Permanent ETF Focuses on Steady Performance

NEW YORK (TheStreet) -- Innovative ETF provider Global X recently launched the Global X Permanent ETF(PERM), which provides one-stop access to the permanent portfolio concept originated by Harry Browne which called for equal 25% portfolio allocations to equities, long bonds, precious metals and cash.

The idea is very simple -- no matter what is going on the world at any given moment, at least one of the four asset classes should be doing well.

The portfolio is very unlikely to be a world beater but is also very unlikely to ever blow up and given the poor performance of U.S. equities over the last 12 years, the humble goal of not blowing up is attractive, especially for people not looking to make a full-time job out of retirement investing.

The long bond portion of the Permanent ETF uses individual U.S. Treasuries with maturities going out to 2039 and 2040. Long bonds have generally been a very good place to be over the last few years. If interest rates rise meaningfully, then this portion of the fund will get hit hard. As a general rule of thumb a 1% rise in interest rates will equate to about a 12% drop in the price of long bonds.

The allocation to cash is actually in U.S. Treasury bills maturing in 2013 and 2014. Because they are so close to maturity, the bills will not be sensitive to interest rate fluctuation. This segment might benefit from higher rates as right now the yield will be close to zero but if and when short term rates move back to "normal," the cash will again pay interest. It should be stated that the objective of holding cash is to avoid price fluctuation. If the equity market goes down a lot, an allocation to cash will provide comfort but if the equity market goes up a lot, the cash will be a drag on returns.

The precious metal allocation is comprised of 20% of PERM in ETF Securities Gold Trust(SGOL) and 5% of PERM in the ETF Securities Silver Trust(SIVR). Global X believes that the trust format of the more popular SPDR Gold Trust(GLD) and iShares Silver Trust(SLV) can have less favorable tax treatment than the exchange traded commodity format used by ETF Securities.