Horizon Kinetics targets real-terms capital growth with ‘inflation beneficiaries’ ETF

Jan 12th, 2021 | By | Category: Equities

New York-based investment adviser Horizon Kinetics has announced the launch of its first ETF, the actively managed Horizon Kinetics Inflation Beneficiaries ETF (INFL US).

Horizon Kinetics targets real-terms capital growth with ‘inflation beneficiaries’ ETF

Murray Stahl, Founder, CEO, and CIO at Horizon Kinetics.

Listed on NYSE Arca, the ETF seeks to deliver long-term growth of capital in real terms to address what Horizon Kinetics sees as the largest threat facing investors: inflation.

The fund’s managers, led by Murray Stahl, Horizon Kinetics’ CEO and CIO, seek to identify companies that are positioned to benefit from inflationary pressures, such as companies whose revenues are expected to increase with rising consumer, producer, raw material, or asset prices without a corresponding increase in expenses.

Companies fitting these criteria comprise exploration and production companies, mining companies, transportation companies, infrastructure, and real estate companies, with an emphasis on so-called ‘asset-light’ businesses with royalty, streaming, rental, brokerage, management, and leasing exposure.

This includes companies with indirect exposure to inflation drivers, such as financial exchanges that facilitate transactions in commodity, interest rate and currency instruments, as well as data providers that specialize in data and analytics in industries that are sensitive to movements in interest rates and consumer prices.

The fund’s managers may also invest in the securities of companies that earn revenue from precious metals or other commodities through active (i.e. mining or production) or passive (i.e. owning royalties or production streams) means.

In selecting individual securities for the portfolio, the fund’s managers employ a fundamental, value-driven, bottom-up approach.

The portfolio will include the securities of approximately 20 to 60 issuers that may range from small- to large-capitalization companies. The majority of the portfolio’s securities are expected to be of issuers that are either domiciled in, or earn a majority of their revenues from activities within, the United States, though not exclusively.

Notable holdings at the fund’s debut include Deutsche Boerse (6.02%), Texas Pacific Land Trust (5.56%), Charles River Laboratories (5.22%), Intercontinental Exchange (5.06%), Franco-Nevada Corporation (4.79%), and Wheaton Precious Metals (4.70%).

Commenting on the launch, Murray Stahl, who is also the founder of Horizon Kinetics, said: “This is our first ETF, and we are launching it because we see an urgent need for a mechanism for inflation protection in the market. For some time, I have seen signs that we are moving toward an inflationary environment, and this trend has been accelerating of late. Debt levels have continued to rise, and central banks are loath to raise interest rates (for good reason). In our opinion, this leaves the creation of more money – inflation and currency debasement – as the most likely outcome. So, we are launching an ETF that seeks to be positioned to benefit in an inflationary environment.”

James Davolos, Portfolio Manager at Horizon Kinetics, added: “This portfolio is designed to provide a full cycle inflation exposure, and seeks to thrive under many different inflation scenarios. We believe this is possible because the fund emphasizes companies that have exposure to inflationary underlying assets, yet do not have high capital intensity. We believe these asset-light businesses have the ability to profitably endure low inflation for extended periods of time, compounding asset value and economic returns. Our research leads us to conclude that there is truly no other product like this in the market, and it represents something we believe all investors should consider when constructing a diversified portfolio.”

The fund comes with an expense ratio of 0.85%.

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