Some of you may have heard of the Permanent Portfolio (PRPFX), an unorthodox mutual fund that bears more resemblance to a modern university endowment (such as the famous Yale endownment) than a traditional retail mutual fund. What’s so unusual about it? For starters, the fund has only half its assets in traditional mutual fund asset classes like stocks and bonds. The other half is invested in gold, silver, real estate, Swiss francs, and commodities. In other words, this is a fund you’d expect to do very well during periods of inflation.
Like any good portfolio, the managers of the Permanent Portfolio don’t attempt to predict future returns of various asset classes. Rather, they maintain a fixed allocation diversified broadly between uncorrelated asset classes. According to the fund manager, the Permanent Portfolio’s target allocation consists of:
- 20% - Gold
- 5% - Silver
- 10% - Swiss Franc Assets (governemnt bonds, interest-bearing accounts, etc)
- 15% - US and Foreign Real Estate and Natural Resource Stocks
- 15% - Aggressive Growth Stocks (high beta, fast growers)
- 35% - US Treasury Bills, Bonds, Notes, and other dollar-denominated assets
Over the decade ending March 31, 2008, the fund returned 9.38% per year before taxes with a standard deviation of just under 7%. This compares quite favorably with the overall US stock market’s 5% return and standard deviation upwards of 9%. Viewing the fund’s 10 year chart, it’s clear the fund did not participate in the great bull market of the late 90’s and the resulting bust. In fact, most of its outperformance can be attributed to its stable performance after the tech bust and the recent gold and commodities bull market.
Although quite tax-efficient (it’s managed with an eye towards tax efficiency), the expense ratio is a somewhat pricey 1.11% so I wouldn’t want to allocate the majority of my portfolio to it. On the other hand, its low correlation with stocks and bonds make it a good diversifier. Futhermore, the fund is an excellent hedge against inflation and adverse geo-political events. I could easily see allocating 10-20% of my portfolio to the fund.
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6 responses so far ↓
1 Pinyo // Jun 20, 2008 at 12:21 pm
Very interesting indeed, but I do agree that 1.11% is a bit expensive. I’d love to invest in fund that mimic Harvard or Yale endowments.
2 The Carnival of Personal Finance: American Flag Edition | Mighty Bargain Hunter // Jul 7, 2008 at 2:58 am
[...] Amateur Asset Allocator thinks that PRPFX is an interesting alternative. [...]
3 Concert Ticket Inflation and Credit Card Rewards @ The Carnivals // Jul 9, 2008 at 5:05 pm
[...] The Permanent Portfolio (PRPFX): An Interesting Alternative @ Amateur Asset Allocator [...]
4 Dividends4Life // Jul 10, 2008 at 8:27 pm
That was an interesting read. I had not heard of this before. Thanks for sharing it.
Best Wishes,
D4L
5 Weekend Link Love And Carnival Roundup 7.13.2008 | Amateur Asset Allocator // Jul 13, 2008 at 11:07 pm
[...] thanks to Mighty Bargain Hunter for including my post on the Permanent Portfolio in this week’s carnival of personal finance. This week’s theme was the American Flag [...]
6 Carnival of Personal Finance - Time to Give Lots of Link Love! | Fix My Personal Finance - Personal Finance Advice - Money Management Advice // Jul 29, 2008 at 4:02 am
[...] Amateur Asset Allocator thinks that PRPFX is an interesting alternative. [...]
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