One of the areas of the investment world that has been gaining in popularity in the last five years ...
Top Picks for 'Permanent' Portfolios
12/05/2014 10:00 am EST
Michael Cuggino, Portfolio Manager of The Permanent Portfolio Family of Funds, discusses the overall ‘market agnostic’ strategy of the fund, which is designed to produce returns in any environment and he shares a trio of holdings to consider for the long-term.
Steven Halpern: Our special guest today is Michael Cuggino, Portfolio Manager of The Permanent Portfolio Family of Funds. How are you doing today, Michael?
Michael Cuggino: Very good. Thank you, Steven.
Steven Halpern: Well, thank you so much for joining us. First, let’s discuss The Permanent Portfolio Fund for our listeners, the symbol there is (PRPFX). Could you tell us about the overall strategy of the fund and what accounts for its excellent long-term performance?
Michael Cuggino: Yeah, the portfolio is designed to preserve and grow purchasing power over the long-term and its market agnostic in that it’s designed to produce returns in any environment. I guess what they call, these days, an absolute return-type of methodology.
It does this based on investing in a variety of different asset classes—gold and silver, Swiss franc-denominated assets, equities and growth stocks, as well as harder asset stocks like natural resources and real estate—and fixed income consisting of high-grade shorter-term corporate bonds and US Treasury bonds.
The thinking is that broad diversification provides investor protection from forecasting risk, portfolio manager risk, and the inability of human beings over time to accurately predict markets.
For that conservative core part of your portfolio—or your savings—that you don’t want to subject to those sorts of risks, you know, guessing the direction of the stock market, or guessing what interest rates are going to do tomorrow, or whatever, but rather encompass the whole variety of opportunities, then this portfolio provides that risk-averse structure for you.
Steven Halpern: Could you highlight a couple of individual sectors or particular stocks that would best represent the current goals and outlook for The Permanent Portfolio?
Michael Cuggino: Well, like I said, it invests in a variety of different asset classes. I think one that’s very interesting today, although probably not on everybody’s most popular list, would be gold.
Despite the strength of the dollar and the lack of visible inflation—and I say visible because the reason we’re not seeing inflation, primarily, these days is anemic economic activity and a lack of monetary velocity—I think once those things change, the amount of credit that’s been created around the world will result in inflationary pressures relatively quickly, but we don’t know when that’s going to occur.
In any event, gold acts as a hedge for wealth preservation and maintenance against the decline in unit value of paper money that is created when governments and central banks print more and more money.
As part of an overall wealth strategy—I wouldn’t say you throw all your money into gold—but as a component of part of an overall wealth strategy, it makes sense to have an allocation in your portfolio for this reason.
Other areas, I mean, in the stock market, I mean, we tend to be long-term focused. We tend to look for three- to five-year time horizons in our company so we’re investing in companies versus trading stocks.
In that vein, we continue to look in areas such as technology, such as biotech and pharmaceutical, financial services, US companies, transports, all of which have done pretty well this year, but also, in areas that are beaten down and maybe oversold such as energy and natural resources.
Steven Halpern: Now your Permanent Portfolio Aggressive Growth Fund—with the symbol (PAGRX)—is known as a go-anywhere fund. Could you explain what that means for our listeners?
Michael Cuggino: Yeah, it’s a multi-cap core equity fund only—so it’s only equities—and go anywhere means that it’s not boxed in by any sort of style box or large-cap, mid-cap, small-cap, it can invest in any of those and does so.
It’s a focused fund, 30 to 50 names, typically, in a variety of different industry groups. It is designed to beat the broad overall market as referenced by the S&P 500, and it’s been around since 1990, so it’s had roughly 24 years of performance that time has outperformed the S&P 500.
Anybody that’s invested in a straight-up S&P 500 index fund, you would have had much better equity performance in this fund over the long-term by being in this actively managed product versus just a straight-up index fund. That’s after expenses.
The idea being that it’s fully invested in equities all the time. There’s no market timing. There’s no jumping in and out of the market. It only holds small amounts of cash at any one time. If you’re a stock investor, this gives you stocks for better or worse. It’s designed to beat the broad market, as I said.
Steven Halpern: Now, can you highlight a few specific stocks that are currently a favorite under the Permanent Portfolio Aggressive Fund?
Michael Cuggino: Sure. I think the equity strategy that I mentioned previously that pertained to Permanent Portfolio may also be applicable here. I would say that all of those sectors are relevant and interesting as investments in the Aggressive Growth portfolio.
Names that come to mind, recently—Facebook (FB) would be obviously one of our larger holdings—and I think there is no secret as to what that is, it’s a broad-based technology consumer company.
It’s got a large intangible asset of data that it’s seeking multiple avenues to monetize and it’s done pretty well in doing so in its first couple of years as a public company.
We think that, while they may hit and miss once in a while in this business line or that business line, the net result is that they’ve got a very large intangible asset that they can monetize and we think they’re going to be very successful doing so, especially given their presence in mobile computing, which is more and more what people are doing nowadays with their devices.
Other names that come to mind—FedEx Corp. (FDX)—obviously, a transport, obviously very levered to economic activity and growth. If you buy into the fact that the economy is improving, US economy is improving, that means higher volumes, better pricing environment for a company like FedEx.
We’re entering into the holiday season; should be a busy period for them. They’ve had great earnings and outlooks going forward. Transport stocks, in general, have kept up with the Dow Jones Industrial Average. Typically a bullish sign for equities. Again, an aggressive longer-term spot to be.
Another name that would come to mind would be Gilead Sciences (GILD) in the biotech area, multiple therapies for very targeted conditions, high margins, and significant barriers of entry there. They continue to outperform in the revenue front and the earnings front.
You buy into the story of an aging population and more needs, more conditions, the volume of such conditions goes up. This sort of a company, which focuses on hepatitis C, AIDS, and other infectious viruses, is poised to continue to grow.
Steven Halpern: Well, we really appreciate you taking the time and sharing some of your ideas. Thank you.
Michael Cuggino: Thank you very much, Steven.
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