Global X Debuts First “Permanent ETF”

by on February 8, 2012 | ETFs Mentioned:

Global X announced today the launch of the Permanent ETF (PERM), a new fund that will offer one stop exposure to a number of core asset classes. The new ETF will be linked to the Solactive Permanent Index, a benchmark that includes three major asset classes: stocks, Treasuries, and precious metals. Each of those broad categories includes multiple layers; the equity component includes both domestic and international stocks, while the Treasuries allocation is split evenly between long-term and short-term securities. The precious metals allocation includes both gold and silver.

At each rebalance, the underlying index will allocate 25% to each of stocks, short-term Treasuries, long-term Treasuries, and precious metals. The rough breakdown by asset class for PERM will be as follows:

Asset Weight
Physical Gold 20%
Physical Silver 5%
Long-Term Treasuries 25%
Short-Term Treasuries 25%
Large Cap U.S. Stocks 9%
Small Cap U.S. Stocks 3%
International Stocks 3%
Natural Resources Equities 5%
Real Estate Stocks 5%

PERM’s portfolio will consist of both exchange-traded products and individual holdings. Gold and silver are represented in the underlying index by ETPs offered by ETF Securities, while the bond allocation consists of individual Treasuries. In total, the underlying index has about 87 individual components.

Basics Of Permanent Investing

The concept of the “permanent” asset allocation strategy was highlighted in a 1998 book titled Fail-Safe Investing that was authored by Harry Browne. The strategy is based on the idea that the economy is always in one of four states: prosperity, inflation, recession, depression. Regardless of the environment, one component of the portfolio should be expected to deliver strong results–hopefully sufficient to offset any underperformance in the remaining allocations.

The Permanent Portfolio has been in existence in a mutual fund wrapper for nearly 30 years; PRPFX debuted in late 1982. Since then, that fund has accumulated almost $17 billion in assets according to Morningstar–which perhaps makes it surprising that PERM is the first exchange-traded product to implement this technique. The permanent mutual fund has delivered annual returns of about 5.9% annually (after taxes on distributions and sale of portfolio shares) since its launch. Over the last ten years the mutual fund has gained about 9.6% annually, compared to a gain of less than 3% per annum for the S&P 500.

Mutual Fund vs. ETF

It should be noted that the 30-year old mutual fund and the new ETF from Global X are not identical; PRPFX uses gold coins and gold bullion, while PERM uses physically-backed gold and silver ETFs to achieve its precious metals exposure. Moreover, the aforementioned mutual fund includes positions about 10% in Swiss Franc assets and a higher allocation (15%) to natural resource stocks.

PERM’s expense ratio of just 0.48% is quite a bit lower than the 0.78% charged by PRPFX. In addition, the new ETF features no minimum initial purchase ($1,000 for the mutual fund) and comes with the tax efficiency and intraday liquidity of the exchange-traded structure.

Like all Global X ETFs, PERM will be available for commission free trading on the E*TRADE and Interactive Brokers platforms.

One Stop Shop ETFs

Though PERM is the first ETF to offer exposure to a permanent strategy, there are a number of other ETFs that include exposure to multiple asset classes through a single ticker. The products in the Target Retirement Date ETFdb Portfolio shift exposure to low risk assets as the selected date approaches, while those in the Diversified Portfolio ETFdb Category generally deliver more static exposure to a specified investment objective.

[For more on the new permanent ETF, see the PERM fact sheet. For updates on all new ETFs, sign up for the free ETFdb newsletter].

Disclosure: No positions at time of writing.