Horizon Kinetics’ James Davolos believes that his firm’s Inflation Beneficiaries ETF (INFL) is well positioned to profit from higher inflation, even if the Federal Reserve decides to cut rates this year. He expects inflation to remain between three and five percent and believes that most portfolios are not adequately prepared for this reality. The Inflation Beneficiaries ETF was created in January 2021 to help diversify investors’ portfolios in a higher inflation environment by investing in companies that are considered “asset light” and “capital light.”
The ETF’s top holdings as of April 30 include Wheaton Precious Metals, PrairieSky Royalty, and Viper Energy. While the ETF has underperformed the S&P 500 by about five percent this year, Davolos believes that inflation-oriented ETFs offer more long-term stability compared to the current megacap rally. He suggests that investors have been buying tech stocks without realizing the potential impact of higher inflation, and he expects a reversal in the tech rally as the year progresses.
Davolos emphasizes that the current economic landscape is shifting towards a new reality of sustained higher inflation levels. He believes that the Inflation Beneficiaries ETF offers a strategic tool to help investors navigate this environment and protect their portfolios. By focusing on companies that are less impacted by inflation due to their asset and capital-light nature, the ETF aims to provide a cushion for investors in the face of rising inflation.
The Federal Reserve’s acknowledgment of higher inflation levels and its prioritization of the economy and employment signal a favorable environment for inflation-oriented investments. Davolos sees this as an opportunity for the Inflation Beneficiaries ETF to thrive and deliver returns in the mature phase of inflation. He predicts that as investors become more attuned to the implications of higher inflation, there will be a shift away from tech stocks towards investments that offer greater stability and protection against inflationary pressures.
Overall, Davolos believes that the Inflation Beneficiaries ETF is ideally positioned to benefit from the new reality of sustained higher inflation. He expects the ETF to perform well in the coming months as investors adjust their portfolios to reflect the changing economic landscape. With a focus on companies that are less vulnerable to inflationary pressures, the ETF offers a strategic option for investors looking to diversify their portfolios and protect their assets in a higher inflation environment.
