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The $2.8 billion Permanent Portfolio (PRPDX) seeks to shelter investors in all types of weather, but investors seem to like it most when the rains come. The conservative mutual fund, launched in 1982, is based on the idea of a permanent portfolio put forward...

Time Again for a Bad-News Mutual Fund?

The $2.8 billion Permanent Portfolio (PRPDX) seeks to shelter investors in all types of weather, but investors seem to like it most when the rains come. The conservative mutual fund, launched in 1982, is based on the idea of a permanent portfolio put forward...

Time Again for a Bad-News Mutual Fund?

The $2.8 billion Permanent Portfolio (PRPDX) seeks to shelter investors in all types of weather, but investors seem to like it most when the rains come.

The conservative mutual fund, launched in 1982, is based on the idea of a permanent portfolio put forward by Harry Browne, the late author, investment adviser, and 1996 and 2000 Libertarian presidential candidate. He advocated a portfolio divided equally among U.S. stocks, long-term Treasury bonds, cash and gold—assets that would perform well in different economic environments.

Permanent Portfolio, which Mr. Browne helped to create, veers somewhat from that original vision, however. It seeks to invest 35% in cash and cash equivalents, longer-term U.S. Treasurys and investment-grade corporate bonds of varying maturities and durations; 30% in stocks—half in aggressive-growth stocks and half in real-estate and natural-resources stocks; 20% in gold; 10% in Swiss francs and bonds; and 5% in silver.

The portfolio generally is rebalanced or adjusted within 90 days when assets in one or more categories are 25% above or below their targeted allocation.

Investors seeking shelter piled into the fund after 2008 when it lost just 8.6% as the S&P 500 index shed 37%, according to Morningstar Inc. Its assets shot up to $17.8 billion in 2012, their peak, from $3.4 billion at the end of 2008.

But in 2013, as the S&P 500 surged 30% and the diversified Permanent Portfolio slid 2.3%, investors apparently tired of standing under an umbrella in the sunshine. They pulled a net $6.6 billion from the portfolio, which has experienced net outflows every year since, according to Morningstar.

“People typically performance-chase,” says Michael Cuggino, who has been managing the fund since 2003. The fund’s outflows have declined each year, and it has experienced only slight outflows so far this year, he notes.

With an eight-year bull market possibly growing weary, the volume and intensity of discussions with prospective investors, and those who were with the fund before and are reconsidering it, have increased, Mr. Cuggino says. Investors still see value in equities, but more are beginning to think about what’s coming next, he says.

Over the 10 years through March, the fund has gained 4.7% each year on average, according to Morningstar.

“The Permanent Portfolio is more than a little different from Harry Browne’s portfolio,” says William Bernstein, an investment manager at Efficient Frontier Advisors in Eastford, Conn. Mr. Browne’s portfolio can be executed with low fees, he says. Permanent Portfolio charges management fees of 0.78%

In addition, while Mr. Browne’s portfolio sought to diversify across the broad market, Permanent Portfolio focuses on real-estate, natural-resources and traditional growth stocks.

It “attracts assets and adherents during crises, then sheds them in better times,” because of its huge tracking error relative to a more-conventional portfolio—such as one of 60% stocks and 40% bonds, Mr. Bernstein says.

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“This fund is quite clearly far from a traditional equity fund, and even its fixed-income exposure is pretty safe,” says Todd Rosenbluth, director of ETF and mutual-fund research at financial data and analysis provider CFRA. The overall weighted average maturity and duration of Permanent Portfolio’s bondholdings, including its Swiss bonds, is about four years.

“It’s positioned for an interest-rate increase, positioned well to be defensive,” says Mr. Rosenbluth. “Unfortunately, being defensive for the last five years hasn't been a good thing to keep up with peers.”

Ms. Maxey is a reporter for The Wall Street Journal in New York. Email her at daisy.maxey@wsj.com.

Appeared in the Apr. 10, 2017, print edition as 'Time for a Bad-News Mutual Fund Again?.'

Our editors found this article on this site using Google and regenerated it for our readers.

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