Insights & Advice

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The Permanent Portfolio Fund

Funny how things work, take the reputation of the Permanent Portfolio Fund, for example: disciplined, conservative, comprehensive asset allocation while protecting purchasing power. All that and a little growth thrown in to keep your nest egg from stagnating, not bad if you are an investor who is looking for a haven from today’s volatility.

Permanent Portfolio Family of Funds is a San Francisco-based mutual fund family with a formidable track record since its founding in 1982. Its flag ship fund, the Permanent Portfolio Fund, with $4.8 billion under management, has been ranked five stars by Morningstar, the mutual fund rating service, over 10, 5, 3 and 1 year.

It is considered a global conservative allocation fund, sometimes called a balanced fund. The fund invests a fixed percentage of its net assets in gold, silver, Swiss Franc assets, U.S. stocks, foreign real estate and natural resource stocks, aggressive growth stocks and dollar assets such as U.S. Treasury bonds and short-term corporate bonds.

“If you look at our asset classes on their own, they could be considered quite speculative,” says Michael Cuggino, the funds’ portfolio manager,” but taken together the six asset classes are relatively non-correlated and allows the portfolio to maintain a stable return.”

Investors have been rewarded over the years with that strategy since the fund has generated a 6.5 % rate of return since inception It lost less than most last year (down 8.4%) and is up 17% as of October 9 of this year.

Cuggino is a CPA and like his fund, is conservative with a balanced outlook on investments. He has 23 years of professional experience, 17 of which has been with the Permanent Portfolio. Traditionally his fund allocates 20% of its assets to gold, 5% to silver, 35% to U.S. Treasuries and corporate bonds, 15% to U.S. aggressive growth stocks, 10% to Swiss Franc assets and 15% to real estate and natural resource stocks.

“We have some leeway on those targets with a 10% range above and below those levels. We re-balance when things get too far out of wack, but re-balancing is a necessary evil for us because of the tax implications, so we manage it.”

Given the recent moves in both gold and silver, I asked him about his precious metals holdings. Is he in stocks, ETFs or futures?

“We can hold gold and silver in a number of ways, but we found holding bullion directly is easily understood by our investors and it allows us direct ownership.”

Given on-going worries over third party risk, his choice is understandable and may even prove the best investment option. Cuggino’s view of the market is instructive.

“Our fund is actually the antithesis of forecasting. Saying that however, I think commodity prices in general will continue to go up given the increasing amount of liquidity underway worldwide. Oil, metals, agriculture, gold, silver; commodities across the board will go up as the dollar weakens and world wide economies re-flate.”

As for the U.S. market and stocks in general, he has a positive attitude.

“My sense is we have room to go higher. I still like the communication and energy space, specifically we like Freeport-McMoran and tech companies like Hewlett Packard which derives more than 50% of its revenues from overseas markets.”

On the economy, he sees the cup as half full.

“Economic fundamentals are improving; I see expansion of multiples and higher stock prices based on earnings growth, although the strength of that will vary from sector to sector.”

He does see some significant head winds ahead so he is a bit wary right here in terms of fiscal policy, easy money and continued rising unemployment.

The fund’s symbol is PRPFX and its expense ratio is a quite reasonable 0.84%. Investors will also be pleased to note that there are no front or back end loads on the Permanent Portfolio Fund or the three other Permanent funds– a versatile bond, a Treasury bill and an aggressive growth fund.
Cuggino believes his fund is best suited for the conservative investor. One who is satisfied with “singles, and doubles with not many home runs but no strike outs either.”

Given the recent volatility in the markets, it sounds like a good, sensible strategy to me especially if you are approaching retirement. If you want to hear my interview with Michael Cuggino in full, click on Berkshiremm.com.

Posted in A Few Dollars More, Investment Portfolios, The Fund House