Permanent Portfolio's Mix Excels in Tough Times

Michael J. Cuggino’s Permanent Portfolio mutual fund has stuck with the same asset mix for almost 30 years—a combination of gold, silver, the Swiss franc, stocks, and bonds meant to guard against inflation and recession. It hasn’t always been a recipe for success. For years the fund languished while investors chased surging stock and bond markets. At the end of 2001, after stocks had rallied seventeenfold over two decades, Permanent Portfolio had assets of $52 million. Ten years later, the fund is beating all rivals, and assets have surged to $15.6 billion. “This fund has been in the right place at the right time,” says Janet Yang, a Morningstar analyst. “The whole story here has been asset allocation.”

The Permanent Portfolio gained an annualized 10.5 percent in the five years ended Sept. 13, the best return among 2,153 balanced funds tracked by Morningstar, most of which divvy their assets among stocks, bonds, and cash. It was started in 1982 by Terry Coxon, who co-wrote Inflation-Proofing Your Investments: A Permanent Program That Will Protect You Against Inflation and Depression with Harry Browne the year before, as a way to put the advice book’s theories into practice. The goal was to use assets that rise and fall independently to allow investors to keep pace with inflation in any economic climate. “We wanted a way to deal with uncertainty,” says Coxon, who left the fund in 2003.