Gyroscopic Investing

What's up with PRPFX today?

It's down 9.9%.

I'm guessing it's mostly an end of year capital gains distribution but there is no information as of yet on their website.

I just found this:

"One potential issue we noticed was with regard to taxes and the potential capital gains exposure (PCGE). This is typically the case with many mutual funds but during a year like 2013 when the markets are breaking records yet this fund is not performing well…. you could be saddled with a tax bill!

Morningstar calculates their PCGE at 13.49%. This is an estimate of the percent of a fund’s assets that represent gains but have yet to be distributed. Take heed of such a number if you’re about to purchase this fund. For those who have owned it for years and perhaps been the benefactor of decent performance, it makes sense that they should pay capital gains. For investors that are new or potentially considering the fund, however, it would be rather insulting and silly to pay capital gains on a fund that is dragging as PRPFX has lately.

If the PRPFX did indeed decide to sell all its profitable holdings, it could mean that for every $1,000 you own of the fund you would be hit with a $130 capital gains distribution. With a tax rate of 15% that would cost $19.50 which is almost 2%."

That was written back in June....here: http://www.myportfolioguide.com/blog/16 ... rpfx-.html

WTF!!!

Was Cugino indicted today? This is serious and requires an explanation. A conservative allocation fund should not be taking a 10% hit in a single day for anything short of global thermonuclear war.

Pending a satisfactory explanation I can no longer endorse PRPFX.

I took a 100k haircut today...

portart wrote: I took a 100k haircut today...

portart, that 10% capital gain distribution will either be reinvested automatically in new shares or placed in your cash account. Either way you are only responsible for the tax on the amount of the distribution. You are not going to lose the 10%, just the taxes on it. If you have any losses in other funds (gold?) I believe that you can sell some and offset these capital gains. That is what I'm doing.

Please keep in mind that I am just offering my opinion and am not an expert.

I don't get it? Do you mean the fund price will rise again tomorrow? If my holdings in PRPFX reflect a 43. a share price and I own x amount of shares, then my portfolio will reflect that value. For example, if I sell all the shares tomorrow, don't I lock in that loss??

or do you mean i will own more shares? All I know is my portfolio value is 100k lighter in my schwab acct. What will make it rise in value?

If you automatically reinvest your capital gains then you will own more shares tomorrow.

PRPFX finally posted their capital gains distributions for 2013 to their website (8PM NY time):

http://www.permanentportfoliofunds.com/pd_div.htm

A $4.35 long term capital gain distribution and $0.25 ordinary income, equal to just under 10% of the NAV!

It sure looks deceiving that they would keep this a secret for as long as they did.

I am still confused. Make this simple for me. Tomorrow morning my acct value will go up as some cash will show up in my Schwab acct in something other then PRPFX? How can they do that? or…will more shares appear without me buying them and the acct will go up. Finally, if I sold some shares today at the close, will that be reflected also. Thank you

I read the link. In the ten years I owned the fund, I never saw anything like this before. It's kind of confusing. You would think they would send an email to every stock holder explaining this rather then see your funds get slaughtered at the close of trading. They could have a mass exodus of selling after this.
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portart, the shares should automatically be purchased tomorrow and you will own more shares at a lower price, equalling the value prior to today minus any small losses (or gains) due to NAV movement. My guess is that you will not see this until the end of the day. Please keep in mind that the fund did not get slaughtered. You own as much of it now as you did yesterday minus any movement in the NAV. The repurcussions are all in the taxes so look to equal this capital gain with some long-term losses tomorrow. I hope that this helps.

Yes it helps…with my sleep tonight ) Since I sold some shares at the close today (for the 43.00 closing price I guess, how else would they price it?), not sure how they would figure that to get you shares back, It's a little confusing. I sold about 40K today unaware of this distribution. I guess I need to call Schwab about that. I have been moving money out of PRPFX over the last few months not wanting to be all out of the market on any given day and moving it into my own ETF PP. 

Keep in mind that the distribution is a taxable event if PRPFX is held in a taxable account.

The smaller portion is in the taxable account. The majority is in my retirement account. Still waiting for the new shares to appear. I guess at the close.

I'm glad I didn't see this thread until today, and I'm glad I didn't look at my PRPFX until I saw this thread.
I bought in the fall of 2010 and it was kind of weird to see my holdings' value go back to where it started.

Reub wrote:
"One potential issue we noticed was with regard to taxes and the potential capital gains exposure (PCGE). This is typically the case with many mutual funds but during a year like 2013 when the markets are breaking records yet this fund is not performing well….

That's interesting.  Any idea what causes this?

portart wrote: I took a 100k haircut today...

Hope you lived thru this.
That's like heart attack city !

I am sorry if this comes off as nasty, as that is not my intention; but if you don't understand how this works, perhaps you shouldn't be investing.

ngcpa wrote: I am sorry if this comes off as nasty, as that is not my intention; but if you don't understand how this works, perhaps you shouldn't be investing.

It's okay.  No offense taken.  I'm just curious as to why a stock market rally would cause a lagging fund to have a distribution like this. 

As an aside, the nice thing about the PP is that you can, in fact, invest without understanding this type of thing.  Just follow HB's very simple instructions, or buy the mutual fund. 

I know that when I was younger I didn't understand some of this stuff either. Happy to help.

AdamA wrote: Any idea what causes this?

An educated guess:

Mutual funds and ETFs generally avoid internal capital gains by rebalancing through buying lagging assets with cash inflows to the funds rather than selling the winners.  Since the Permanent Portfolio had a down year and lost popularity, PRPFX probably had a net outflow that was too large to offset the capital gains from the huge stock gains this year. 

Thanks, Tyler.  That makes sense.

Any idea why there hasn't been a distribution this large before? 

It looks like PRPFX had a gigantic outflow during 2013 of 25-35% of its assets, which isn't surprising when you consider that the PP had an unimpressive year in 2013.

When you are having to sell assets to honor those redemption requests after many years of net inflows, you are liquidating many assets for large gains.

Part of what has made PRPFX so tax efficient in recent years is the large amount of money that has gone into the fund, and it has probably made it so that Cuggino has rarely needed to sell much of anything.  I think that we're seeing that process work in reverse now.

AdamA wrote: Thanks, Tyler.  That makes sense.

Any idea why there hasn't been a distribution this large before?

If you look at the price history of PRPFX, I think that there have been several large distributions like this one in previous years during periods when the PP wasn't performing well relative to the stock market.

I think that in the fund's first 10-12 years distributions like this happened at least a couple of times (though they weren't quite as large).

Desert wrote: I may be missing something, but I don't see any reason to own PRPFX.  Why not just hold 4 ETF's?

For the vast majority of people on this forum you are correct. But there are some people for whom PRPFX might make good sense. I know more than a few whose eyes glaze over at the mere mention of stocks, bonds, yield, dividends, ETFs etc. For those who by choice or necessity are conservative investors, and who are either unable or unwilling to take charge of their own investments in even a minimal way, PRPFX is a very good choice.

It's really one of only two funds I have felt comfortable recommending for one stop shoppers. (The other being VWINX.)