Independent Review Of The Permanent Portfolio Fund

by: Matthew Pixa

Every so often we come across an investment that grabs our attention. In this case, we would like to turn the clock back a bit and revisit a time when the sky was falling and "Mr. Market" seemed to have it in for all of us regardless of where we tried to put our money. That was in 2008, and without reliving too many painful memories or details, let's just simply refresh you on the performance of certain asset classes/indexes that year:

S&P 500 -37.00%

Mid Cap -41.46%

Small Cap -33.79%

MSCI EAFE (International) -43.06%

Emerging Markets -53.18%

If you had any Bond exposure in your portfolio, that's probably all that you had to celebrate, as they at least turned in a positive +5.24%. Most people realistically didn't have enough Bond exposure, but flocked to them in 2009. They were rewarded with another positive year with +5.93%. The problem with that, however, is that the areas they just cut bait on (stocks) returned the following:

S&P 500 +26.46%

Mid Cap +40.48%

Small Cap +27.17%

MSCI EAFE (International) +32.45%

Emerging Markets +79.02%

So what's the solution during market stretches like this? What investment plays great defense in bear markets and scores well offensively in bull markets?

According to several investors we sat with during 2008 and 2009, the Permanent Portfolio Fund (MUTF:PRPFX) seemed like everything an investor would want. Per the three main tenets of the fund, it offered a strategy that was "simple, safe, and stable".

What is the Permanent Portfolio Fund all about and should you consider owning it?

Fund Information:

The Permanent Portfolio Fund (PRPFX) is managed by Michael Cuggino via Pacific Heights Asset Management, LLC in San Francisco, CA. He has been the sole manager of the fund since May 1, 2003.

Inception Date: December 1, 1982

Net Assets: Approximately $16 billion

Current NAV per share: $47.09

Alpha: 6.20

Beta: 0.47

Standard Deviation: 10.22

Portfolio Turnover: 8.87%

PRPFX can be purchased at roughly 105 different brokerages with a minimum investment of $1,000 and minimum subsequent investments of $100.


The Permanent Portfolio Fund [PRPFX] is managed with a strategy first developed and introduced by the late Harry Browne. In order to prosper in the four basic economic cycles (Prosperity, Recession, Inflation, and Deflation), Browne advocated allocating 25% towards Stocks, 25% in Cash, 25% in Gold, and 25% in long-term Treasury bonds. This strategy has grabbed quite a few eyeballs over the years, and perhaps rightly so.

The premise of the strategy is that it can weather just about any storm. In theory, this fund helps protect you from a "black swan" type market event. A major market event that comes as a surprise to all (as they most often do until we look in the rearview mirror and connect the dots), is theoretically mitigated with this strategy. Let's say you had 25% exposure to gold and it gets blasted and loses 50% overnight; your largest loss in the portfolio would be -12.5%.

During each of the aforementioned economic cycles, the fund is positioned to have at least one or more areas outperform with inverse or low correlation to the other asset classes.

During an economic cycle of Prosperity, you will typically see Stocks do well. Following these stretches, a Recession eventually comes into play, so stocks get punished; Cash then becomes the stabilizing asset class. Investors with ample cash after a stock bear market are the ones who can rebalance and pick up stocks at deep values. When we later find ourselves in an Inflationary environment, the metals, such as Gold, come into play. Gold has been a traditional hedge against Inflation. Following rising interest rates (inflation) comes Deflation, with rates being cut sharply. When we see deflation, Bonds will typically do well, as interest rates are inversely correlated to bond prices and vice versa.

Lastly, and perhaps most importantly, the fund uses a completely passive approach with very low portfolio turnover. The manager will not be tinkering with technical analysis nor will he try to overweight stocks versus bonds based on his feelings or perception of where markets are headed. With regard to stock selection, they take a macro-based and top down approach and then focus on what sectors look most appealing and offer potential value.

Current Allocation and Holdings:

Target Percentages for the Permanent Portfolio

35% U.S. Treasury Securities and Other Dollar Assets

20% Gold

5% Silver

15% Aggressive Growth Stocks

15% U.S. Foreign Real Estate and Natural Resource Stocks

10% Swiss Franc Assets

Current Asset Allocation

Cash 15.04%

U.S. Stocks 29.67%

Foreign Stocks 3.16%

Bonds 26.44%

Other (Gold etc.) 25.69%

We noted that of the stocks PRPFX currently owns about 92.12% of them are U.S. stocks. The fund rarely buys international stocks, but rather focuses on domestic equities that may benefit from growth overseas. It is also interesting that as of June 2013, PRPFX has about a 24.60% weighting towards Telecommunication stocks relative to the S&P 500 weighting of 1.95%. Conversely, the fund is underweight relative to the S&P in Energy (7.24% to 17.08%), Healthcare (1.55% to 10.75%), and Consumer Services (6.53% to 12.37%).

The Permanent Portfolio currently holds about 75 stocks with an average P/E (price to earnings) ratio of 16.15 and a P/B (price to book) ratio of 1.87. If you're looking for dividends, this isn't the focus of the fund, and PRPFX sports a low yield percentage of 0.55%.

The fund's bond has about 33 bond holdings with an average duration of 4.09 years on the U.S. Dollar Assets and 5.18 on the Swiss Franc Bonds.

Top 10 Holdings

Gold Coins 13.47%

Gold Bullion 7.55%

Cash & Cash Equivalents 6.02%

Swiss Franc Bank Account 5.17%

Silver Bullion 4.78%

U.S. Treasury Bonds 6.0% 2-15-26 1.33%

U.S. Treasury Bonds 6.25% 8-15-23 1.32%

U.S. Treasury Bonds 5.25% 11-15-28 1.26%

U.S. Treasury Bonds 4.50% 2-15-16 1.19%

U.S. Treasury Bonds 7.25% 5-15-16 1.13%

Top 15 Equity Holdings by Sector (as a % of net assets)

Natural Resources

BHP Billiton, Ltd. (NYSE:BHP) 1.06%

Freeport-McMoRan Copper & Gold, Inc. (NYSE:FCX) 0.89%

Exxon Mobil Corporation (NYSE:XOM) 0.84%

Chevron Corporation (NYSE:CVX) 0.74%

Rio Tinto. (NYSE:RIO) 0.73%

Real Estate

Prologis (NYSE:PLD) 0.87%

Weyerhaeuser Company (NYSE:WY) 0.78%

Vornado Realty Trust (NYSE:VNO) 0.78%

AvalonBay Communities, Inc. (NYSE:AVB) 0.63%

Federal Realty Investment Trust (NYSE:FRT) 0.60%

Growth Stocks

HollyFrontier Corporation (NYSE:HFC) 0.86%

Wynn Resorts, Ltd. (NASDAQ:WYNN) 0.70%

Gilead Sciences, Inc. (NASDAQ:GILD) 0.61%

Celgene Corporation (NASDAQ:CELG) 0.58%

Amgen, Inc. (NASDAQ:AMGN) 0.57%


Over the past 30 years, the fund has been up for 26 of those and down only four, with the worst being in 2008. Per the market returns we revisited earlier in this review, the fact that PRPFX was down only -8.36% in 2008 seems like a victory! Like any fund that has a good run during a particularly memorable time, it has likely attracted people who chased it for performance. Those that did so after the Great Recession of 2008 have not been proportionately rewarded since. Over the past year, it's actually ranked towards the very bottom of funds in its category (96 out of 100).

As of 6/4/13 PRPFX has had the following performance:

Past month: -2.14%

3 months: -2.81%

YTD: -3.19%

1 year: +3.43%

3 year: +7.45%

5 year: +5.52%

10 year: +8.95%

15 year: +8.31%

For updated Morningstar Trailing Performance click here or you can compare it to other funds or indexes using simple tools like Google finance by clicking here.

Our concern is not that PRPFX is losing to the market since that is clearly not the objective of the fund. In the world of "asset allocation" it can be difficult for some investors to see the stock market return 15% and understand why their well-balanced portfolio is only up about 5% to 7%. It of course all depends on how much exposure you have to what is doing well. In the case of PRPFX, you have to tolerate and perhaps expect being down in a year like 2013 amidst news of stock market records being broken.


Interestingly enough, the fund's expense ratios have come down over the past few years.

2009 0.84%

2010 0.82%

2011 0.77%

2012 0.71%

Although the annual report currently shows a net expense ration of 0.69%, as of 5/31/13 the fund's prospectus reports a net expense ratio of 0.71%.

The total cost for every $10,000 you invest in PRPFX is as follows:

3 years $273

5 years $453

10 years $974

Fees, no matter how you slice them, are always a drag on performance. In this case, at least PRPFX is a no-load mutual fund, but you're still paying a decent amount for basically what is a passive asset allocation strategy.


One potential issue we noticed was with regard to taxes and the potential capital gains exposure [PCGE]. This is typically the case with many mutual funds, but during a year like 2013, when the markets are breaking records, this fund is not performing well…. you could be saddled with a tax bill!

Morningstar calculates their PCGE at 13.49%. This is an estimate of the percent of a fund's assets that represent gains but have yet to be distributed. Take heed of such a number if you're about to purchase this fund. For those who have owned it for years and perhaps been the beneficiary of decent performance, it makes sense that they should pay capital gains. For investors who are new or potentially considering the fund, however, it would be rather insulting and silly to pay capital gains on a fund that is dragging, as PRPFX has been lately.

If the PRPFX did indeed decide to sell all its profitable holdings, it could mean that for every $1,000 you own of the fund, you would be hit with a $130 capital gains distribution. With a tax rate of 15% that would cost $19.50 which is almost 2%.


We clearly have a bias against most mutual funds but hopefully you've seen that this review is meant to be completely educational and informative. While we have held off on doling out an opinion (until now!) we think it's safe to say that sometimes spelling it all out makes it clear.

The Permanent Portfolio Fund [PRPFX] is actually more than just a "simple" strategy. At face value, that's exactly what it seems like. For true economic research hounds, you might not find a better fund that offers this type of a deep and sophisticated level of diversification. Most mutual funds are often glorified index funds that rarely beat their respective benchmarks.

Relative to most funds, the fees on PRPFX are not outrageous, although there are several ways to replicate the strategy and add another level of diversification and hedging ability. The challenge for those investors trying to do this is that it takes work; maybe not the $130,155,907 the fund generated in investment advisory fees…but work nonetheless. One wouldn't normally assume that, since PRPFX uses a passive and fairly static approach. Implementing this strategy on your own also implies an ability to understand that at least one asset class will be vulnerable or lose value at any time.

In summation, investors in a fund like PRPFX must truly be ready for the ride and are better off trusting the strategy and not focusing on the internals of it. Three of the four main asset classes analyzed in isolation are quite volatile, and for those that get rattled easily or have strong intuition on market directions, this may not be the fund for you. For example: If you are the type of investor that feels like the stock market has run up huge and is due for a fall, you may question owning 25% of the fund in aggressive equities since they're likely to get blasted. How about owning 25% in precious metals? It was great on the way up, but had you owned this fund during this most recent gold and silver sell-off you may naturally start second guessing the funds heavy exposure there.

As always, we welcome your specific questions or feedback. Feel free to contact us directly or post a comment below.

Disclosure: I am long RIO, CVX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.