The Australian Permanent Portfolio?

The Daily Reckoning had a

about the Permanent Portfolio (the Harry Browne concept, not he US mutual fund) from an Australian perspective. As a quick reminder the Permanent Portfolio allocates 25% each to cash, equities, long bonds and gold.

The idea of building the Portfolio from the perspective of another country is pretty interesting and is possible with a couple of countries using ETFs including Australia.

The cash portion is simple with the Rydex Currency Shares Australian Dollar Trust (FXA). It captures the movements of the currency and has a yield that is generally inline with rates set by the Reserve Bank of Australia.

With the equity allocation they usually have a broad large cap fund in mind. There are at least a couple of those to choose from with the iShares MSCI Australia Index Fund (EWA) and the WisdomTree Australia Dividend Fund (AUSE). There is no reason though that the equity portion can't take in more than just a single broad based fund. There is small cap exposure via the Index IQ Australia Small Cap ETF (KROO) and you might find a materials ETF out there that might be enough of a proxy for Australia. Of course there are also individual stocks from just about every sector to choose from as well.

For the fixed income portion there is the long standing and client holding Aberdeen Asia Pacific Income Fund (FAX) which is usually heaviest by far in Australian debt and the WisdomTree New Zealand Dollar Fund (BNZ) is due to convert on Monday to the WisdomTree Dreyfus Australia & New Zealand Debt Fund.

As for gold, I believe there are funds in other countries that price gold in other currencies and while I could see a couple of these coming to the US at some point I think any that exist now would be difficult to buy logistically.

This is sort of doable with Canada also with the Global X Canada Preferred ETF (CNPF) as a proxy for the fixed income--we own a few shares of CNPF. It is possible to do this with China now that there are a couple of Dim Sum bond ETFs trading however I would want no part of the Dim Sum bond funds. The concept of foreign Permanent Portfolio will get easier as more foreign fixed income ETFs come to the market.

In the real world there is no reason to be limited to one country and there is no reason not to have a fully diversified equity portfolio instead of just one broad index fund and there is no reason not to have a fully diversified fixed income portfolio instead of just owning something like TLT. And as I have said 25% in gold is way too much for my tastes but obviously some people are comfortable with that much (or at least they were before this big plunge).

That was an insanely clutch homerun by Dan Johnson of the Tampa Bay Rays last night.

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