09 Apr Permanent Portfolio Funds
There are two Permanent Portfolio Funds available in the market – Permanent Portfolio mutual fund (PRPFX) and Global X Permanent ETF (PERM). The former has been around since 1982 and the latter was started in Feb 2012. With a longer history, PRPFX has US$16.8 billion under management compared to US$27 million for PERM.
It is not difficult to set up your own Permanent Portfolio as low cost ETFs are available to the retail investor. In fact, it is recommended to DIY to keep investment costs low. However, there are investors who are not keen to set up their own Permanent Portfolio because they do not want the hassle, or they really do not know how to do it. These funds will be of help for these investors.
Not all funds are created equal and very importantly, we need to examine if they can fulfill the key principles of the Permanent Portfolio.
Holdings – deviation from Harry Browne’s portfolio
Both funds deviated from the original Harry Browne’s concept (see table below). I am fine with slight deviations but not changes that alter the fundamentals of Permanent Portfolio.
I do not like the additional 15% in commodity stocks in PRPFX as this implies the Fund is leaning the portfolio towards protection against inflation than any other economic condition. Nobody really knows if inflation will keep up in the future and it is risky to make such prediction. PRPFX would have poorer returns than the ideal Permanent Portfolio if inflation rate falls. In addition, the Fund has 30% allocation in stocks instead of 25%. This is a fundamental shift from the original portfolio and volatility is expected to increase as a result.
For PERM, I do not like their investments in Gold and Silver ETFs as it introduces one more intermediary (the Gold/Silver ETF manager). PERM becomes a fund of funds in this aspect. This adds costs since there are more people you have to pay. Most importantly, your exposure to managerial risks have increased. If the Gold/Silver ETFs happened to be fraudulent, PERM and their investors will have to suffer the loss.
Both Funds are reasonable in terms of their charges. PRPFX is charging 0.71% annual fees while PERM is charging 0.49%.
Not for investors outside the U.S.
As mentioned earlier, these funds are suitable for investors who do not want to set up their own Permanent Portfolio. These are the next best things after DIY. One word of caution is that these Funds are heavily invested in U.S. assets and hence, they are not suitable for non-U.S. investors. Permanent Portfolio is suppose to hold assets in your country of residence to avoid geographical and currency risks. Currently, there are no other Permanent Portfolio Funds in other countries.
If you want to invest in Permanent Portfolio, would you do it yourself? Or would you rather pay a manager to do it?