(Bloomberg News) Michael Cuggino's Permanent Portfolio has been sticking with the same asset mix for almost three decades, a combination of gold, silver, the Swiss franc, stocks and bonds meant to guard against inflation and recession.
For years, his fund languished while investors chased surging stock and bond markets. At the end of 2001, after stocks had rallied 17-fold over two decades, Permanent Portfolio had assets of $52 million. Now, 10 years later, the fund is beating all rivals and assets have surged to $15.6 billion.
Cuggino said the asset allocation is timeless and sticking to it can prevent investors from suffering through periods like the 1970s, when a recession, soaring inflation and the U.S. decision to abandon the gold standard made it difficult to make money with the traditional balance of stocks and bonds.
"This fund has been in the right place at the right time," Janet Yang, a Morningstar analyst, said in a telephone interview. "The whole story here has been asset allocation."
With gold, silver and the Swiss franc all falling from record highs, the fund's top ranking may not last.
Cuggino, president of San Francisco-based fund adviser Pacific Heights Asset Management LLC, aims to keep 20 percent of the assets in gold, 10 percent in a blend of Swiss francs and Swiss government debt and 5 percent in silver, as well as 35 percent in bonds and 30 percent in equities of mostly U.S. companies.
The fund gained an annualized 10.5 percent in the five years ended Sept. 13, the best return among 2,153 balanced funds tracked by Chicago-based Morningstar Inc., most of which divvy their assets among stocks, fixed income and cash.
'Predicting The Future'
Cuggino, who took over the fund in May 2003, has no plans to change Permanent Portfolio's mix.
"We don't think human beings are good at predicting the future," Cuggino, 48, said in a telephone interview.