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  • Beat The Inflation Atop All Weather ETF 0 comments
    May 13, 2013 8:14 AM

    Ever wondered what a fool proof portfolio would look like; one that would withstand an insecure hi-inflationary environment or an economic slowdown? Well, investors need not rack their brains or conjure different combinations to solve this question for the portfolio advisors have for some time now, recommended their clients for an all season Portfolio. The good news however is the easily available all weather ETFs that empowers in a diversification among all asset classes while attuned to an underlying index. The low operational expenses, higher liquidity and no minimums is a sure plus for this catching trend.

    Typically, an all weather broader investment such as Global X PERM ETF which works on the lines of Harry Browne's 1980 model follows a simple allocation of 25 % each in four main segments namely Equities, US Treasury Bills, Long term Bonds and Bullion aka Gold and Silver. The logic behind this is that at any given time or economic cycle one of the four would perform above par thus creating a positive median returns even amid laggard economy.

    A balanced all ETP portfolios like this must be exposed to three asset classes:
    • Stocks (both national and international)
    • Treasuries that includes an even share of both long and short term US bonds
    • Bullion in the form of physically backed precious metals ETFs that vest in Gold and Silver.

    The equity exposure is distributed among REITS (real estate), natural resources, large cap & small cap U.S stocks and foreign equities. This diversification achieved is more investor friendly as opposed to having money sealed in a single wide index fund.

    If past performance could guarantee returns then there is the thirty year old Permanent Portfolio mutual fund (MUTF:PRPFX). It has an exceptional 10 year track record posting yearly yield of close to 11 %.

    In the year 2008 the S&P 500 INDEX declined almost 38% but the PRPFX fell merely 8 %. This validates the success of the Browne's portfolio model. According to Morningstar since its inception it has amassed around $17 billion in assets.

    PERM versus PRPFX
    The Global X Permanent ETF is quite different from the Permanent portfolio mutual fund in more than one way and also scores over the latter in tally. The precious metal exposure for this fund means physically backed gold and silver ETFs while the PRPFX mutual fund uses gold bullion and coins.

    PRPFX even has 10 % portion allocated to Swiss Franc holdings (these are low yielding assets that can lower the overall performance) and many critics would welcome a change here.

    PERM ETFs expense ratio of 0.49% is quite less to 0.78% expense ratio of the PRPFX and unlike the latter; the former has no initial minimum purchase norm and comes with additional benefits in the form of taxing and intra-day trading.

    A very important trait that defines the all seasons portfolio / ETFs is the annual rebalancing made to reset each of its asset class, in order to attain outstanding performance. This way profits can be bagged in a bull market run and gains can also be retrieved from out of control stocks every year thus safe guarding investor interest.

    Again, investors should note that rather than forecasting on the markets and the returns of its respective assets, a Permanent equity fund is designed around to procure returns regardless of market conditions and street speculation is not factored in with deliverance.

    With the American economy improving, the product may seem suitable to the investors who seek to add on their savings but are averse to volatility and risks that are otherwise associated with these assets classes when invested individually.

    Global X Permanent ETF - PRPFX delivers as per the performance of Solactive Permanent Index. A 50% of holdings in this All Weather ETF are centred in Short and long term US treasuries, whereas US small and large cap equities along with the REITs stocks make up another quarter of the benchmark. The physical Gold and Silver account for a little less than 20%, and along with the international equities (3.40%), Natural Resources equity and Materials make up for the rest of the PERM ETF and its underlying index.

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