Managed portfolios of exchange traded funds and ETFs programmed to invest in several asset classes are growing in popularity with investors and advisors shopping for all-in-one options.
One example is the Global X Permanent ETF (NYSEArca: PERM), which was launched in February. [Chart of the Day: Global X Permanent ETF]
The ETF is designed to weather any economic environment and provide steady returns.
PERM invests 25% in each of these four asset classes:
- Global stocks
- Short-term U.S. Treasury bonds
- Long-term U.S. Treasuries
- Gold and silver
PERM has an expense ratio of 0.49%.
The ETF employs a strategy similar to the Permanent Portfolio (PRPFX), based on the theories of Harry Browne. “Designed as a core portfolio holding, the Permanent Portfolio seeks to preserve and increase the purchasing power value of each shareholder’s account over the long term, regardless of current or future market conditions, through strategic investments in a broad array of different asset classes,” according to a fact sheet on PRPFX.
The $17 billion mutual fund targets 20% to gold, 5% to silver, 10% to Swiss franc assets, 30% to stocks and 35% to U.S. Treasuries and other dollar assets.
However, investors can assemble their own “model portfolios” using ETFs as the building blocks. They can tailor the portfolio to meet their own unique investment needs and rebalance occasionally to maintain the target exposures. [Why ETF Managed Portfolios are Growing in Popularity]
Harry Browne’s original portfolio was envisioned as 25% allocations to four asset classes: gold, Treasuries, equities and cash.
The portfolio is designed to endure the four main “economic configurations, characterized by combinations of rising/falling inflation (inflation or disinflation) and rising/falling economic growth (growth or recession),” says Morningstar analyst Samuel Lee.
“Inflation and economic growth can’t explain every asset-class movement, nor are they always the most important factors in the short run, but over the long run they are determinative,” he wrote in the latest edition of Morningstar’s ETF newsletter.
“Naturally, in each phase of the business cycle, different assets are king. Stocks do best when the economy is growing and inflation is falling, coinciding with the recovery phase after a recession; bonds do best when the economy is tanking and inflation is falling, coinciding with the downward leg of a conventional recession,” Lee said.
The analyst offered a more diversified, ETF version of the Harry Browne portfolio that invests in more asset classes and adjusts weightings for volatility.
“It’s not designed to shoot the lights out, but rather ensures no one economic environment devastates your wealth,” Lee said.
Morningstar’s Risk-Balanced Portfolio
