By Ian Salisbury

So far this year, portfolio manager Michael Cuggino has fought the market to a draw. Given they way things are going, that should count as a pretty big win.

Cuggino's $4 billion Permanent Portfolio fund takes an unusual approach. Morningstar classifies it as "moderate allocation," similar to funds that follow the 60/40 stock/bond strategy. Like those, the fund is designed to be a core holding, but it's far more idiosyncratic.

The fund, which Cuggino has managed for 22 years, has about 36% of its holdings in stocks, 36% in bonds, and much of the rest in commodities like gold and silver.

While returns can be erratic, the fund's performance ranks in the top 10% of peers over the past decade, according to Morningstar.

The strategy has worked particularly well in 2025. The fund is down, but only by a hair. Its total return stands at -0.2%, compared to a loss of 6.4% for the average moderate allocation fund and nearly 14% for the S&P 500, according to Morningstar.

Barron's spoke with Cuggino Monday about his approach and where he sees value in the market.

Gold

The Permanent Portfolio has about 21% of its portfolio invested in gold, according to its website -- making gold the fund's single largest holding. That bet has panned out well. While gold has fallen sharply in the past few days, it is still up 12% so far this year, and 27% in the past 12 months.

Cuggino is still bullish. He attributes the recent decline to investors looking to cash out, after a string of recent all-time highs and to raise cash needed elsewhere. He rattles off potential price drivers which include political uncertainty, strong buying from central banks, the risk of inflation, and the possibility that the Federal Reserve could be forced to cut interest rates if the U.S. economy continues to weaken. (Since gold competes with Treasury bonds for investor dollars, lower interest rates makes gold more competitive.)

"All of these things add up to a pretty strong case for gold, although it's never a smooth ride," he says.

Energy stocks

Energy is another area where Cuggino has big bets. Energy represents about 29% of his fund's stock portfolio, compared to less than 4% of the S&P 500, according to Morningstar. At about 5% of the fund's portfolio, Texas Pacific Land Corp., a company which owns real estate in the oil-rich Permian Basin, is the largest stockholding.

Energy had a strong start to the year, but the sector was hit hard following the Trump administration's big tariff announcement, and has been the S&P 500's worst performing sector in the past week. That's in large part because these famously cyclical stocks tend to lag when the economy weakens. Still, year to date, energy stocks are down only about 8.7%, compared to nearly 14% for the broad market.

Cuggino acknowledges energy stocks would struggle if the U.S. tips into a recession, but sees them as long-term buys, especially at today's price-to-earnings ratios. Energy stocks trade at about 14 times 2025 earnings, compared to 19 times for the S&P 500, according to FactSet. While renewable energy is growing fast, investors have been too quick to abandon traditional oil and gas stocks, he says.

"It's naive to think we don't need energy," he says.

Bonds

Cuggino's fund is also benefiting from exposure to bonds, which make up 37% of its portfolio. The Bloomberg Aggregate Bond Index, a common proxy for the broad bond market, has returned about 2.3% this year, helping offset stock market losses for bond investors.

Cuggino says he favors investment-grade bonds in the triple-B range with relatively short terms. The average duration, which gives a picture of a bond portfolio's average maturity, across his portfolio is about 2.4 years.

Given uncertainty around inflation and how the Fed might react to a slowing economy, he says long-term bonds don't offer big enough payoffs.

"I think there is too much risk or for the reward you are getting in long duration," he says. "In the triple-B space you can find yields in the high fives and low sixes...without going out in duration much beyond three years."

Write to Ian Salisbury at ian.salisbury@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 08, 2025 12:52 ET (16:52 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.