The Global X Permanent ETF (PERM), launched by the New York based fund issuer offers investors exposure to a number of core asset classes. The ETF replicates the Solactive Permanent Index, a benchmark comprised of three major core asset classes; stocks, Treasuries & bonds, and precious metals, thus diversifying holdings for all market conditions.
Each of the categories is further diversified to minimize downside risks. Stocks include both domestic and international sectors, Treasuries portfolio is equally split between long-term bonds and short-term bonds and notes while precious metals seek to invest in both gold and silver.
The diversified portfolio is designed to perform regardless of four broadly classified economic conditions including: increasing growth, decreasing growth, increasing inflation and decreasing inflation based on the “permanent” investment strategy made famous by Harry Browne in his 1998 book Fail-safe Investing. The book assumes that the economy is always in one of four states: prosperity, inflation, recession and depression. The portfolio doesn’t attempt to forecast economic growth or inflation. Rather it seeks to benefit from low volatility while generating moderate returns.
PERM’s portfolio contains both individual securities and exchange-traded products. At each readjustment, the underlying index allocates equal percentage (25 percent) to each of stocks, short-term Treasuries, long-term Treasuries and precious metals. Bond holdings consist of individual debt instruments of different maturities and duration while investment in gold and silver is done through ETPs.
The Permanent Portfolio follows a passive investment strategy. It postulates that for every economic environment and market condition, there’s at least one asset class that benefits. For example, high inflation may hinder bonds and cash (short-term debt instruments with maturity up to a year), but it boosts gold and silver. Hence a portfolio containing gold and silver will give positive returns in inflationary conditions.
This investing strategy has been followed since 1982 in the mutual fund PRPFX. This MF has accumulated about $17 billion in assets since inception and has returned about 9.6 percent annually over the last ten years, compared to less than three percent by the S&P 500 index.
However, it is important to note that unlike PRPFX which holds gold coins and bullions, the PERM ETF holds physical gold and silver-backed exchange traded products. Also the mutual fund has some foreign currency exposure; it holds about 10 percent in Swiss Franc denominated assets while another 15 percent is allocated in natural resource stocks.
PERM’s expense ratio is 48 basis points compared to 78 bps charged by PRPFX. The fund has a total of 87 holdings, thus offering adequate diversification, and rebalances its portfolio annually. Since PERM has been only on the market for some 3 months, let’s look at a side-by-side comparison to PRPFX:
For this short time period, PERM actually outperformed PRPFX. With net assets of only $10 million, this ETF is just getting started. Average daily volume of only $500k is a little skinny for most investor. I will revisit PERM later on this year to see if it has become a real competitor to PRPFX.
Disclosure: No holdings
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