29 October 2013

Gold and the Permanent Portfolio in Australia

On my way back from the Gold Symposium a couple of weeks ago I caught up with Davin Hood who runs the Cor Capital Fund, which is based on Harry Browne's Permanent Portfolio investment strategy (Craig Rowland's blog is a good source for information on this strategy). David's view (see his latest Quarterly Investor Report) is that "this is not a normal business and credit cycle and that global central bank policy will have unintended consequences that may result in asset bubbles, volatility and losses for concentrated investors and speculators" and as such, the Permanent Portfolio approach that Cor Capital employs covers these risks by having a "portfolio prepared for a range of outcomes at all times".

This agnostic approach is best demonstrated by Davin's answer to the question of why the gold price has not responded to the recent US government debt ceiling drama: "We don’t know but we don’t really care. It is only ever the fast money that rotates into or out of an asset in anticipation of others doing the same. ... In an environment where there is a loss of confidence in the US dollar and US bonds owning a hard asset that is liquid will protect the wealth of our unit holders, even when taking potential Australian dollar appreciation into account. Within the Cor Capital Fund this is of course not a ‘bet’ we are making but just a risk we are covering."

Cor Capital follows the strategy of a fixed 25 per cent in each of Australian Equities, Australian Fixed Interest, Australian Cash and Gold (unhedged, and held at the Perth Mint) but has a much tighter rebalancing band of +/-1.5% or more compared to +/-10% under Harry Browne.

Most of the work done on how the Permanent Portfolio performs is done in a US context (like Craig's book, also worth reading if you are interested in the concept) so I was interested to see that Davin has done a back test of the strategy in the Australian context which shows since 1970 (see page 10 of the Information Memorandum):

Cor Strategy Australia Equities Australian Cash
Annual Average Return 10.5% 10.6% 9.1%
Std. Dev. of Annual Returns 8.9% 23.9% 4.5%
Value of $1 invested in 1970 $62.12 $66.20 $37.27

This is similar to the US studies, which show a good, low volatility return. Now I'm not making a recommendation to invest but I think this strategy has merit and is worth investigating. Even if you are not comfortable with the 25% allocations and have your own allocations between asset classes, the idea of forced rebalancings back to your target allocations is a good discipline to follow IMO.

Unfortunately, Cor Capital is currently limited to "sophisticated investors", which means an initial investment of $500,000 (lesser amounts may be accepted but you would have to demonstrate net assets of at least $2.5 million or gross income of $250,000).


  1. So he's got finger in every pie? A sensible strategy when looking at the modern economy as Ponzi scheme.

    You cannot rationalise the irrational, that is to say, you cannot apply a predictive framework, let's say, some kind of 'basis'. You are going to be right, then wrong or vice versa.

  2. Dear Bron, I am sorry for "offtopic" question, but it may be interesting to other readers of you blog as well...
    So... I am moving to Australia for good. Of course I transfer money by wire and bring some gold in its physical precious form. There is less than 1 kilo (I wish it were more than 1 kilo though :) ) Unfortunately, I have only 2 gold coins of Perth Mint and the rest amount is in gold bars (Swiss refinery 999.9 by Valcambi and PAMP, but bearing logo of the local central bank, which distribute them). Since this is fine gold, I have not to pay any custom tolls (as you wrote several years ago in a post), neither I have any obstacles to move the gold out of the country. But I would like to "convert" my gold into "legal" gold coins in Australia.
    Is it possible to visit some office of Perth Mint (say in Sydney), and exchange bullions to equivalent weight in gold coins "minus", of course, a reasonable amount of "gold" paid to the mint for "coinage"?
    Would it be worth gold "lost" on coinage?

    Also I have silver in Canadian coins and bars (more than 1 kilo :) ). Is it worth taking it to Australia in physical form?
    What would you do?

    Thank you.

  3. Perth Mint only has an office in Perth but you will find most coin dealers will be able to swap your bars for coins.

    However, I wouldn't bother as the market here will accept Valcambi, PAMP and Canadian Mint product when you eventually want to sell.

    If you really do want to swap, you could also try http://forums.silverstackers.com where there is an active trading market in all sorts of bars and coins.

  4. AHA, Bron! Remember our conversation at TFMR? Re: “Working, on two deals that will hopefully open up new channels for gold and get more people buying.”

    & “Can't say as all client stuff with us is private. Basically just organisations larger than us who have a greater reach. One will go ahead and should launch early 2014, the other one early days.”

    Sooo, by connecting the Dots I see that the Dubai Gold & Commodities Exchange, where approx. one quarter of all the physical gold traded around the world already passes, is coincidentally “launching” a spot gold contract next year. (1st in Middle East)

    GOTCHA! But of course “all client stuff with us is private” ;) Regards, Spartacus Rex

  5. An Australian version of the Permanent Portfolio is now available.
    It has a minimum investment of $5,000.
    A copy of the product disclosure statement is available at

  6. It is not a Permanent Portfolio given the additional assets classes allowed and the % mix.

    I note that the authorised investments include "Gold, silver
    and other precious metals" which is a bit wide for Permanent Portfolio.

    More concerning is that the following is allowed: "Bullion, metal certificates, coins, deposits, derivatives, registered and unregistered managed investment schemes, listed investment companies and other collective investment vehicles whose assets consist primarily of such assets."

    How exactly is the fund planning to hold gold and where?

  7. The classes held by the Hamilton Multi Asset Portfolio replicate that of the Permanent Portfolio Fund in the United States.

    Similary as does the United States fund, this fund has a 20%allocation to gold and 5% to silver.

    Its exposure to gold and silver is currently via the following ETF's PMGOLD, GOLD, ETPMAG, which are listed on the Australian Securities Exchange.

    It is necessary to have the authorised investment list structured as it is, as ETF's can be legally structured in a number of different ways. For example, they can technically be a derivative, a security or a managed investment scheme.

    All of the assets of the fund are held by Australian Executor Trustees Limited, which is an independant custodian.

  8. OK, makes sense, but you may want to clarify or specify exactly how the fund will hold gold as "derivative" will be a red flag to those looking for safety, which is what permanent portfolio types are after.

    Nice to see you are holding the Perth Mint's PMGOLD, at 0.15% fee it will reduce your management costs.

  9. I see you point Bron, but I am not sure how we can do that as from a legal point of view, we need to disclose that we hold derivatives in the fund.

    For example if the fund couldn't hold derivatives we would not be able to invest in PMGold as it is technically a call option, which is a derivative, but we could hold GOLD, which is technically a stapled security.

  10. Understand the point re derivatives and PMGOLD, just think you need to qualify and say you won't be holding leveraged derivatives or some such wording, or just say you will only be holding exchange listed products.