The business model with many return drivers

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In a market seeking genuine diversification, global royalty companies have stood out.

The ROYL Global Royalties ETF has returned 15.6% over the past year and 18.5% a year since inception in September 2022, ahead of the MSCI World ex Australia Index (AUD), which returned 4.3% and 16.4% a year over the same periods.⁵

With companies selected on their business model rather than the industry they operate in, ROYL’s underlying holdings can offer investors differentiated return drivers through the market cycle.

Following its rebalance on 4 November, ROYL’s portfolio is less concentrated in its largest holdings, and it now holds 49 companies, up from 46.

A royalty company owns a share of the revenue from an asset that someone else manages. The operator carries the cost of building, running and expanding the asset, while the royalty owner is paid from the top line. The result is often a capital-light business with high margins.

ROYL’s index selects companies with that business model differentiating itself from indices that select holdings based on a sector or companies related to a shared thematic. The portfolio spans gold streamers, owners of drug royalties, holders of land and mineral rights, music catalogues and chip-design licensors. These businesses share a model but respond to very different return drivers.

Since inception different return drivers have driven ROYL’s performance. Oil and gas royalties led in late 2022, with energy prices elevated after Russia’s invasion of Ukraine. In 2023, as oil prices eased and US rates rose, music rights, technology licensing and gold led. Oil and gas led again in 2024 on record US production, and gold in 2025 on record prices and falling rates. In 2026, drug and chip-design royalties have led, on trial results, growing sales and AI demand.

As the chart below shows, this return leadership rotation has given ROYL returns that move differently from the broader market. ROYL outperformed MSCI World ex Australia in the three periods when global shares were weakest and lagged the two years they rose most strongly (most notably in 2023) – the pattern of a portfolio diversifier.

ROYL’s index rebalances twice a year, on the first Wednesday of May and November. At each rebalance companies are capped at a maximum 10% weight.

After May’s rebalance this year ARM Holdings, a British semiconductor company that operates primarily as an IP licensor, earnings royalties rather than manufacturing the physical chips, had grown well above 10% after a strong run in its shares. It was set back to 10% at the 7 October selection day for the November rebalance, and its share price has since fallen, so ROYL rebalance saw the position sold down with ARM entering the new portfolio at 6.3, representing ROYL’s seventh-largest holding.

Post rebalance the same ten companies make up the top 10, and their combined weight falls from 76.2% to 72.7%. Gold remains the largest sub-industry, while semiconductors are roughly halved, as ARM is trimmed. Importantly, ROYL’s index reflects a healthy mix of sub-industry exposure positioning it for various market environments in the period to come.

Royalty companies can bring particular benefits to a diversified portfolio. Because royalty payments are often linked to the prices of the output goods and services, while the operator bears the risk of rising input costs, royalty companies have tended to hold up when inflation runs high.

From December 2018 to September 2026, ROYL’s index returned, on average, 16.0% a year when US inflation was 4% or more, and 15.3% when US inflation was below 4%, just a 0.7 per cent difference. Over the same period the MSCI World ex Australia performed, on average, 4.5 percentage points worse under the higher inflationary periods (15.7% versus 11.2% per annum).⁶

ROYL’s differentiated returns drivers also shows up in its correlations with major asset classes. On monthly returns from November 2018 to October 2026, ROYL’s index had a correlation of 0.44 with global shares and 0.18 with Australian bonds, as shown in the correlation matrix below.

Finally, ROYL pays a monthly income, passing through the cash flow of its royalty companies and aiming to provide smoothed distributions. ROYL’s 12-month distribution yield was 5.4% at 30 October 2026.⁷

For investors looking for an alternative allocation with different return drivers from shares and bonds, ROYL offers access to a portfolio of global royalty companies in a single ASX trade.

For more information, visit the ROYL fund page or read the fund brochure here.