With hundreds of new ETFs seemingly launched every year, it isn’t getting any easier to stand out from the crowd. That said, 2022 saw an inflation-focused ETF launched just last year from RIA shop Horizon Kinetics outperform ETFs from some notable players like First Trust and Invesco. The Horizon Kinetics Inflation Beneficiaries ETF (INFL) was one of just six small-cap ETFs with positive returns on a YTD basis.
While the Fed is hard at work trying to convince markets that Chair Jerome Powell is deadly serious about his intent to keep raising until he sees sufficient evidence that inflation has been whipped, it’s clear that some level of inflation will be with us for the duration next year. Though the last two years have seen a not-insignificant number of inflation-related ETFs launch, INFL has stepped up in 2022.
INFL is actively managed and looks for long-term capital growth from firms expected to benefit either directly or indirectly from inflation. The strategy looks to global firms focused on things like mining, transportation, and real estate, with an emphasis on asset light companies offering royalties, streaming, rental, brokerage, and leasing exposure.
The other five small-cap ETFs to see positive YTD returns across blend, growth, and value investment styles all either employ 3x or ultra-short and short investment approaches, which require tight monitoring from investors. INFL is meant for a more long-term hold approach and has added $410 million in net inflows over one year. The inflation-focused ETF has also outperformed its ETF Database Category Average and its Factset Segment Average by almost 5% over three months.
INFL is Horizon Kinetics’ first ETF, with its other strategy being the Horizon Kinetics Blockchain Development ETF (BCDF). Both strategies charge a relatively high fee of 85 basis points.
There is significant uncertainty looming next year, with both inflation and a looming recession casting a long shadow over investors’ plans. For those looking for an actively-managed strategy, INFL, despite its relatively young age, might be one to watch as it approaches just its second birthday early next month.