What's happening to PERM?

[MachineGhost]

PRPFX and PERM = Fool me once, same on you; fool me twice, shame on me!

[Tortoise]

PERM is continuing to implode.

On www.etfreplay.com, here are the YTD total returns as of today, 6/1/2013:

HBPP (VTI/IAU/TLT/SHY): -1.6%
PRPFX: -3.2%
PERM: -5.8%

I was seriously considering investing some money in PERM for convenience a while back, but some astute folks on this forum pointed out the potential risks of investing in very small and/or very new funds like PERM. Thank you for that sound advice!

Anyone out there still think PERM's implosion relative to PRPFX and a 4x25 HBPP is solely due to differences in asset allocation? Given the persistence and size of the divergence, that possibility seems very unlikely to me.

[Ad Orientem]

PERM is continuing to implode.

On www.etfreplay.com, here are the YTD total returns as of today, 6/1/2013:

HBPP (VTI/IAU/TLT/SHY): -1.6%
PRPFX: -3.2%
PERM: -5.8%

I was seriously considering investing some money in PERM for convenience a while back, but some astute folks on this forum pointed out the potential risks of investing in very small and/or very new funds like PERM. Thank you for that sound advice!

Anyone out there still think PERM's implosion relative to PRPFX and a 4x25 HBPP is solely due to differences in asset allocation? Given the persistence and size of the divergence, that possibility seems very unlikely to me.

PERM as I recall has a narrowly defined asset allocation for its equities and it doesn't index the stocks. This is a problem. By contrast, while PRPFX also doesn't index, it has broader latitude in stock picking and it also has a 30% allocation to equities instead of 25%.

Thus in a near term market condition where we see everything except stocks getting clobbered both funds are at a disadvantage because they don't index. But PRPFX has more room in stock picking and that extra 5% is helping too.

PERM seems designed to underperform big time during periods of prosperity.

[Tortoise]

A mere 5% difference in stock allocation doesn't explain much. On www.etfreplay.com, increasing the HBPP's stock allocation from 25% to 30% only increased the total return from -1.6% to -0.5%. With PERM, we're seeing a much larger discrepancy than that.

I guess a few other possibilities are:

1. Your suggestion that PERM's small number of individual stocks may just be duds in the midst of this stock rally
2. Since stocks are hot and conservative funds like PERM are not, money may be flowing out of PERM so quickly that it's selling at a very deep discount
3. PERM's management might be looting the fund in anticipation of shutting it down and running off to Belize to retire on the beach

[jediclampet]

A mere 5% difference in stock allocation doesn't explain much. On www.etfreplay.com, increasing the HBPP's stock allocation from 25% to 30% only increased the total return from -1.6% to -0.5%. With PERM, we're seeing a much larger discrepancy than that.

I guess a few other possibilities are:

1. Your suggestion that PERM's small number of individual stocks may just be duds in the midst of this stock rally
2. Since stocks are hot and conservative funds like PERM are not, money may be flowing out of PERM so quickly that it's selling at a very deep discount
3. PERM's management might be looting the fund in anticipation of shutting it down and running off to Belize to retire on the beach

I've got the sector weightings from the semiannual report but I don't know how to attach it.  The sectors seem pretty diversified to me, albeit kind of heavy on the REITS (about 5% of the total portfolio).  I don't think #1 (stock duds) is the reason for underperformance.

Could you explain reason # 2 a little.  I noticed PERM's market cap went from 28 M to 19 M nearly overnight a couple of months ago.

Sorry to ask such a newbie question, but I have some money in PERM so I am really curious.

[AgAuMoney]

I think they just picked the wrong stocks.  Probably Apple, and I see a few other's with less than great performance lately...

I don't recall seeing the Permanent Index (PDF) constitution posted here previously.

The methodology seems OK and the asset weighting seems reasonable to me except for one thing:

• Long Term US Government Bonds 25%
• Short Term US Government Bonds 25%
• Precious Metals 25% divided into
  • Gold 20%
  • Silver 5%
  [/li]
• Equities 25% divided into
  • US Large Caps 9%
  • US Small Caps 3%
  • Global Large Caps ex US 3%
  • Global Agribusiness 1.67%
  • Global Mining ex Gold and Silver 1.67%
  • Global Natural Resources 1.67%
  • US REITs 5%
  [/li]

Where is the rest of the equities? 

I didn't look for the fine print (if any) about how the index can vary from that...  But the PERM fund has that fine print so they don't have to follow the index if they don't feel like it. 

The fund's full list of 95 holdings are linked from the info page.

I attribute their performance to their stock picking.

[rickb]

I think they just picked the wrong stocks.  Probably Apple, and I see a few other's with less than great performance lately...

I don't recall seeing the Permanent Index (PDF) constitution posted here previously.

The methodology seems OK and the asset weighting seems reasonable to me except for one thing:

• Long Term US Government Bonds 25%
• Short Term US Government Bonds 25%
• Precious Metals 25% divided into
  • Gold 20%
  • Silver 5%
  [/li]
• Equities 25% divided into
  • US Large Caps 9%
  • US Small Caps 3%
  • Global Large Caps ex US 3%
  • Global Agribusiness 1.67%
  • Global Mining ex Gold and Silver 1.67%
  • Global Natural Resources 1.67%
  • US REITs 5%
  [/li]

Where is the rest of the equities? 

The percentages in each equity class are pretty clearly percentages of the total, rather than percentages of the 25% of the total invested in equities (9% + 3% + 3% + 1.67% + 1.67% + 1.67% + 5% = 25%).

Has anyone compared PERM's results to index funds/ETFs in these proportions?

[AgAuMoney]

percentages of the 25% of the total invested in equities (9% + 3% + 3% + 1.67% + 1.67% + 1.67% + 5% = 25%).

Has anyone compared PERM's results to index funds/ETFs in these proportions?

Oh.  I had misread Ad Orientum's earlier remark as saying PERM had 30% equities when he actually was saying PRPFX had 30%.

I haven't looked closely at the PERM bonds, but the only thing that looks very unindex like to me is their stock allocation.

[Tortoise]

A mere 5% difference in stock allocation doesn't explain much. On www.etfreplay.com, increasing the HBPP's stock allocation from 25% to 30% only increased the total return from -1.6% to -0.5%. With PERM, we're seeing a much larger discrepancy than that.

I guess a few other possibilities are:

1. Your suggestion that PERM's small number of individual stocks may just be duds in the midst of this stock rally
2. Since stocks are hot and conservative funds like PERM are not, money may be flowing out of PERM so quickly that it's selling at a very deep discount
3. PERM's management might be looting the fund in anticipation of shutting it down and running off to Belize to retire on the beach

[...]
Could you explain reason # 2 a little.  I noticed PERM's market cap went from 28 M to 19 M nearly overnight a couple of months ago.

Sure, #2 basically means that with a very small ETF like PERM, there are fewer buyers and sellers, meaning liquidity is lower. So it's not as easy to pair buyers with sellers, which causes the bid-ask spread (the difference between what buyers are willing to pay and what sellers are willing to accept) to widen. That means a very small ETF often sells at a noticeable premium or discount relative to its net asset value (NAV). As rickb pointed out earlier in this thread, those premiums and discounts tend to be arbitraged away eventually--however, it's not instantaneous.

If a small ETF were to lose almost 1/3 of its total assets practically overnight, as it appears may have happened with PERM if it really went from $28M to $19M in assets, I think that would almost certainly result in the ETF selling at a deep discount relative to NAV for at least a little while.

Has anyone compared PERM's results to index funds/ETFs in these proportions?

Unfortunately the free version of ETF Replay only allows portfolio backtesting with a maximum of 5 ETFs, so I hacked an estimate by taking a weighted average of five different 5-ETF portfolios. Each one had 25% TLT (long-term Treasuries), 25% SHY (cash), 20% GLD (gold), and 5% SLV (silver). I set the remaning 25% to either VV (large-cap U.S. stocks), VB (small-cap U.S. stocks), VEU (international stocks), VNQ (U.S. REIT), or GNR (global natural resources). I then calculated the weighted average return of those five portfolios, using PERM's weights of 9%, 3%, 3%, 5%, and 5%, respectively. Here's what I got:

Version with 25% VV: -2.2% YTD
Version with 25% VB: -1.7% YTD
Version with 25% VEU: -5.5% YTD
Version with 25% VNQ: -3.9% YTD
Version with 25% GNR: -7.5% YTD

Weighted Average ("indexed PERM estimate"): -3.9% YTD

That's definitely lower than the plain-vanilla HBPP's YTD return of -1.6%, so it does seem like PERM's asset allocation explains part of the story. But given that PERM's actual YTD return is a noticeably lower -5.8%, I still don't think asset allocation explains the whole story. It seems like additional factors are at work here.

Again, I suspect the rest of PERM's underperformance might be explained by a combination of unfortunate stock-picking and/or a deep discount to NAV caused by a large recent sell-off of shares. But that's just a theory.

[rickb]

PERM is currently selling at about a 0.15% premium, see http://etfs.morningstar.com/quote?t=PERM

[Tortoise]

PERM is currently selling at about a 0.15% premium, see http://etfs.morningstar.com/quote?t=PERM

Doesn't the negative sign on the -0.15% mean it's a discount, not a premium? (On PERM's web site dated 5/31, for example, they list a discount of $-0.07/$24.17 = -0.29%.) Even so, point taken--that's not a big discount. There goes that theory.

[foglifter]

Today is a good day to resurrect this thread. Just checked the real-time quote and the latest reported trade was on Thursday. The trading volume is 0. Yeah, what's happening to PERM? Is this a complete shutdown in the aftermath of yesterday's sell-off?

[smurff]

Someone traded 515 shares today.  That's so low it doesn't sound real.

[jediclampet]

Another mass exit (percentage-wise) from PERM today.  Market cap went from 19 M to 15 M. 

[smurff]

Someone at PERM needs to say something, otherwise, I'm inclined to believe a craigR about this fund--it's too new to invest in.

[GT]

Looks like AgAuMoney was right on the stock picking versus index for the stock portion.

The marketing page for Perm has it listed as indexed but the total holdings show stock picking took place.

From the website they talk about indexing

Passive index exposure: each portion of the Fund does not try to “beat”? an index but rather provides market returns through indexing. The target allocation is also indexed, which avoids the potential risk of the manager taking bets or views on the likelihood of different economic environments.

But from the holdings section it does look like stock picking took place



Global X Permanent ETF
Fund Holdings Data as of 7/5/2013

% of Net Assets Name Identifier Market Price($) Shares Held Market Value($)
10.02 ETFS PHYSICAL GOLD B1VS377 118.58 12,620.00 1,496,416.50
9.99 GOLD BULLION SECURITIES B00FHZ8 116.90 12,758.00 1,491,410.20
7.26 US TBOND 4.375% 11/15/39 912810QD3 1.14 953,000.00 1,083,293.21
6.63 U.S. TREASURY NOTE 912828LZ1 1.03 965,000.00 990,067.81
6.59 U.S. TREASURY NOTE 912828MR8 1.03 952,000.00 983,832.98
6.56 US TBOND 2.625% 12/31/14 912828ME7 1.03 947,000.00 979,626.99
5.79 U.S. TREASURY BOND 912810QK7 1.05 825,000.00 863,930.10
5.74 U.S. TREASURY BOND 912810QE1 1.18 726,000.00 857,587.50
5.64 U.S. TREASURY BOND 912810QH4 1.14 741,000.00 842,308.78
5.28 U.S. TREASURY NOTE 912828MW7 1.04 760,000.00 788,084.28
3.11 VANGUARD SMALL CAP ETF 922908751 96.35 4,822.00 464,599.70
3.04 VANGUARD FTSE ALL-WORLD 922042775 44.41 10,215.00 453,648.15
2.53 ZKB SILVER ETF B6ZNYV4 58.35 6,479.00 378,050.98
2.52 ETFS PHYSICAL SILVER B1VS333 18.22 20,643.00 376,115.46
0.52 EQUITY RES PROP 29476L107 57.36 1,362.00 78,124.32
0.52 SIMON PROPERTY GROUP INC 828806109 159.47 486.00 77,502.42
0.50 GENERAL GROWTH PROP  REIT 370023103 20.04 3,757.00 75,290.28
0.50 PUBLIC STORAGE (REIT) 74460D109 152.87 492.00 75,212.04
0.50 PROLOGIS INC. 74340W103 37.50 1,991.00 74,662.50
0.50 AVALONBAY COMMUNITIES 53484101 135.01 552.00 74,525.52
0.49 HCP INC (REIT) 40414L109 44.45 1,658.00 73,698.10
0.49 VENTAS INCORPORATED 92276F100 68.04 1,083.00 73,687.32
0.49 HEALTH CARE (REIT) 42217K106 65.22 1,126.00 73,437.72
0.48 AMERICAN TOWER CORP 03027X100 71.67 1,009.00 72,315.03
0.35 ARCHER-DANIELS-MIDLAND CO 39483102 34.88 1,484.00 51,761.92
0.35 MOSAIC CO/THE 61945C103 53.75 959.00 51,546.25
0.34 ROYAL DUTCH SHELL ADR-A 780259206 63.22 813.00 51,397.86
0.34 EXXON MOBIL COR 30231G102 91.57 555.00 50,821.35
0.34 CHEVRON CORP 166764100 120.51 420.00 50,614.20
0.33 MONSANTO CO NEW 61166W101 98.71 499.00 49,256.29
0.33 BP PLC 798059 6.76 7,226.00 48,881.07
0.32 CIA VALE DO RIO DOCE ADR 91912E105 12.63 3,803.00 48,031.89
0.32 ANGLO AMERICAN PLC B1XZS82 18.13 2,606.00 47,255.45
0.31 BHP BILLITON LTD - ADR 88606108 56.32 822.00 46,295.04
0.31 GLENCORE INTERNATIONAL B4T3BW6 3.83 11,889.00 45,500.04
0.29 POTASH CORP SASK INC 73755L107 38.19 1,145.00 43,727.55
0.29 PETROCHINA CO LTD - ADR 71646E100 113.83 380.00 43,255.40
0.27 WILMAR INTERNATIONAL LTD B17KC69 2.45 16,513.00 40,505.29
0.27 RIO TINTO PLC-ADR 767204100 39.90 1,009.00 40,259.10
0.22 UNITED PARCEL SERVICES 911312106 87.54 371.00 32,477.34
0.21 ORACLE CORP 68389X105 31.20 1,008.00 31,449.60
0.20 QUALCOMM 747525103 60.95 494.00 30,109.30
0.20 MCDONALDS CORP 580135101 99.86 301.00 30,057.86
0.20 ALTRIA GROUP INC. 02209S103 35.49 842.00 29,882.58
0.20 INTL BUSINESS MACHINES CO 459200101 194.93 153.00 29,824.29
0.20 AT&T INC 00206R102 35.83 812.00 29,093.96
0.19 APPLE INC 37833100 417.42 68.00 28,384.56
0.19 SCHLUMBERGER 806857108 74.09 383.00 28,376.47
0.19 UTD TECHNOLGIES 913017109 96.53 291.00 28,090.23
0.19 AMAZON.COM INC 23135106 285.88 98.00 28,016.24
0.19 EBAY INC 278642103 53.85 520.00 28,002.00
0.19 GILEAD SCIENCES 375558103 53.32 525.00 27,993.00
0.19 MASTERCARD INC 57636Q104 595.03 47.00 27,966.41
0.19 HOME DEPOT INC 437076102 78.29 355.00 27,792.95
0.19 COMCAST CORP CLASS A 20030N101 41.70 665.00 27,730.50
0.19 AMERICAN INTERNATIONAL GP 26874784 45.19 613.00 27,701.47
0.19 GOOGLE INC 38259P508 893.49 31.00 27,698.19
0.19 BOEING COMPANY 97023105 104.20 265.00 27,613.00
0.19 US BANCORP 902973304 36.76 750.00 27,570.00
0.19 CVS CORP 126650100 58.64 470.00 27,560.80
0.18 JP MORGAN CHASE & CO. 46625H100 53.99 509.00 27,480.91
0.18 BERKSHIRE HATHAWAY - CL B 84670702 114.96 239.00 27,475.44
0.18 AMERICAN EXPRESS 25816109 76.31 360.00 27,471.60
0.18 BANK OF AMERICA CORP. 60505104 13.06 2,101.00 27,439.06
0.18 3M COMPANY 88579Y101 111.54 246.00 27,438.84
0.18 UNION PAC CORP 907818108 157.48 174.00 27,401.52
0.18 WELLS FARGO CO 949746101 42.07 651.00 27,387.57
0.18 JOHNSON & JOHNS 478160104 87.87 311.00 27,327.57
0.18 UNITEDHEALTH GROUP INC 91324P102 66.17 412.00 27,262.04
0.18 CITIGROUP 172967424 48.53 561.00 27,225.33
0.18 WALT DISNEY COMPANY 254687106 63.82 425.00 27,123.50
0.18 MERCK & CO INC/NJ 58933Y105 47.16 575.00 27,117.00
0.18 COCA-COLA CO 191216100 40.52 669.00 27,107.88
0.18 VERIZON COMMUNICATIONS 92343V104 51.30 528.00 27,086.40
0.18 CISCO SYSTEMS INC 17275R102 24.57 1,099.00 27,002.43
0.18 WAL-MART STORES 931142103 75.21 358.00 26,925.18
0.18 HONEYWELL INTERNATIONAL I 438516106 80.06 336.00 26,900.16
0.18 GENERAL ELECTRIC 369604103 23.24 1,157.00 26,888.68
0.18 GOLDMAN SACHS INC. 38141G104 153.24 175.00 26,817.00
0.18 PEPSICO INC 713448108 80.80 331.00 26,744.80
0.18 MICROSOFT CORP 594918104 34.21 781.00 26,718.01
0.18 VISA INC CLASS A 92826C839 190.79 140.00 26,710.60
0.18 INTEL CORP 458140100 24.06 1,084.00 26,081.04
0.17 AMGEN INC 31162100 97.64 266.00 25,972.24
0.17 PROCTER & GAMBLE CO 742718109 78.34 330.00 25,852.20
0.17 BRISTOL MYERS SQUIBB 110122108 44.18 585.00 25,845.30
0.17 PHILIP MORRIS INTER. 718172109 87.51 291.00 25,465.41
0.17 PFIZER 717081103 27.97 906.00 25,340.82
0.15 ABBVIE INC 00287Y109 42.72 527.00 22,513.44
-0.04 CASH CASH 1.00 -6,340.36 -6,340.36

[ozzy]

PERM is up +2.11% today.  yee-ha!

[foglifter]

PERM is up +2.11% today.  yee-ha!

Well, almost everything is up today. Gold is up over 2% and emerging markets are up almost 5%.

[Dieter]

PERM is up +2.11% today.  yee-ha!

Well, almost everything is up today. Gold is up over 2% and emerging markets are up almost 5%.

I am still happy PERM is up today.

[jediclampet]

Today:

TLT: +1.58%
GLD (and SLV): +0.85%
VTI: +0.15%
SHY: +0.05%

PERM: -0.34%

[Khisanth]

PERM also seems to have such a low trading volume it's still pretty scary.

Global X Permanent ETF (PERM)
-NYSEArca

23.76 Up 0.08(0.34%) 4:00PM EDT

Volume: 100
Avg Vol (3m): 5,470

[ozzy]

PERM +1.65%

Come'on PERM, up, up! 

[ozzy]

PERM +1.85% today!

[Ad Orientem]

PERM +1.85% today!

Not surprising. All the components of the PP were up today. Gold and silver rose sharply.