Introduction to INFL
Investors are increasingly seeking inflation-focused exchange-traded funds (ETFs) to hedge against rising prices. One such ETF gaining attention is the Horizon Kinetics Inflation Beneficiaries ETF (NYSEARCA:INFL).
What is INFL?
INFL is an equities ETF that invests in three large sectors: Energy, Materials, and Financials. The fund’s strategy is centered around identifying companies that are likely to benefit from inflation, particularly those with scalable and economically resilient business models. The fund employs a proprietary vector framework to source equities where revenue streams are expected to increase in an inflationary environment.
Fund Composition and Strategy
The fund is divided into three main sectors:
- Energy (35.5%),
- Materials (22.1%), and
- Financials (23.6%).
This composition allows the fund to target companies that are most likely to thrive in an inflationary environment.
Performance and Risk
Since its inception in 2021, INFL has shown robust performance. Despite being a relatively new fund, it has managed to post positive total returns, even in challenging market conditions. For instance, in 2022, when many funds struggled, INFL posted a total return of +2.6%. The fund’s annualized volatility is 19.4%, indicating a high-risk profile.
Inflation Outlook and Market Conditions
The fund’s performance is closely tied to inflation expectations. While the Consumer Price Index (CPI) has come down, market swaps and surveys suggest a high probability of an upward swing in inflation. This aligns with INFL’s objective to benefit from an inflationary environment.
Risk Factors
The primary risk factors for INFL include a recession and stagflation. A recession could significantly impact the fund’s performance, as economic slowdowns reduce aggregate demand and lower energy prices. Additionally, a stagflationary environment could negatively affect the fund’s performance.
Conclusion
The Horizon Kinetics Inflation Beneficiaries ETF (INFL) is a targeted inflation hedge that aims to benefit from an inflationary macroeconomic environment. With a high expense ratio of 0.85%, the fund offers a concentrated strategy with a high conviction portfolio. While it has shown promising performance, investors should be aware of its high volatility and the risks associated with a recession or stagflation. As with any investment, it’s essential to carefully consider the risks and potential benefits before making a decision.
