US asset manager Horizon Kinetics has waded into the European ETF market with the launch of an active inflation beneficiaries equity strategy, ETF Stream can reveal.
The Horizon Kinetics Inflation Beneficiaries UCITS ETF (INFBN) is set to list on the Euronext Amsterdam with a total expense ratio (TER) of 0.85%.
The firm said INFBN will mirror its US-listed counterpart which has amassed $1.2bn assets under management (AUM) since it launched in November 2021 after receiving strong demand from European investors.
Horizon Kinetics, a self-described contrarian investment boutique, said the ETF is currently a portfolio of 44 hard asset, capital light stocks positioned to benefit in an inflationary environment. It has returned 19.7% since inception, as of 15 March.
The strategy is based on a strong belief the global economy is entering a new era of sustained, structural inflation due to several factors including critical raw material supply underinvestment and ballooning government debts.
Speaking to ETF Stream ahead of the launch, James Davolos (pictured), portfolio manager at Horizon Kinetics, said: “The market is focusing on cyclical inflation drivers rolling over.
“However, where people got inflation wrong is the idea it was going to be transitory on the basis these are one-time demand drivers while supply chains are going to normalise.”
While there have been signs inflation may remain stickier than anticipated, the latest consumer price index in the US fell to 6% in February, in line market expectations.
He added the portfolio is designed to offer “full-cycle inflation exposure” that has the potential to thrive in a variety of economic scenarios.
“We believe this is possible because the ETF emphasises companies that have exposure to inflationary underlying assets, yet do not have high capital intensity, hence earn full cycle strong returns,” Davolos said.
“The ETF also provides exposure to what we believe are the highest quality companies in sectors that are underrepresented in global equity indices.”
Actively managed, the ETF aims to provide diversification from indices that “typically become concentrated in certain sectors over time”.
Despite this, Davolos said the portfolio will take a “long-term” approach with a minimum of a three to five-year holding period.
“We would not expect much more than 15% annual turnover barring a big step change in the nature of the economy or inflation,” he added.
The US firm expects INFBN to be the first of many ETF launches in Europe. It currently runs five strategies in the US including blockchain development, energy and remediation, medical and SPAC ETFs.