This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Permanent ETF: A Lesson in Diversification

NEW YORK ( TheStreet) -- A couple of months ago Global X launched the Permanent ETF which is a play on the old Harry Browne concept of putting 25% equal portions into equities, longer term bond, Treasury bills or cash and gold. The big idea is that no matter what is going on in the world at least one of the four segments will be doing well.

The Permanent Portfolio Mutual Fund (PRPFX) comes close to Browne's original idea and has an outstanding long-term track record that makes studying this worthwhile. PRPFX has an annualized 10-year return of 10.92% vs. 4.1% for the S&P 500 Index including dividends. In 2008 when the S&P 500 declined by 37% PRPFX only went down by 8%.

The Global X version is pretty true to the original but does take some liberties with the equity portion by including small exposures to REITs, natural resource stocks and foreign stocks as opposed to having the entire equity tranche in one broad index fund.

Along the lines of taking liberties with the equity allocation, perhaps other variations can be explored. The point here is not necessarily to mimic Browne's idea in other individual countries but to understand a little the diversification benefits from the portfolio and assess what can be taken from the strategy and applied to your own portfolio.

10 Stocks That Could Rise in Market Decline >>


Investors so inclined could build a permanent portfolio denominated in other currencies with ETFs. For example a permanent portfolio could be constructed with Australian assets. For equities, an investor could capture a large cap/small cap combo with the iShares MSCI Australia Index Fund (EWA) which is heavily exposed to banks and the mega cap miners Rio Tinto (RTP) and BHP Billiton and for small caps the Index IQ Australia Small Cap ETF (KROO). KROO is more heavily weighted in materials stocks and consumer discretionary.

The currency is easily owned with the Rydex Currency Shares Australian Dollar Trust (FXA) which has a trailing yield of 3.8%.

10 Stocks That Fidelity Funds Are Buying >>

Bond exposure is available in the WisdomTree Australia & New Zealand Debt Fund (AUNZ). AUNZ was recently converted from a from a New Zealand currency fund and has an 80/20 split between Australian and New Zealand debt, but the maturity is much shorter than the long bond that Browne called for at just under four years and the fund is on track to yield just over 4%.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
EWC $25.26 0.00%
EWA $19.86 -0.05%
AAPL $95.03 0.21%
FB $116.73 0.00%
GOOG $691.02 0.00%


Chart of I:DJI
DOW 17,830.76 -210.79 -1.17%
S&P 500 2,075.81 -19.34 -0.92%
NASDAQ 4,805.2910 -57.85 -1.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs