INFL: For Re-Accelerating Inflation (NYSEARCA:INFL)

As inflation potentially re-accelerates, investors continue to show increasing demand for innovative financial instruments that an protect against rising price. To that end, it’s worth looking at the Horizon Kinetics Inflation Beneficiaries ETF (NYSEARCA:INFL). INFL is an actively managed Exchange Traded Fund that seeks long-term growth of capital in real terms, i.e., adjusted for inflation. The fund aims to achieve this objective by investing predominantly in domestic and foreign equity securities of companies expected to benefit from rising prices of real assets. INFL was launched on January 11, 2021. It has an expense ratio of 0.85%, and over $640 million in assets under management.

INFL Holdings: A Closer Look

INFL’s portfolio is a blend of traditional listed U.S. stocks, royalty trusts, Master Limited Partnerships (MLPs), and a group of listed stocks of commodity exchanges from different parts of the world. The fund’s top 10 holdings account for approximately 45% of the fund’s net assets. These include companies like PrairieSky Royalty Ltd, Wheaton Precious Metals Corp, Texas Pacific Land Corp, Viper Energy Inc, and Intercontinental Exchange Inc, among others.

Sector Composition and Weightings

The INFL fund’s sector allocation is primarily across three sectors: energy, materials, and financials. About 31% of the fund’s total exposure was to the energy sector, making it the most significant sector within the fund. The materials and financial sectors follow closely.

The fund’s approach is based on the idea that during periods of inflation, companies with hard assets, pricing power, and the ability to pass on price increases to customers tend to perform well. Therefore, it is not surprising to see a substantial allocation to sectors like energy and materials that often house such companies.

INFL vs. Other Similar ETFs

When compared to other inflation-focused ETFs, INFL stands out due to its actively managed approach and its unique blend of holdings. Unlike many other inflation-hedging funds that invest in Treasury Inflation-Protected Securities or commodities directly, INFL invests in equities of companies expected to benefit from inflation. This approach could potentially offer more substantial returns during inflationary periods, albeit with a higher level of risk.

Another distinguishing feature of INFL is its relatively high management fee of 0.85%. This is significantly higher than the average expense ratio of equity ETFs, which is around 0.16%. However, given the active management and the unique investment strategy of the fund, some investors might consider the higher fee justifiable.

The Pros and Cons of Investing in INFL

Like any investment, investing in INFL comes with its own set of benefits and drawbacks.

Pros:

1. Inflation Protection: As its name implies, INFL aims to provide protection against inflation. It does this by investing in companies that are expected to benefit from rising prices. This makes INFL an attractive option for investors seeking to hedge their portfolios against inflation.

2. Diversification: INFL offers diversification benefits by investing in a mix of different assets. Its portfolio includes traditional listed U.S. stocks, royalty trusts, MLPs, and a group of listed stocks of commodity exchanges from different parts of the globe. This diversified approach can help spread risk and potentially enhance returns.

3. Active Management: INFL is actively managed, which means that its portfolio managers regularly monitor the portfolio and make adjustments as necessary. This active approach can potentially lead to better performance compared to passively managed funds.

Cons:

1. High Expense Ratio: As mentioned earlier, INFL charges a relatively high management fee of 0.85% compared to the average equity ETF expense ratio of 0.16%. This higher fee could potentially eat into the fund’s returns over time.

2. Market Risk: Like any equity investment, INFL is subject to market risk. It can and likely will go down with stocks in downturns.

3. Inflation Risk: While INFL aims to protect against inflation, there is no guarantee that it will be able to do so. If inflation does not rise as expected or if the companies in which INFL invests do not benefit from inflation as anticipated, the ETF’s performance could suffer.

Conclusion: To Invest or Not to Invest in INFL

In conclusion, the Horizon Kinetics Inflation Beneficiaries ETF is an intriguing option for investors looking for an inflation hedge. Its unique approach of investing in companies that are expected to benefit from rising prices offers the potential for substantial returns during inflationary periods. However, the fund’s relatively high expense ratio and the risks associated with equity investing mean that it may not be suitable for all investors. Good fund I think overall for what it’s trying to do.

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