Gyroscopic Investing

If we are in for another go-round of flight to quality in treasurys similar to 2008, PRPFX is going to surprise a lot of people.

I suspect that many have piled into PRPFX because it looks safer than other funds without appreciating that it doesn't provide much protection when interest rates are falling and everyone is trying to get liquid at the same time.

PRPFX is a good fund, but buyer beware.

MediumTex wrote: If we are in for another go-round of flight to quality in treasurys similar to 2008, PRPFX is going to surprise a lot of people.

I suspect that many have piled into PRPFX because it looks safer than other funds without appreciating that it doesn't provide much protection when interest rates are falling and everyone is trying to get liquid at the same time.

PRPFX is a good fund, but buyer beware.

Yep.  As usual, PRPFX has greater overall beta exposure and targeted sectors at that, so its defensibility is not as good.  Add to it shorter bond maturity, and you do the math...  Still, will be better overall than many conventional options.

With the HB PP, even with gold correcting or in profit taking mode, the heavy pure Treasury exposure at good average maturity plus lower beta exposure (and mostly in more defensive, maligned, Large Caps).  So LT Treasuries buffer losses on flight days like this in a way shorter maturities don't.

Same story always...


Addendum:  So today, the HB Permanent Portfolio takes 1/3 the losses of PRPFX:  -0.47 to -1.40.  Tex's addition of 10% EDV takes the PRPFX loss to -1.01—a damned nice improvement, albeit unnecessary, when the better quartile mousetrap exists.  

So the added expenses, and various targeted, tactical allocation "improvements" of PRPFX gives you down days like this—and the opposite in big bulls.  But if I'm betting on big bulls, rather than not-losing (as per what should be the mandate), one might as well go with something "weird" like a quasi-Larry Portfolio with 30% Small Value, tons of Intermediate Treasuries and a bit of Gold.  That gives full portfolio control, good growth potential at low risk due to low Beta—and costs about 25bps.  Just sayin'...

Hey, PRPFX still outperforms a typical indexed 60/40 (say, something truly boring like VTSMX and VBMFX) by a lot on days like this (down around -2.23).  But that is due—mainly—to having just half the Beta exposure of the 60/40.  Put another way, if we equalize the Beta, the loss of the 60/40 portfolio (now, a 30/70) is just -1.01.  If we use Intermediate Treasuries vice the VBMFX (with its Corporate and MBS risks) the portfolio improves to -0.72.  

This is just one day, but the risk patterns re-emerge.  Think about it.  

Bang-for-buck with downside protection, the quartile approach is beyond impressive. The "Jokers" in LT Treasuries an Gold, that few want in their deck until overbought, seem to be the difference makers for the original concept.

Roy

I agree that PRPFX is more volatile than the 4x25 PP and will provide less downside protection in a falling equity market. My hope is that the opposite will be true as well, and in a rising market, the fund will outperform the traditional 4x25 PP. I would prefer to hold each of the 4 PP components individually over the actively managed fund, but this is a taxable account and I believe LT and Gold would be a significant drag on portfolio returns. If I do decide to include LT in a taxable account to dampen volatility, how much of a tax burden can I expect being in the 35% Federal and 10% state tax brackets? I am currently holding more cash than optimal in the taxable account to counteract the impact of large down days on the PRPFX fund.

I look forward to your comments.

Budd