An ETF that focuses on inflation may be in a prime position.

It's an exchange-traded fund designed to profit from higher rates.

Despite the possibility of the Federal Reserve cutting this year, Horizon Kinetics' James Davolos believes his firm's position is advantageous.

""Davolos, the firm's portfolio manager, stated on CNBC's "ETF Edge" that they are currently in the mature phase of inflation and believe they are optimally positioned," according to a report."

Davolos expects a new world stuck with inflation between three and five percent.

"Last week, the Federal Reserve admitted that they will prioritize the economy and employment, resulting in higher inflation levels, according to Davolos. However, he believes that most portfolios are not properly designed for this scenario."

The Inflation Beneficiaries ETF was launched by Horizon Kinetics in January 2021 in response to the rising inflation following the Covid-19 pandemic lockdown. According to Davolos, the fund is now a valuable portfolio diversification tool for investors.

The Inflation Beneficiaries ETF aims to protect portfolios in a prolonged high inflation environment by investing in "asset light" and "capital light" companies, as per Davolos. As of April 30, FactSet reveals that the top holdings of the ETF are , and .

Although the ETF has underperformed the index by about five percent so far this year, Davolos believes that inflation-oriented ETFs have more long-term stability than the current megacap rally.

""We are now in a new reality. People continue to purchase without realizing the long-term effects of their actions, and there is a duration aspect to these names. As we move through the rest of this year, I anticipate a sharp reversal of this trend," Davolos stated."

Since its inception, the Inflation Beneficiaries ETF has increased by 30% as of Friday's close.