Global X Launches Permanent ETF (PERM) - ETF News And Commentary
February 20 2012 - 6:02AM
Zacks
Global X, the New York-based ETF issuer best known for its
unique global sector products, recently launched the latest
addition to its lineup in what looks to be a bit of a departure
from usual targets of the innovative issuer. In the release, the
company looks to at least temporarily get away from its sector
focus, offering up a ‘one stop shop’ for exposure across sectors
and asset classes. The new Permanent ETF
(PERM) will hold a
variety of products, looking to give investors solid exposure
across all market environments and conditions.
The new fund seeks to do this by allocating evenly among assets
that can do well during four different economic conditions
including; increasing growth, decreasing growth, increasing
inflation, and decreasing inflation. This is done by putting
one-fourth of the fund in each of the following categories; short
term government bonds, long term government bonds, precious metals,
and stocks. With this focus, stocks and short-term bonds look to
play opposite sides of the growth story, while the precious metals
and long term bonds look to do the same for inflation trends. As a
result, the fund looks to be evenly distributed and a solid choice
for those with a long time horizon that are unwilling to risk a
significant amount in equities (see ETFs vs. ETNs: What’s The
Difference?).
Holdings of PERM
In terms of individual holdings, the fund has a nice mix of
commodity ETFs, bonds, stock ETFs and individual equities, making
it unique in that respect among most products in the diversified
space. The top individual holding goes to ETF Securities’
Physical Gold ETF (SGOL)
at nearly 20% of the total, while U.S. Treasury bonds round out
most of the rest of the top ten holdings. Beyond this, two Vanguard
ETFs make up decent allocations in the fund—Vanguard Small
Cap ETF (VB) and
Vanguard FTSE All-World
(VEU)—at about 3.1%
each, while a series of individual equities comprise the rest of
the fund, making up between 0.53% and 0.17% of the assets in the
product. This technique gives PERM a total of 87 holdings in total
while charging investors 49 basis points a year in fees and
rebalancing on an annual basis. Interestingly, not a single Global
X fund is held in PERM’s assets, despite the company having nearly
40 other ETFs at its disposal (read Alternative Weighting
Methodologies 101).
Competition
In terms of competing products, it is quite hard to find a pure
match. Some could argue that a product such as the iShares
S&P Target Date Retirement Income Index Fund
(TGR) could be decent
given its holdings of fixed income and equities. However, the fund
doesn’t have any exposure to commodities and it refrains from
holding individual securities in its portfolio. Beyond this fund,
investors also have a few more in the diversified segment with
Cambria Global Tactical ETF
(GTAA) standing out
among its peers as a competitor to PERM. That is because GTAA holds
roughly half of its assets in bonds and has chunks of exposure that
go to commodities and currencies as well (read ETFs vs. Mutual
Funds).
With that being said, investors should note that the products
listed above have had mixed success in terms of attracting assets.
GTAA has close to $130 million while TGR has amassed less than $7.5
million in comparison. This suggests that PERM’s road to gaining
assets is by no means certain, implying that the fund will have to
show solid performance in order to be demanded by the investing
public. Yet, given the solid and diversified methodology, the
product may turn out to be a hit for those seeking diversified
exposure with minimal holdings in relatively volatile equities
(read Do You Need A Floating Rate Bond ETF?).
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Author is long VB.
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