change.

  32. They have bought back about 20,000 shares since April for what it’s worth. Holmes does seem to care much about share appreciation because he has no intention of selling. I’d like to see another increase in dividend and/or a special dividend.

  33. Another question: to what extent does Frank have a conflict of interest between GROW and HIVE?

    • Where can we find more info on the new shipping ETF (ticker SEA, taken from the now defunct Invesco shipping ETF) he’s launching?

  34. Price is down to $4.44 premarket. Either there is some pending really bad news coming out or this is dirt cheap. Any thoughts?

  35. Just 200 shares in volume. Likely nothing. I’m buying at these prices hand over fist.

    • I’m surprised there’s no discussion in the risks section about a potential conflict of interest for Holmes between US Global and HIVE. He owns stock and options in HIVE and currently holds leadership positions at both companies.

  36. Had a read through GROW 10K – did not spot any surprises, seems to be business as usual. That’s as of Jun’21, management might have made some new investments since.

    GROW remains extremely cheap, but not sure if there is any catalyst aside from the continued accumulation of operating earnings to change that.

    Market cap (at $5/share) = $75m
    – less cash of $15.4m
    – less investment in own mutual funds of $7.3m
    – less $14.3m in HIVE debentures (actual value assuming conversion is $20m)
    – less $4.7m in value of HIVE warrants
    – less $4m in other smaller investments
    = EV of $29.3m

    So today investors are paying only $30m for the asset management business. Even if one ignores valua of HIVE warrants and other investments, that still results in EV of only $38m.

    Asset management business earnings:

    AUM = $4,130m
    Asset management fees (at 0.6% of AUM) = $24.8m
    Q4 run-rate expenses (were higher than previous quarters) = $13.9m
    Profit before tax = $10.9m
    Taxes at 21% = $2.3m
    Net profit = $8.6m
    Net profit per share = $0.57

    So GROW is trading at:
    PE = 3.4 if all cash and investment are excluded;
    PE = 4.4 if only cash, debentures and mutual fund investments are excluded;
    PE = 8.7 if nothing is excluded, and earnings are calculated relative to the whole market cap.

    On HIVE debentures, as of Sep’21 the company had $4.8m in cash and $123m in Ethereum and Bitcoin – the debenture par value of $14.3m and 8% dividend yield seem to be very safe in that respect, especially with Frank Holmes acting as Interim CEO and Executive Chairman (already for 3 years). Warrant value is much more questionable as HIVE continues to trade at 5xBV and at c. 10x elevated crypto mining pre-tax earnings.

    Lack of share buybacks or insider buys at these levels is puzzling. The market seems to regard GROW as Mr. Holmes personal piggy bank with low likelihood of investors ever realizing the value of cashflows from the asset management businesses.

    Any other thoughts?

    • Thanks dt. Perhaps a near-term catalyst is regaining compliance with Nasdaq listing rules, although I believe they will also need to file the September 10-Q for that to occur (CFO said this could take a few weeks on the call this morning). Some investors are likely not considering GROW simply due to the ominous red delinquent icon displayed currently.

      I am puzzled by the lack of buybacks as well. $314,000 during FY 2021 on nearly $32MM net income while the stock trades at such low earnings multiples is not enough.

      • As a fund manager he knows all of this and knows that he could easily correct the current undervaluation. For some reason or another he’s is not choosing to which is indeed very shady.

  37. I do not like writing overly negative things about my own investments, but the call was simply TERRIBLE and that was without any questions taken, just the comments that were supposed to have been prepared in advance and polished before the presentation. Not that there was anything negative revealed on it, but it was just a bunch of gibberish, useless comparisons and explanations why ETF prices are fluctuating and how the world trade works, various redundancies and repetitions and more talk about HIVE than GROW. Frank Holmes seems to have lost touch with reality or at least with the realities of the core business he is running.

    GROW continues to be very cheap (see the comment above) and Frank Holmes is probably the reason for it. Any activists out there ready to take this cash cow for a spin?

    Below are some excerpts from the call – keep in mind that this is a call from an ETF and mutual fund management company where the core business are fees from AUM (mostly JETS ETF):

    As you can see, the searching assets are very, very important for operating business. Gold is an inflationary hedge. It’s interesting that for the past 21 years up to this year, gold has been outperforming the S&P 80% of the time. So now it’s going to drop to about 72% of the time. But I think what’s interesting is that it has outperformed the S&P 500 by 250% for the past 21 years in this century. And the — I think it’s going to be very promising going forward because 61% of all the gold miners today are undervalued on metrics compared to the S&P 500 and 61% have free cash flow, and that’s not happening with the S&P 500.
    HIVE has been our bet — on the crypto industry. And so I’ll walk you through that investment. But what’s really important for investors is, is this visual, the DNA of volatility. It’s a nonevent for almost 70% of the time for the stock market in boolean, they go up or down 1%. But over 10 days, it starts to change and gold stocks are just much more volatile than the overall market, but bullion isn’t. And I guess that’s why the largest hedge fund in the world has a 10% weighting of bullion.
    But what we want to show you is that the airlines itself have a very big volatility on a daily basis of plus or minus 3%. And there are many factors that drive that. And over 10 trading days, it’s 8%. So it’s almost 4x the S&P 500 over any 10-day rolling period, and it has to do with oil. Oil is very volatile. It’s not in this example here, but oil is like crypto.
    Then I give you some other stocks. MicroStrategy has a big exposure to Bitcoin. Its volatility has improved dramatically. Tesla is plus or minus 3%. Bitcoin is plus or minus 4% on a daily basis. But over a 10-day period, it’s 14%. So that’s quite significant. And GROW, because of our big investments in gold, in the airlines and in HIVE, we get this bigger volatility of plus or minus 5% on a daily basis and over a 10-day period of 15%.
    Also, in addition to the multi-dividend spend, the share repurchase program, the Board approves a repurchase up to $2.75 million of its outstanding common stock in the open market through December of this year and extending this, it looks like for the quarter ended June 30, the company last year had repurchased 17,155 shares of Class A using cash of approximately $125,000. And for the whole year, we purchased back about $314,000 of stock. And it’s a model, it’s quant model that buys only on down days or extreme volatility is what it buys. The Board always has the right to suspend or discontinue at any time. That’s a — so that’s a good disclaimer for investors.
    We hired 2 great people. Johanna Thörnblad became the President of Swedish operations. Johanna used to work at U.S. Global a long time ago. I see her resume. She’s a graduate from MBA University of Chicago. She played D1 basketball. She’s all-American Scholar. And she is originally from Sweden, and she has a dual citizenship and she lives in Europe. And she is managing the operations for us. And Aydin Kilic, Aydin is in Vancouver. He’s an electrical engineer, and he’s the President and Chief Operating Officer and something that HIVE needed to take our footprint and increase it by fourfold.
    One of the things we discovered during the crisis of COVID at the very bottom, the airlines and the airport that was busiest in the world was Alaska. And Alaska was booming, moving masks and gloves to North America and Europe.
    If you have not yet seen our newly designed website,, I encourage you to explore it when you get a chance. We are incredibly proud of the new functionality of the site and the layout and are hoping it provides a better user experience for our current investors and those who find our content through third-party sites.
    And we currently have over 200,000 curious investors following our investment newsletters, social channels and the CEO blog. So if you’re not already signed up for this content, I encourage you to do so, for free, by visiting our website. Now on to Slide 45. We also continue to see a large following across all of our social media platforms. So make sure you check us out, not only on Facebook and Twitter, but our new videos on YouTube and make sure you’re following us on Instagram too.

    • I will happily go activist. Frank needs to sell off the mutual funds business and roll out two new ETFs a year. Roundhill basically launches one every other week, I don’t know why it takes Frank 6 months. Also, Frank made $3MM in bonus. He needs to be held accountable.

  38. Just realized that I have reviewed GROW Q1 results (ending Sep’21), but forgot to leave a note regarding these on SSI.

    In short – finally, we have some positive signs that management cares about the undervaluation. The stock itself continues to be very cheap trading at 4xFCF.

    The key point from the press release: “Management and the Company’s Board of Directors are reviewing strategies to unlock the deep value of the stock moving into 2022”.

    To make the point management even dug out a comparison table with Invesco and Wisdom Tree, which I recall being used a year ago or even earlier. Remains to be seen if the strategic review will result in anything. On operations, side GROW intends to launch ETF for cargo shipping and airfreight industries. Also remains to be seen if this results in AUM growth.

    Market cap (at $5.25/share) = $79m
    – less cash of $20.8m
    – less investment in own mutual funds of $7.2m
    – less $12.8m in HIVE convertible debentures (HIVE trades below conversion price currently)
    – less $0m in value of HIVE warrants (exercise price of C$3.0 vs current price of C$2.2)
    – less $2.9m in other smaller investments
    = EV of $35.3m

    For this EV of $35m investors are getting a stable EFT and mutual fund management business that is producing c. $9m-$10m in annual FCF.

    During the quarter GROW has exited its investment in Thunderbird realizing total proceeds of $2.5m with significant gains. HIVE has also repaid a further $0.75m of debentures (debenture par value declined by $1.5m, so not yet sure what happened to the other $0.75m – was it converted to HIVE shares?). The debenture is clearly money-good and looking at HIVE balance sheet the risk of default is non-existent.

    On the negative side, the press release, as well as presentation, continued to focus on the wrong things – mostly talking about prospects of various industries such as airlines, gold, crypto, cargo shipping and luxury goods, instead of discussing the actual business of ETF management or capital allocation intentions.

    And of course, the call had to be finished off with the likes of this in order to satisfy CEO’s ego:

    “Moving on to the next slide. You will see 2 of the popular industry magazines that Frank Holmes was featured on in 2021 as the cover story: Real Assets Advisers and Executive Global Magazine. Both are available online as well as in print, and I do encourage you to check those out if you haven’t already done so. They do a wonderful profile of Frank’s experience in the market as well as its impact on the crypto industry.

    Moving on to the next slide. I’m happy to share that our marketing team added another star award to its lineup from the Investment Management Education Alliance. This year, we were recognized for our YouTube videos. All of our video content is produced right here in-house from the topic ideas to the scripts to the voice-overs, the animation and production, and lastly, the marketing of these videos. So I’m very proud of our team for that. And by subscribing to our YouTube channel, you will get notifications each time we have a new video up.”

  39. Frank’s focus during these calls is definitely upsetting.

    In the comments above, it has been remarked numerous times that the ETF and/or fund management business is very stable. Could someone provide an elevator pitch as to why?

    • JETS AUM has stayed above $3 billion for nearly 2 years now. Capital is pouring into the fund and will continue pouring into the fund for another 6 months most likely (if not much longer). USGIF has consistently had about $300-$400mm in assets for many years. Those funds are diversified and have been sticky. GOAU as well has remained elevated in the $80-$100mm area and likely will stay high so long as inflation is a discussion. In general thematic ETFs aren’t terribly sticky, but JETS has been unique as the airline recovery has been a discussion almost every week for 2 years. Eventually GROW will have more and more products diversifying their footprint – further stabilizing their AUM at an elevated level.

      • Thanks. Is the ETF/fund business stable in general? (i.e. not just GROW’s offerings). If so, what are the dynamics that make it so?

  40. What’s Frank’s address ? He needs at least two or three copies of The Essays of Warren Buffett.

    • Maybe rename it to “The Essays of Frank Holmes,” then he might read it.

  41. US Global Investors just listed a new ETF, SEA, US Global Sea to Sky Cargo ETF. The fund started on Jan 20, 2022 and seeks to replicate the performance of the US Global Sea to Sky Cargo Index (in house index). It will start with an expense ratio of 0.60% for the first $100 million in assets under management and 0.70% for funds added after that mark. ZIM is its largest holding.

  42. GROW reported Q2 results. Nothing really new or unexpected.

    – AUM business continues to generate cash, with $3m operating income this quarter alone. That’s $12m annualized compared to EV of $33m (SOTP numbers provided below).
    – Q3 results (ending Mar’22) are likely to be even better as AUM stands at $4.5bn today vs $4.1bn average for the last quarter. The increase is fully driven by JETS ETF.
    – HIVE continues to repay the convertible debt.
    – No other material investments have been made.
    – Management talked a lot about the stock undervaluation, but is not taking any steps to correct this.

    – No further mentions of the strategic review that was kind of presented during the last call
    – Still no buybacks – management tried to explain this with lack of legal opportunities to execute the buyback due to delayed fillings and restrictions post quarter ends. Frank Holmes was very specific on doing buybacks during the current week – will see how much of that materializes “I believe that next week, we should be what’s called an open opportunity time”.
    – Buybacks seem to be on a low priority of capital strategy, coming in the third-place behind new product launch and reserve for speculations in publicly traded securities.
    – And then as always you have bizarre statements similar to these:

    In April of 2021, we traded 12 million shares for the month. That’s almost our float. Average overall daily volume was 600,000 shares a day. So there was lots of time for people that wanted to get out.


    As you can see that during that crypto winter and during JETS and gold being sort of quiet assets, I’d like to call them, our cash positions were always low. And we had many losing quarters during that time period. And we chewed through a lot of cash weathering through that season. It’s almost like the biblical story of Joseph and the Pharaoh. When the Pharaoh had bad dreams, Joseph said, that man is the same during your good dreams. So you have 7 years of feast that make sure you save for the 7 years of famine.

    SOTP calculations:
    Market cap (at $5.41/share) = $81m
    – less cash of $24.2m
    – less investment in own mutual funds of $7.2m
    – less $12.1m in HIVE convertible debentures (HIVE trades below conversion price currently)
    – less $0m in value of HIVE warrants (exercise price of C$3.0 vs current price of C$2.2)
    – less $5m in other smaller investments (“in addition, the Company held other investments of approximately $3.6 million, held-to-maturity debt investments of $1.0 million and investments of $489,000 accounted for under the equity method of accounting”)
    = EV of $32.5m

    • Lmao @ the bible reference.

      I’m struggling on how to think of this situation, where it’s ridiculously cheap but under complete control of a clown. On one hand, looks like the downside is protected. But on the other hand, management is really dampening the upside.

      I’m tempted to describe this situation as “low risk, high uncertainty,” or “heads I win, tails I don’t lose much.” But maybe it should be “heads I don’t win much, tails I don’t lose much.”

      Would appreciate others’ thoughts. I’m debating whether to reduce this position (for a modest gain) in order to pursue other opportunities.

      • I think it’s very clear they will be buying back more stock or doing some sort of shareholder friendly initiative over the next few weeks. They’ve gotten a lot of pushback from shareholders and Frank seemed to be pretty explicit that he’ll do something soon. Thesis remains intact IMO. Jets will continue to March higher through the volatility. When it hits $5 billion I don’t see a scenario where GROW isn’t somewhere between $7-$10. Just my 2 cents.

    • I think Frank will be notified about your tweet immediately.
      I guess they pay to subscribe to certain publicity/social media monitoring service, because in earnings call/press releases they routinely quote very trivial but positive media coverage of him.

      • Definitely reach out to Jerry and talk about your desire for him to buy shares. He owns very little stock and, as chairman of the board, should outwardly express his belief in the company’s undervaluation via open market purchases. I email him pretty regularly basically saying the same thing. The more people that push him the more of a likelihood they’ll return some of that cash to shareholders. My guess is that the company will likely do a more generous buyback over the coming weeks now that they’ve exited the blackout period, but IMO they need to act faster and more aggressively. Jerry’s email: [email protected]. Can’t hurt to email Frank too. It’s remarkable that they aren’t loading the boat into this stock given how it’s quite possibly the cheapest stock on the market right now.

      • No insider purchases and buybacks because we are probably going to get screwed. Or at least the market thinks so…

  43. At the end of last week GROW announced an increase in buyback program from $2.75m to $5m – definitely a positive, however this is still tiny compared to cash on hand and remains to be seen if management actually implements it fully. The mysterious statement of ‘repurchases stock on down days using an algorithm’ was stated again in the press release without any clarification what it actually means.

    The increase to the buyback program reflects the Board of Directors’ continued confidence in the Company’s financial strategy. The directors believe the Company is undervalued relative to other asset managers based on a number of fundamental factors, including return on assets and return on equity. The Board believes it is prudent to have increased dividends and stock buybacks while reserving some capital to be able to launch new smart-beta products such as the U.S. Global Sea to Sky Cargo ETF (SEA). In addition, the Company is debt free.

    • Really looks like Frank is slow-walking the buyback idea. Make a trivial increase, and then hide the lack of buybacks behind an unspecified “algorithm.”

      I wonder if he doesn’t care about EPS, because buybacks don’t increase total earnings, he’s in complete control anyway, he can dole out huge bonuses whenever he wants, and he thinks he’s a good capital allocator.

  44. I’m trying to understand Frank’s economic interest in HIVE and GROW. Just sharing some data & thoughts here.


    570,000 common shares @ C$2.26 ~ C$1.3mm (0.15% ownership)
    Average yearly total compensation over last 3 years ~ C$230,000
    He earns director’s fees of ~C$77,000 plus ~C$2,500 per board meeting, not sure if this is in addition to his “total” compensation.
    2.5mm unexercised options expiring 2027, strike $0.3: ~C$4.9mm intrinsic value
    0.5mm unexercised options expiring 2031, strike $0.29: ~C$1mm intrinsic value
    Unvested shares: ~C$1.6mm

    Rough total: ~C$8.8mm + C$310,000/year


    CEO salary 2020: ~$0.5mm
    CIO salary 2021: ~$4mm (of which $3.1mm was *cash* incentive compensation awards “earned for services”)
    ~2.1mm voting stock convertible to common: ~ $10mm
    ~0.5mm non-voting stock: ~ $2.3mm
    Total economic interest in shares is about 17% or so.

    Total (convert to CAD @ 1.28x): ~C$16mm + C$5.75mm/year (but not sure if CIO salary will continue at such crazy levels)

    He also has 50k call options expiring 2031 with strike price $6.05 (out-of-the-money). I believe 1 option exercises to 1 common share in this case (pls correct me).

    Q: Does his economic interest in HIVE prevent him from exercising warrants and converting debt to shares?

    Frank’s HIVE options give him significant economic interest (at least potentially), as they were worth ~C$14mm at the end of March last year (which was the reported value in the annual report). On a diluted basis he has almost 0.9% ownership of HIVE. If he exercised all 5mm of the HIVE warrants and all 12.1mm remaining embedded calls in the convertible debentures, that would dilute his interest in HIVE by roughly 4% (~405mm shares are recently outstanding on a diluted basis). But when the warrants & embedded warrants in the debt are in the money, his GROW interest in the exercised warrants is larger and grows more rapidly as a function of HIVE share price than his consequent HIVE dilution. So I think it’s in his economic interest to exercise these warrants when they’re maximally in-the-money (ignoring the loss of 8% interest payments). Perhaps he didn’t exercise because he thinks crypto will explode upwards before expiry, but if so, then why allow the debt to be paid down early with cash? Is he entirely in control of that decision?

    Q: How does a few $mm per year in bonuses compare to share buyback returns?

    If all $23mm of GROW cash was spent buying back ~3.8mm shares at an average cost of $6/share, that would increase proportional ownership by about 25% and could probably be done over a few weeks given the average daily volume of 2.5mm shares. If sustainable earnings is ~$9mm/year after tax, the buybacks would increase his share of earnings by almost $2mm/year. On the other hand, he could give himself a $3mm bonus every year (~$1.5mm after tax?). This ignores the fact that enthusiastic buybacks might cause a re-rate of the stock. So why doesn’t he do it? Is he hoping to protect HIVE in case it has to survive through another “crypto winter?” Does he think he can generate a greater return than ~10% by making new ETF products?

    • In the $6 buyback scenario, I guess the buyback return would be 25%, not 10%. even better if he can nibble shares at around $4.5.

      After sleeping on this, I’m less upset with the situation. Last year when he sold GROW’s HIVE stake for a sizeable gain and lent money back to HIVE in exchange for 8% interest plus warrants, I liked the directionality of that move because it was conservative while retaining the crypto upside wildcard. And the crypto wildcard continues to be part of the appeal of this investment for me. Call it FOMO if you like, but it’s responsible FOMO in my view, because it’s a low-risk bet in light of GROW’s ETF business.

      I have no idea whether bitcoin et al. is going to >$100k per coin or closer to $0, but there’s a non-negligible chance of both. The key to capturing the upside case (if it eventually materializes) is being able to weather the storm on the way there. So HIVE having a source of financing (GROW’s cash) controlled by the same guy is a big benefit, from this perspective. He seems to be really leaning into this wildcard on the HIVE side, since he has this comical “HODL” policy of not converting the mined coins to fiat currency. Since his economic interests appear to clearly favor exercising the warrants successfully one day, I still have faith that he’ll eventually do so if/when the opportunity arises. And if they expire worthless, he can always do the same deal again.

      So here’s what Frank can do with the cash:

      1) share buybacks — high return (>25%), especially if he can nibble at sub-$5 for a while. The more, the better, and there isn’t necessarily a rush.

      2) making new thematic, recovery play-type ETFs — not a bad idea, and I don’t mind his (sometimes corny) marketing of them, because that’s part of what makes ETF products successful (at least when it comes to retail investors). The tickers he got (JETS and SEA) are pretty good. What are his chances of replicating the success of JETs? I have no idea, but I don’t mind attempts.

      3) Help out HIVE, either by sitting on protective cash or issuing a loan, maybe getting warrants in return — I like this in some ways.

      4) Pay himself or employees exorbitant fees/bonuses — this is a total loss. I’d like to see him at least buyback shares in equal measure to this, as a show of good faith.

      So going forward I’ll be paying particular attention to the level of buybacks and self-awarded fees/bonuses. Some things I’d still like to understand:

      a) What are the dynamics that make the ETF business (particularly JETS) stable?

      b) What are Frank’s obligations about reporting conflicts of interest? I noticed that the HIVE regulatory filings mention precisely this in the risk sections (directors/managers also being directors/managers of other firms), but I did not see any mention in the GROW 10-K. I wonder whether he feels pressure on the HIVE side to pay down the convertible debt, so as not to appear comprimised by his conflicting interests.

  45. any thoughts on the risk/reward for this looking forward? Without meaningful capital return I don’t see how it has a massive rerating and there is a risk of poor capital allocation / excessive compensation by the management team.

    • Personally, I perceive a small downside risk (but interested to hear opposing views), so for now I’m holding at a cost basis just below $5. I’m willing to wait and see with a decently sized position, but I don’t see myself adding. The excessive compensation & poor capital allocation are unlikely to stop imo, but at least there’s already a discount for it. At some point, the economics for Frank should tip in favor of shareholders, rather than giving himself bonuses.

      This situation reminds me a bit of a case study of post-2008 Magna International, which appears in the book “Value Investing: From Graham to Buffett and Beyond” by Bruce Greenwald. The Magna CEO (also coincidentally named Frank) owned ~all the voting shares and used the company like a personal piggy bank. But in the end, the mismanagement was not large enough to put much of a dent in the underlying value thesis, which played out over many years.

  46. I agree the downside seems small, I guess the danger would be that the NAV of the ETFs holdings drop but the compensation continues the same and if the aum increases then the compensation also increases.

    Looking at the last 10K [last 6 months] there is $7.2m in operating expenses and around $13m in advisory fees (mostly from JETs). If the expenses stayed the same but the aum of JETS fell those earnings might disappear.

    What do you think is the probability that the JETS ETF halfs or more in aum (at this point I think earnings would be approx zero)?

    • No clue regarding JETS. Many commenters above have stated that their ETF business is stable, but as far as I can tell that’s mostly based on observing its stability over the past couple of years. I want to know whether there’s something about the dynamics of the business that makes ETFs with large AUM stable.

    • That amount of outflows seems a bit unlikely to me? I’d expect a lot of bag holding to occur. very possible the market value gets hammered but you could short out that risk.

    • @Gosupress But what’s to prevent competitors from creating similar ETFs with lower fees, and thereby stealing some of JETS existing AUM and/or future inflows? I wouldn’t be surprised if the bells & whistles of JETS could be replicated with relative ease — the ETF business seems competitive to me (I don’t know this to be true though).

      The only dynamics I can think of that would prevent a rational investor from switching to a lower-cost airline-themed ETF:

      1) the investor is sitting on sufficient capital gains that the tax implications of switching makes it unwise,
      2) the investor is institutional, and therefore has some requirements about ETF liquidity or listing status that a new entrant would have difficulty achieving. This would be a sort of scale advantage of the incumbent ETF provider.

    • can’t figure out how to reply to Jwestern’s comment that went like this:

      “@Gosupress But what’s to prevent competitors from creating similar ETFs with lower fees, and thereby stealing some of JETS existing AUM and/or future inflows? I wouldn’t be surprised if the bells & whistles of JETS could be replicated with relative ease — the ETF business seems competitive to me (I don’t know this to be true though).

      The only dynamics I can think of that would prevent a rational investor from switching to a lower-cost airline-themed ETF:

      1) the investor is sitting on sufficient capital gains that the tax implications of switching makes it unwise,
      2) the investor is institutional, and therefore has some requirements about ETF liquidity or listing status that a new entrant would have difficulty achieving. This would be a sort of scale advantage of the incumbent ETF provider.”

      I think of the ETF definitely as a declining revenue stream. I wouldn’t think of it as a secular grower or even a stable revenue base. But I think it is a bit over the top to expect all the AUM to get sucked out by competition within a short time period.

      In a sense, the whole ETF space is a big race to the bottom but it’s these thematic ETF’s (among a few other categories) that attract some of the less fee-sensitive capital.

      I don’t think the AUM in JETS is on average as calculating as your assumptions here 🙂

      I also think the liquidity begets liquidity (which you mentioned) is pretty strong and worth a bit of fees. I think $GLD is a reasonable example. It’s pretty expensive but it is still the largest gold ETF (admittedly I do think it has been losing share).

  47. I have been thinking about this one more. I am very curious to see how many shares GROW has repurchased this quarter. If they haven’t meaningfully repurchased shares then I would say the stock is fairly priced.

    • well at least there have been a lot of down days for that ‘algorithm’ to buy stock haha

  48. GROW reported Q3 results. Hard to spot many positives:
    – There will be no buybacks and the company will continue to hoard cash – now aiming to build $30m ‘war chest’. Repurchases (20k shares only) during the quarter have been meaningless, so we can forget about the $5m buyback authorization.
    – Asset management revenues declined sequentially (down $0.4m, or 6%) when average AUM remained the same. This was explained by the change of performance fees on USGIF equity funds, and to my surprise, the performance fees were PAID instead of being RECEIVED this quarter. I am puzzled by this – have not seen a similar situation before. Is there a reasonable explanation?
    – Elevated levels of G&A continue due to ‘increased fund expenses and higher consulting and professional fees’. But at least the combined G&A+Employee expenses remained the same as last quarter.
    – Due to lower revenues, operating income also declined sequentially by $0.4m, to $2.5m (or a theoretical $2m after taxes).
    – The headline net income loss seems to be driven mostly by non-cash $4.5m fair value adjustments of HIVE debt and warrants. Do not think it is concerning, as I value warrants as zero anyway and the debenture continues to be successfully repaid.

    Market assigned value for the operating business:
    Market cap (at $4.52/share) = $68m
    – less cash of $27.8m
    – less investment in own mutual funds of $7.0m
    – less $13.1m in HIVE convertible debentures (HIVE trades below conversion price currently)
    – less $0m in value of HIVE warrants (exercise price of C$3.0 vs current price of C$2.2)
    – less $4.2m in other smaller investments (“in addition, the Company held other investments of approximately $4.2 million, held-to-maturity debt investments of $1.0 million”)
    = EV of $16m

    While $16m enterprise value seems very low compared to $10m in after-tax income the AUM business generates annually, it is no longer clear (and maybe never was) if cash balance / investments should be deducted from the capitalization. This is probably Frank Holmes personal cash rater than funds owned by shareholders.

  49. Doesn’t look like we will be receiving the excess cash anytime soon: “Since July 2021, HIVE has paid down the note by $2.3 million, which has increased the cash position on our balance sheet. This is part of our strategy to build up our cash to 2011 levels so we’re better prepared to weather the next economic pullback, launch new products and take advantage of opportunities. Releasing a successful new ETF like SEA is capital-intensive. The magic is to have cash to pursue opportunities when they arise and to protect our balance sheet during economic downcycles.”

  50. GROW has received a buyout proposal from activist Echo Lake Capital and Deerhaven Capital at $5.30 – 18% premium to the current price. The bidder engaged with GROW privately but the proposal was rejected by “one of the Company’s board directors” (likely Frank Holmes). Echo Lake issued a letter to GROW back in April requiring capital returns, HIVE monetization and CEO Holmes resignation.

    The offer expires on July 8. But, as long as Holmes remains at the wheel, the buyout is unlikely to materialize.

    • It’s not a cash bid. Half is in newly issued 8.5% Preferred Stock in the Company.
      The bid for the class C is basically a carve-out of junk paper.

      This looks like an opportunistic attempt to buy the ETF business for half of the class A market cap.

  51. As expected, GROW has rejected the acquisition proposal saying it undervalues the company:

    “The Company acknowledges that it is in receipt of Echo Lake Capital and Deerhaven Capital’s proposal, issued on June 27, 2022, to acquire the Company’s outstanding common shares (the “Proposal”), which has been shared with the Board of Directors (the “Board”). While the Company would normally not view a proposal of this nature as warranting a reply, the fact that it was publicized requires that the Company provide a timely public response. The Company does not believe the Proposal provides the Company’s shareholders with appropriate value for their securities and therefore is not interested in pursuing the Proposal based on the terms submitted.”

    Holmes also reiterated that the company is building up its cash position in anticipation of a bear market.

  52. Activist pressure continues – Echo Lake Capital and Deerhaven Capital have issued a letter criticizing CEO Holmes for hiring his son to the company and not disclosing it. The activists mentioned legal repercussions, though it is not clear if they will actually sue Holmes. Not clear what kind of effect such activism might have, with Holmes’s full control of the company through voting shares.

  53. Closing GROW case on SSI – the company is still incredibly cheap at less than 2x EV/EBIT, but there are no longer any catalysts. All hopes for any smart capital allocation decisions were kind of shattered with the announcement of build-up of $30m ‘war-chest’ in May’22.

    GROW can no longer be called a special situation – just a very cheap company where any activism attempts are toothless with CEO Holmes holding all the voting power and using the company as a personal piggy bank.

    I still own a position in this and plan to hold on to it for now – mostly due to the seemingly well-protected downside. This might change if something stupid gets done with excess cash tat is now idly sitting on the balance sheet (e.g. Holmes might decide to pour it all into crypto, calling the bottom of the market).

    +66% in two years – which is actually a big disappointment as GROW lost 30% over the last year.

  54. Not sure if this is news but Frank is leaning towards acquiring an asset management firm: “This year, we have been building up our cash position, which we believe is wise and prudent to weather a potential economic recession and be opportunistic in looking for attractive acquisitions,” CEO and Chief Investment Officer Frank Holmes says.

    If he does follow this path, I can foresee a large portion of GROW’s value being siphoned from shareholders to his pockets.

    • I don’t see mention of an asset management firm in the quote you shared. Is there other material which shows he’s leaning towards acquiring that type of firm specifically?

      Also interested to hear how you see value being siphoned. The way I see it is one-time bonuses paid to himself and employees for making the acquisition happen. Is there another way which is a more sustained drain?

      Also, I’m wary of sharing information on here because the idea is public — wouldn’t be surprised if someone at the company reads this.

      • Asset management firm (from 10K):
        “As part of our business strategy, we may pursue corporate development transactions, including the acquisition of asset management firms.”

        Management, performance, and related party fees come to mind.

        I agree, but the cynical me wouldn’t be surprised if he has already consulted professionals.

  55. I hope someone from the company read some of these posts and is ashamed of their poor standing with shareholders, maybe some behavior improvement is possibe.


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