Several people recently asked me about the Permanent Portfolio Fund, a fund currently knocking the leather off the ball. I’ve included my review of the fund below.
PRPFX has performed extremely well historically in comparison to its peers. The largest holding in the fund is gold and from a sector allocation standpoint, the fund is concentrated in basic materials, financials and energy. The fund also has 30% of the portfolio invested in fixed income.
Years ago, this type of fund was referred to as a balanced fund. Then they evolved to become asset allocation funds and were usually structured to be less volatile than traditional equity funds. I actually agree with this fund’s strategy with the exception of having such a large exposure to metals.
The fund places itself in the conservative allocation group but it is not conservative. The fund carries above average risk for a conservative fund but does generate returns to justify the inherent level of risk built into the product. The fund has returned 6.68% year to date with around a 70% exposure to equity type investments which is excellent. The S&P has returned 6.34% with a 100% exposure to equity. Also, the performance of the S&P does not include trading costs or fund fees. So this fund did a great job with only 70% in equity. There is only one way to achieve this level of performance and that is to take on more risk. There is no magic in this business.
From an expense ratio standpoint, Permanent Portfolio is a no load fund and has an expense ratio of 0.77% which is very reasonable. The category average is 0.82%. The fund began operation in December, 1982 and has been managed by Michael Cuggino since May of 2003.
Would I recommend this fund? Yes, but the buyer of the fund needs to be aware that a large percentage of the fund is in gold, silver and Swiss Francs. You can’t dispute the fund’s performance. But, this is not a fund you can ignore. Investors in this fund must keep a close eye on this fund because of its large concentration in precious metals. I am overweight in the same sectors but not to the same extent.
By buying this fund or any other fund, you need to insure that the overall risk of the portfolio does not increase significantly. Software available through your broker or advisor can display sector weightings compared to an appropriate benchmark such as the S&P. Being significantly overweight in a sector may significantly increase the overall volatility of your portfolio. Make no mistake about it, this fund has done an excellent job and it is a good holding to have in a portfolio but, may not be a good fit for you given the current makeup of your portfolios.
According to Morningstar a firm specializing mutual funds claims that the management has been lackluster and that investors could have replicated the fund’s performance through ETF’s. Morningstar also stresses the risk of the fund given its rather large exposure to gold and silver because historically, precious metals can drop like a rock. I have more faith in the management than the Morningstar analyst. I believe the management can reduce its precious metals exposure quickly should metals start going south.
Bottom line, this is a solid fund with excellent performance and reasonable expenses but given its focus, analyze your sector weightings before adding this fund to your portfolio.