Gyroscopic Investing

hrux wrote: My question:  Has anyone looked into establishing a low cost mutual fund or ETF wrapper based on a true HB 4 x 25 Permanent Portfolio while keeping the costs as low as possible?  If not, is anyone interested in forming a partnership to start one?

hrux wrote: Startup costs are not as high as one might think (all relative).

For example:
It really depends on a few things - there is a whole ecosystem of service providers, as a small fund you are going to be outsourcing almost everything other than fund management to these folks.   They go from cadillac level plans to walmart level plans.  Here is an example of someone who is in say the bottom third in costs but has a good reputation:

http://www.ultimusfundsolutions.com/

So depending on whom you use, your annual costs in a small fund (say $10-$20m in AUM) could be anywhere from $70-$150K annually. Give or take part of this is dependent on how many states you are in.  If all your investors are in 1 state, then you have a lot less costs than if you launch in 50 states.  Figure about $500 for each state you are in (annually)  So that is a range of $500 to $25,000 ... but I included that in the figure above. But there are many variables - who does your compliance, what you pay your board, for example 2 things out of 50 variables.

The launch costs are not as bad, you can probably figure on $50K as an estimate give or take $10-$25K swing based on the attorney and some other variables.  So it's a quite expensive thing to do, ironically a hedge fund is much less expensive since the amount of regulation is tiny in comparison but you are limited to who can invest and your ability to advertise.  However, with the formation of a partnership we can spread the initial costs amongst the members. 

The major concern that I have is that the approach could be easily replicated by another fund company so first to market, size, scalability and costs will dictate the long term viability of the fund.

Thoughts?

hrux wrote: The major concern that I have is that the approach could be easily replicated by another fund company so first to market, size, scalability and costs will dictate the long term viability of the fund.

Wonk wrote: I wonder if the interest from long and short term treasuries could be structured so that they are held internally and not passed through to shareholders.  The goal would be to reduce pass-through taxable income of the fund and increase NAV instead.

foglifter wrote:

Wonk wrote: I wonder if the interest from long and short term treasuries could be structured so that they are held internally and not passed through to shareholders.  The goal would be to reduce pass-through taxable income of the fund and increase NAV instead.

I think this is how PRPFX is implemented - it keeps the overall yield at a minimum and pays very low capital gains and dividend only once a year. Here's the M* statistics for the last 5 years:


I'm not an investment professional, but my guess is the managers use bond interest payments and capital gains and dividends from equity during the year for rebalancing purposes. Given low turnover it looks feasible. 

SmallPotatoes wrote: This is aside the point, but I wonder: presently I have my Cap' Gains/Dividends and Interest Payments from my mutual funds set to reinvest.  Should I instead have them sent to a MM account for rebalancing later?

foglifter wrote:

SmallPotatoes wrote: This is aside the point, but I wonder: presently I have my Cap' Gains/Dividends and Interest Payments from my mutual funds set to reinvest.  Should I instead have them sent to a MM account for rebalancing later?

If it is in a taxable account I would turn off reinvestment option and do that manually for easier accounting. In tax-deferred it depends: in case of non-transaction-fee-free ETFs and mutual funds I reinvest. But if you have, say, a rollover IRA with no new cash inflow you might want to turn off reinvestment and use cash for rebalancing.

nomimono wrote: If this is done, it might be more beneficial if it was a traditional mutual fund rather than an ETF, or at least had both traditional and ETF class shares like Vanguard does. That way, all the people (including me) that are having trouble implementing the PP in their 401k may have a better shot at getting access to the PP through a traditional mutual fund. For my 401k for example, through our very restricted brokerage window I can get any mutual fund there is, but ETFs (or anything else for that matter) are still off-limits, so I'm in PRPFX for now.

I like the hands-on approach of managing my own investments in my taxable account, but for a 401k a one-stop fund that does all its own re-balancing and allows steady incremental investment and dividend re-investment would be a nice option.