While bulls were looking forward to a dovish Fed statement, they seem to forget that it is based on ...
Four Solid Hard-Asset Funds
01/30/2008 12:00 am EST
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
Crude oil inventories are shrinking as crude oil demand continues to rise, warns Phil Flynn, senior ...
Today’s energy report, written by Dan Flynn, discusses additional bullish pressure on crude du...
Bullish crude oil fundamentals run into bearish technicals in the Brent contract, notes Fawad Razaqz...