NEW YORK ( TheStreet) -- Permanent Portfolio ( PRPFX) has enjoyed a remarkable run. During the past ten years, the mutual fund returned 11% annually, ranking as the top-returning competitor in Morningstar's conservative allocation category. The number two fund lagged Permanent Portfolio by 3 percentage points, while the S&P 500 trailed by 7 percentage points.Seeing the compelling results, investors have poured into the fund. Permanent Portfolio's assets climbed from $333 million in 2005 to $17.2 billion now. But the new shareholders are not likely to be pleased with their investment. After enjoying an epic hot streak, the fund seems likely to be faced with a period of mediocre results. The problem is that the fund depends heavily on Treasuries, precious metals and Swiss francs -- assets that could be peaking after long rallies.
Another weak holding lately has been Treasuries. During the past month long government funds lost 2.6%. Part of the losses occurred after the Federal Reserve made clear that it did not plan to make any more Treasury purchases under its quantitative easing program. Since 2008, the Fed has bought more than $2 trillion of Treasuries and other securities. That has helped to boost prices and lower yields. If the Fed stays off the playing field, bond prices could sink sharply. Swiss francs have also stagnated lately. Until last summer, the franc had appreciated strongly as investors fled the dollar and euro in search of a more stable currency. That resulted in hefty gains for Permanent Portfolio and other U.S. investors. Then in September, the Swiss National Bank announced that its currency had become overvalued and threatened the country's economy by making exports more expensive. To prevent more appreciation, the bank pledged to sell francs and buy euros and other currencies in "unlimited quantities." Since then, the bank has succeeded in stopping the rise of the franc. With so many trends working against Permanent Portfolio, it seems unlikely that the fund will be as successful in the next decade as it was in the last ten years. Still, there is a case for putting a small amount of assets into the fund. By holding its unusual cluster of assets, the Permanent Portfolio has a very low correlation with the S&P 500. That makes the fund a good diversifier for stock-heavy portfolios. But investors who buy the fund now should approach it with eyes wide open. If stocks return 6% annually in the next decade, as some analysts expect, then Permanent Portfolio is likely to trail the S&P 500. That will disappoint shareholders who expect the fund's winning streak to last indefinitely.