Quick Take: In addition to the stocks and bonds you would expect to find in an asset allocation fund like the Permanent Portfolio (PRPFX), its portfolio features gold and silver bullion and coins.
The fund’s wide variety of assets, which include foreign and domestic equities and Swiss fixed-income securities, is intended to preserve and increase shareholders’ money while guarding against risk from things like bear markets or economic downturns.
Under Michael Cuggino, its portfolio manager since 1991, the fund has stayed ahead of similar funds lately, and over the long run. It was up 6.8% this year through September, versus a gain of 0.2% for the average asset allocation fund. On an annualized basis for the five and ten years ended in September, the Permanent fund returned 10.2% and 7.6%, respectively, versus 2.1% and 7.2% for its peers.
Cuggino’s fund also is less volatile than others in its category, as illustrated partly by its beta, a measurement of sensitivity to changes in the market. The fund sports a reading of 0.06, versus its peers’ 0.56, as well as a low standard deviation relative to similar funds.
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What does the Permanent Portfolio invest in?
A better question might be what doesn’t it invest in?
The $199-million fund holds U.S. and foreign stocks and bonds, and gold and silver bullion and coins. The equities, which account for 30% of its holdings, include shares of natural resources and real estate companies, and what portfolio manager Michael Cuggino terms “aggressive growth” stocks.
The mixture is intended to maintain and fatten gains while keeping risk from sour markets or geopolitical developments to a minimum. The asset classes aren’t correlated, so weakness in one segment of the fund can be offset by strength in another, Cuggino says.
“We believe that an investor, to be properly diversified and protected, needs to have exposure to all these different groupings,” he says.
Permanent Portfolio’s fixed-income investments consist of Swiss government bonds, which make up 10% of its assets. Another 35% is in U.S. Treasurys and investment-grade corporate bonds.
In picking the 60-100 stocks that go into the fund, Cuggino looks for growing, financially sound companies whose stocks seem reasonably priced. He favors businesses with strong balance sheets, leading industry positions and seasoned managers. For his more conservative stocks, Cuggino likes companies that pay dividends and buy back their shares. He leans towards medium-sized and large companies, but he can buy small ones as well.
The fund manager initially targets industries he thinks will prosper, then hunts for good looking companies in the sector.