In a recent interview on CNBC’s “ETF Edge,” Horizon Kinetics’ portfolio manager, James Davolos, expressed his confidence in the firm’s Inflation Beneficiaries ETF (INFL), even in the face of potential Federal Reserve rate cuts. Davolos believes that the fund is well-positioned for the mature phase of inflation, with expectations of inflation levels ranging from three to five percent. He points out that the Federal Reserve’s recent acknowledgment of higher inflation levels and its prioritization of the economy and employment signal a shift that many portfolios may not be prepared for.
The Creation of the Inflation Beneficiaries ETF
Horizon Kinetics introduced the Inflation Beneficiaries ETF in January 2021, as inflation began to rise following the Covid-19 pandemic quarantine. The fund was designed to provide a strategic tool for diversification in investors’ portfolios. By focusing on companies that are “asset light” and “capital light,” the ETF aims to offer a cushion in a higher inflation environment. Top holdings of the Inflation Beneficiaries ETF as of April 30 include Wheaton Precious Metals, PrairieSky Royalty, and Viper Energy.
Although the Inflation Beneficiaries ETF has underperformed the S&P 500 by five percent this year, Davolos argues that inflation-oriented ETFs offer more long-term stability compared to the current megacap rally. He emphasizes the changing reality of the market, where continued investments in tech companies may not align with the prolonged period of higher inflation. Davolos anticipates a reversal in this trend as the year progresses, favoring inflation-oriented investments for their durability.
Despite the challenging market conditions, the Inflation Beneficiaries ETF has shown resilience, with a 30% increase since its inception. This growth highlights the fund’s ability to navigate uncertain economic landscapes and provide investors with a valuable tool for diversification. As the market continues to adapt to higher inflation levels, ETFs like INFL may offer a strategic advantage for investors looking to mitigate risk and capitalize on emerging opportunities.