Permanent Portfolio ETF Smack-Down

In February Global X launched a Permanent Portfolio ETF, symbol PERM. The fund’s fact sheet states it “seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive Permanent Index.”

The Solactive Permanent Index “tracks the performance of four asset class categories that are designed to perform differently across different economic environments, as defined by the index provider. On each rebalance, the Underlying Index allocates 25% each to four asset class categories: Stocks, U.S. Treasury Bonds (Long-Term), U.S. Treasury Bonds (Short-Term), and Gold and Silver.”

This allocation closely correlates to Harry Browne’s proposed allocation in his 1998 Fail-Safe Investing: Lifelong Financial Security in 30 Minutes. Browne proposed an equal-weight portfolio of stocks, long-term bonds, cash, and gold.

Today an investor could create this portfolio using as little as four ETFs: SPY (SPDR S&P 500 ETF), TLT (iShares Barclays 20+ Year Treasury), SHY (iShares Barclays 1-3 Year Treasury Bond Fund), and GLD (SPDR Gold Trust).  I recently posted some historical results on this allocation here.

How closely has PERM correlated to the 4-ETF Browne Permanent Portfolio referenced above?PERM has a very short trading history, so these results are very preliminary.However, this type of comparison could be useful to periodically monitor for investors weighing an all-in-one Permanent Portolio solution (PERM) versus a self-managed, multi-ETF Permanent Portfolio.

As expected, an equal weight portfolio of SPY/TLT/SHY/GLD (Portfolio A) has been highly correlated with PERM (Portfolio B) since February 8th, 2012. The results using ETF Replay are below. It is important to note that PERM has not yet paid a dividend, while SPY, SHY, and TLT have all paid dividends since February 8th. These dividends are reflected in the returns for Portfolio A, which helps explain the small out-performance to date. I will revisit the comparative results once PERM has paid a dividend, which will give us a more accurate total return comparison for both portfolios: