This is an exchange-traded fund designed to profit from higher rates.
But even if the Federal Reserve starts cutting spending this year, James Davolos of Horizon Kinetics believes his firm Inflation Beneficiary ETF (INFL) is in a pleasant location.
“We’re actually entering a mature phase of inflation,” portfolio manager Davolos said on CNBC’s “ETF Edge” this week. “I think we’re actually in an ideal position.”
Davolos expects the new world to be stuck with inflation of three to five percent.
“The Federal Reserve actually just admitted last week that we are going to prioritize the economy and jobs and accept higher levels of inflation,” Davolos said. “I don’t think most portfolios are set up properly for that.”
Horizon Kinetics launched the Inflation Beneficiaries ETF in January 2021 as inflation began to rise following the Covid-19 lockdown. Today, Davolos views the fund as a strategic tool to help diversify investors’ portfolios.
According to Davolos, the purpose of ETFs is to cushion portfolios in a longer-term environment by investing in companies that are considered “asset light” and “cap light.” As of April 30, FactSet shows that the ETF’s top holdings for inflation beneficiaries include Wheaton Precious Metals, PrairieSky Royalty And Viper Energy.
So far this year, the ETF has underperformed. S&P 500 Index by about five percent. But Davolos believes the returns from inflation-focused ETFs have more long-term stability than the current mega-cap growth.
“We are in a new reality. People keep buying technology, not realizing that we are above for longer, and there is an aspect of duration to these names,” Davolos said. “So I expect the situation to continue to evolve and change dramatically as we go through the rest of this year.”
As of Friday’s close, the Inflation Beneficiaries ETF is up 30% since its inception.
Denial of responsibility