Horizon Kinetics’ Inflation Beneficiaries ETF (INFL) was designed to profit from higher inflation rates, and despite the possibility of the Federal Reserve cutting rates this year, the firm’s portfolio manager James Davolos believes that the ETF is well-positioned for success. Davolos expects that the world will continue to experience inflation between three and five percent, and with the Federal Reserve indicating a focus on the economy and employment over inflation levels, he believes that many portfolios are not properly designed for this environment. The Inflation Beneficiaries ETF was created in January 2021 as inflation was on the rise due to the Covid-19 pandemic, and Davolos views it as a strategic tool to diversify investors’ portfolios.
The Inflation Beneficiaries ETF aims to provide a cushion for portfolios in an environment where inflation is expected to remain high for an extended period. The fund primarily invests in companies that are considered to be “asset light” and “capital light.” As of April 30, the ETF’s top holdings include Wheaton Precious Metals, PrairieSky Royalty, and Viper Energy. Despite underperforming the S&P 500 by about five percent so far this year, Davolos believes that the gains from inflation-oriented ETFs offer more long-term stability compared to the current megacap rally in the market.
Davolos points out that many investors are still heavily focused on buying tech stocks without realizing the implications of the prolonged high inflation environment. He believes that there is a duration aspect to these tech names and expects a reversal in the trend as the year progresses. The Inflation Beneficiaries ETF has seen a 30% increase in value since its inception as of Friday’s close. Davolos emphasizes the importance of understanding the new reality in the market and the need to adapt investment strategies to align with the current economic environment.
Overall, Davolos remains optimistic about the prospects of the Inflation Beneficiaries ETF in the coming months. He believes that the fund is well-positioned to capitalize on the mature phase of inflation and the Federal Reserve’s willingness to accept higher inflation levels to prioritize the economy and employment. With a focus on diversifying portfolios in a higher inflation environment, Davolos sees the Inflation Beneficiaries ETF as a valuable tool for investors seeking a more stable and sustainable approach to navigating the current market conditions.
