Inflation ETFs May Start Making You Money. Here's How, According to One Portfolio Manager

Brendan McDermid | Reuters

Volatility and uncertainty in the market due to the ongoing conflict in Ukraine are benefiting inflation-based exchange-traded funds.

Inflation-resistant ETFs have grown popular with investors in recent months amid rising prices and the Federal Reserve's indications that it will once again start hiking interest rates.

Most inflation ETFs consist of stocks that tend to benefit from inflation, such as mining, transportation and real estate companies.

For the Horizon Kinetics Inflation Beneficiaries ETF (INFL), the focus is on being "asset-light," its portfolio manager James Davolos told CNBC's "ETF Edge" this week.

"A lot of these companies are going to have expenses that are as much or greater than they can grow revenue," said Davolos, also a research analyst at his firm. "It's really important to have a hard asset that can benefit from inflation driving your revenue."

INFL's top holdings include Charles River Laboratories International Inc., Texas Pacific Land Corp. and ASX Ltd.

"While your revenue grows with a lot of these companies, your margins are also going to expand," he said. "The companies benefit twofold."

INFL also holds shares of stock exchanges such as Deutsche Boerse, which accounts for more than 4% of the ETF's assets. Margins and revenues may go up across the global exchange complex with inflation, Davolos said.

"Right now, all of these exchanges, ICE, CME, Deutsche Boerse, the ASX, they're all printing record revenues," he said. "It's really a toll booth on financial activity."

INFL has over $1 billion in assets under management. 

"These businesses are going to generate very strong economic returns under the pre-inflation status quo," Davolos said.

INFL is up more than 28% since its launch in January 2021.


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