Four Solid Hard-Asset Funds

01/30/2008 12:00 am EST

Focus: COMMODITIES

Thurman Smith

Editor, Equity Fund Outlook

Thurman Smith, editor of Equity Fund Outlook, finds several funds that have done well by concentrating on commodities and currencies.

A resource-stretched world is the underlying theme at Leeb Focus R (LCMFX), which returned 17.0% over its first 12.5 months, a period in which the market gained less than 1%. The portfolio is heavy in the larger firms Stephen Leeb sees as leveraged to growth and inflation, such as energy (15%), materials, and industrials. It also holds about 5% in gold-related ETFs and stocks.

In 2003 Leeb was one of the first to forecast $100 oil. Leeb Focus is a good defensive play with low correlation to the market. It is also tax-efficient, and its small asset base will give Leeb great flexibility for some while. 

Over its 1.8 years, Allianz RCM Global Resources D (ARMDX) has returned the annual equivalent of 25.4% vs. 16.9% for the average natural resource fund. Fund manager Paul Strand was an oil, gas, and coal analyst with Advantus before coming to RCM in 2004, when the A class of this fund started. All the energy/resource funds are high-risk, but RCM Global Resources is the least risky and most efficient. Two-thirds of its $35 million assets (all classes) are in domestic firms.

Merk Hard Currency (MERKX) seeks to protect against the depreciation of the US dollar. It invests at least 80% of assets in high-quality, short-term money market instruments of countries pursuing “sound” monetary policy, and indirectly in gold through ETFs and futures contracts.

It is more volatile than its world bond [fund] peers, but if you are both pessimistic about the dollar and optimistic on gold, and OK with holding a nonequity vehicle, Merk Hard Currency could be very useful.

Permanent Portfolio (PRPFX) is not strictly an equity fund, but does have a structured diversification that is broader than most sector funds. Preservation of buying power over all market conditions is the idea behind this unique offering, which maintains a fixed allocation of 25% in gold and silver, 10% in Swiss franc assets, 15% in US and foreign real estate and natural resource companies, 15% in aggressive domestic stocks, and 35% in US government paper.

Permanent Portfolio has not beaten the market over very long periods, but it returned 8.5% annualized over the last 15 calendar years vs. 10.5% for the market, and over the past ten years its annualized return of 9.4% beat the market’s 6.3%. It did this with a risk exposure half that of the market. (One reason for the recent good performance is its gold allocation.)

So, Permanent Portfolio might be useful in a choppy market that makes little net gain over a sustained period. For cautious investors who are willing to give up market returns in strongly rising periods, Permanent Portfolio looks like a way to grow capital safely and with a low tax impact from distributions.

Subscribe to Equity Fund Outlook here…

Related Articles on COMMODITIES