4/1 Permanent Portfolio Update

The portfolio gained 1.14% in March 2022, compared to +0.22% for an investable global 60/40 mix, +1.94% for ACWI and +3.69% for VOO. Year-to-date, performance remains frustratingly mediocre at -6.00%, versus -5.48%, -5.67% and -4.63% for those comps, respectively. Ex-US equity exposure remains a drag on performance as a 50/50 NTSX/GLD mix would be -1.36% year-to-date.

I have been told that people are not able to view the permanent portfolio track record data directly on Portfolio Visualizer. Apparently this is because it is a custom data set. Therefore, going forward I will be exporting the data to .pdf and uploading to Google Drive. You can access the .pdf here: https://drive.google.com/file/d/11vG4v8Dj_hHeMHB5sI9SKNwl4t5EMY9-/view?usp=sharing. If you have issues accessing the file please drop me a line.

Current portfolio exposures:

Source: Demonetized Data & Calculations

I did execute a discretionary rebalance trade in March, selling some GLD and adding the proceeds to the EM Large Cap Fund.

Otherwise there is not much to report this month. 2021 through year-to-date 2022 have been a frustrating slog for the portfolio. I do not expect this to change any time soon given the current market environment. I do remain confident in the long-term efficacy of the approach.

3/1 Permanent Portfolio Update

I missed the February update for the portfolio (those of you who follow me on Twitter know I have posted very little recently). This was due to a health issue that emerged over the past few months, and a major career decision I’ve had to grapple with at the same time. I may write about both those experiences in time. For now, suffice it to say I am mostly recovered and healthy, with no life-threatening issues. Over the next few months I hope to get back to a more frequent cadence of writing and engaging.

Unfortunately, my leveraged permanent portfolio has provided little comfort during this period. It returned -5.72% in February, -1.42% in February, and has returned -0.71% month-to-date in March. Full performance data set is available here as usual. Year-to-date, the portfolio is -7.73%. This has provided a little better downside protection compared to most broad equity market indices (ACWI was -10.02% through 03/04/2022). But not much.

The real issue has been the ex-US equity exposure within the portfolio. A 50/50 NTSX/GLD portfolio would have returned -1.10% over the same period.

The current allocation is below.

Despite a difficult stretch, I remain confident in the leveraged permanent portfolio concept, and its utility as a relatively stable core for a wealth allocation over long time horizons. The low correlation of GLD to equities and fixed income provides a source of liquidity even in this difficult period. GLD is +7.51% year-to-date, versus -3.09% for the US Agg Bond Index and -10% for ACWI. Depending on an investor’s objectives, this portion of the allocation could be used to tactically rebalance into equities, or to fund near-term cash flow needs.

Personally, I will likely just rebalance some of the GLD into the hard-hit ex-US small cap portion of the portfolio. The discretionary stock portion of my wealth allocation has held up very well so far in 2022, and I have ample liquidity available to redeploy into new opportunities that will likely emerge over the coming months. (Here I owe a shoutout to fellow members of the LMT and MO investing cults communities)

Hopefully you will be hearing from me more frequently in the future.

1/1 Permanent Portfolio Update

I have been delayed in making this post due to some real life distractions. The year ended 2021 was a weak one for the portfolio, with a +5.70% return versus nearly +13% for a global 60/40 allocation and a blistering +28% for the S&P 500. A simple 50/50 NTSX/GLD portfolio would have returned +9.03%.

The full set of performance statistics is available here.

Current allocation:

You’ll notice I’ve made some allocation changes, notably by introducing a US small/micro cap value fund into the mix. This is a discretionary adjustment I’ve made as an initial, adaptive step in a macroeconomic and market environment that seems increasingly supportive of “value” (defined here as “statistical cheapness”). Since the purpose of this portfolio is to provide a stable core for one’s net worth, incremental adjustments are the order of the day.

2022 is shaping up to be a very interesting year so far. As I write this, this S&P 500 is -7.66% for the year. However, this bellwether belies huge dispersion across equity styles. US Small Caps as proxied by the Russell 2000 are down nearly 11.50%, and the Russell 2000 Growth index is down nearly 16% (!!). Ex-US and “value” style securities have delivered much more muted declines. Treasuries are down slightly and gold is flat.

All in all, the current market trends are relatively more favorable for a diversified portfolio such as this one. I say “relatively” because if 2022 plays out as the dominant narratives expect we are going to see rising interest rates, slowing growth and elevated inflation. A nasty cocktail for financial assets. Such an environment is one where most long-only allocations will be “taking their medicine.”

Nonetheless, a relatively stable portfolio core with some downside protection should provide a base of capital that can be selectively redeployed into the pain to scoop up some bargains in individual securities. I have a feeling there will be plenty to look at this year!

12/1 Permanent Portfolio Update

Updated performance statistics available here. The portfolio was -1.80% in November. This compares favorably with many equity market segments (US large cap being a notable exception). Relative to a “vanilla” US-equity-only implementation, ex-US equity exposure and a growth style tilt weighed on performance.

Month-to-date in December, the portfolio has been relatively flat, down 12 basis points. Overall it is shaping up to be a very mediocre year for the strategy (which I may write about more when the full year is on the books).

Current allocation:

10/1 Permanent Portfolio Update

Whoa. I really got behind on these updates. Here is the current portfolio allocation:

There have been some modest changes over the past three months (embarrassingly my last update covered through June). These are the result of market moves and also some mild rebalancing as I had cash flows into the portfolio.

The detailed performance comparison data is available here.

2021 continues to be a “take your medicine” year for the strategy. It’s a good illustration of why more people don’t invest like this. This kind of relative performance is trying, even for someone who has spent a good deal of time “doing the work” on the strategy.

Longer term, the static allocation (Portfolio 2 in the data) continues to perform as expected. The difference between this return stream and Portfolio 1 (the live track record) is partly why I decided to jettison the tactical elements of the original strategy. In 2020 the tactical overlays kept a significant portion of the portfolio in cash well past the nadir of the Covid drawdown. This led to poor up capture in the latter half of the year.

Source: Portfolio Visualizer / Demonetized Calculations

06/21 Permanent Portfolio Update

Due to my recent data issues, I’ve moved the performance tracking for the live leveraged permanent portfolio strategy over to Portfolio Visualizer. Fortunately, I was able to recover old performance using past updates posted on the blog.

Below is data since I went live with the strategy. Portfolio 1 is the live track record for my implementation. Portfolio 2 is the performance of a static allocation to my implementation since inception. Portfolio 3 is 100% SPY.

Source: Portfolio Visualizer & Demonetized Calculations

As you can see, my implementation has underperformed the static allocation. Bummer. The reason for this is that up until 2020 I was adjusting the gross exposure based on trailing volatility. The strategy de-risked significantly in March 2020 and was slow to get invested again. I’ve since decided to drop this aspect of the strategy and stick to a relatively static allocation with occasional rebalancing going forward. I’m confident the divergence between the live implementation and the static-since-inception implementation will narrow over time.

Current allocation:

33% S&P 500 Futures

22% Laddered Treasury Futures

33% Gold

28% ex-US equity (active mutual funds)

~118% gross exposure (numbers above are rounded)

Periodically I get questions about quirks of this implementation. The lack of US small cap exposure, for example. There’s a simple reason for this. For structural reasons, this isn’t my whole portfolio. I can’t own this strategy in my 401k. Also, I invest in a concentrated portfolio of individual securities with a sleeve of my net worth. So overall, I have that exposure. If the leveraged permanent portfolio were 100% of my portfolio, I’d bring in more of that US small and mid-cap exposure. As I’ve said many times, the philosophy underlying this approach is extremely flexible.

05/21 Permanent Portfolio Update

In a tragic turn of events, a Morningstar Portfolio manager debacle wiped out my historical performance data earlier this month. So we’ll have to make do with just the backtest while I build up the live track record again (as far as I can tell the old data is unrecoverable).

I may try and go back through the old updates to rebuild the “real” track record but it’s not something I’ve put any time into yet.

Current allocation:

33% S&P 500 Futures

22% Laddered Treasury Futures

32% Gold

30% ex-US Equity

~117% gross exposure