The hidden gems of the stock investing world – Part 1

In this two-part series, we uncover a hidden gem of the stock investing world – royalty companies. Benefitting from unique business model’s and investment characteristics, royalty companies can play a meaningful role in investor portfolios.

In part one, we look at the unique business models of successful royalty companies across the energy, mining and healthcare sectors.

In part two, we will delve into the investment characteristics of royalty companies and how they can fit into investor portfolios.

In an environment increasingly shaped by geopolitical tensions, tariff uncertainty, and inflationary pressures, as well as a stock market saturated with tech giants, cyclical industries and speculative startups, royalty companies can offer a refreshing alternative.

Royalty companies are often considered resilient, capital-efficient businesses that can help to meet the diversification needs of today’s portfolios.

Unlike traditional operators, royalty companies don’t build, mine or manufacturer. Instead they own the rights to revenue streams from a wide range of industries and can benefit from rising sales without bearing the operational risk or rising input costs which stems from the goods and services their revenues are derived from.

This business model allows royalty companies to:

• Avoid capital-intensive operations
• Achieve higher margins
• Diversify income streams across geographies and within industries without the requirement to expand internal resources
• Benefit from revenue growth while remaining insulated from the direct operational risks of manufacturing, mining or distribution as well as rising input costs

Inside royalty companies: Stories behind the sectors

Three company examples that embody some of these unique benefits are Texas Pacific Land Corp, Franco Nevada, and Genmab A/S.

Oil & Gas – Energy and land requirements for artificial intelligence

Texas Pacific Land Corp (TPL)

As global energy demand continues to surge, driven by data centre expansion, electrification and industry growth, securing stable, scalable energy sources has become a strategic priority.

The Stargate project, a joint venture lead by the likes of OpenAI, Softbank and Oracle is a landmark $500 billion initiative launched in January 2025 to build out-next generation AI infrastructure across the United States. Within this context Texas is rapidly positioning itself as a global hub for AI infrastructure due to its abundant energy resources, land availability and a supportive regulatory environment.

How does TPL fit within all of this?

TPL owns vast swaths of land in West Texas and earns royalties from oil and gas extracted on its property. It’s one of the most unique land-based royalty models combining real estate and energy exposure. However, it doesn’t pump oil and gas. Instead, it earns royalties from others that do, making it one of the most capital efficient and high margin businesses in the energy complex achieving a net income margin of over 64% in 2024¹.

In 2025, TPL is writing a bold new chapter, positioning itself at the heart of the AI infrastructure revolution, confirming it is actively pursuing opportunities to lease land for AI data centre hosting. It has already expanded into digital infrastructure leveraging its vast land holdings and energy access to support Bitcoin mining and renewable energy projects.

This new chapter seeks to future-proof income generation and diversify its revenue streams from old to new economy with minimal operational risk.

Gold – without the digging

Franco-Nevada (FNV)

Instead of mining gold, Franco-Nevada finances mining operations in exchange for a percentage of future production. This royalty business model allows it to maintain a lean structure while benefiting from commodity price upside and production growth across a diversified portfolio of income generating assets.

A standout example was in 1986, FNV invested $2m to acquire a 4% royalty interest in Goldstrike mine which at the time had an estimated 600,000 ounces of gold reserves. 3 years later, a massive discovery expanded the reserves to 20m ounces, transforming the mine into one of the largest and most profitable gold mines in the world. Over its lifetime, Goldstrike produced more than 44m ounces of gold netting over $1B in revenue for FNV translating to a 500x return on its initial $2m investment.

Today FNV is the most diversified royalty company in its sector with over 120 income producing royalty and streaming assets earning over $1Billion USD annually with a net income margin of circa 50% while remaining debt free².

Biotech – Engineering tomorrow’s cancer breakthroughs

Genmab A/S

Genmab is a Danish biotechnology company redefining cancer treatment with a focus on antibody-based therapies that target tumours. From multiple myeloma to cervical and ovarian cancers, Genmab’s pipeline is packed with breakthroughs like Epcoritamab and Tivdak, offering new hope where options were limited.

By focusing on R&D and antibody innovation, Genmab avoids operational risk through a business model that is deliberately structured to be capital light, partnership driven and focussed on innovation rather than infrastructure.

By partnering with biotech giants like Johnson & Johnson, AbbVie and Novartis who handle manufacturing, regulatory approvals and global distribution. These alliances allow Genmab to license its key assets like blockbuster drug DARZALEX, which has become a cornerstone in the blood cancer treatment and a royalty engine for Genmab receiving up to 20% of sales which is estimated to net Genmab around $500m USD in revenues for Q1 2025³.

How can you gain access to royalty streams?

Traditionally, royalty investments were opaque and within the domain of private capital and sophisticated investors who were attracted to their high cash flows, low operational risk and upside participation in the growth of the underlying businesses.

The ROYL Global Royalties ETF , launched in 2022, was the world’s first ETF to offer a strategy focused purely on royalty companies.

ROYL, provides investors with a liquid and listed exposure to pure play global royalty companies spanning multiple sectors including mining, energy, music, pharmaceuticals and technology. The fund opens access to this unique opportunity to every investor or can also be used as a liquid complement to direct private royalty exposures.

In part two of this series, we will delve into the unique investment characteristics of royalty companies that have led ROYL to return 18.43% p.a. since inception⁴ while experiencing low correlations to Australian and international equities. We’ll take a look at the high income opportunity ROYL represents to investors and discuss the benefits of adding ROYL to portfolios.

You can find out more about ROYL here.

References:

1. Source: Texas Pacific Land Q4 2024 Earnings Report ↑

2. Source: Franco Nevada Q1 2025 Earnings report ↑

3. https://ir.genmab.com/news-releases/news-release-details/genmab-announces-net-sales-darzalexr-daratumumab-first-quarter-7; https://www.fiercebiotech.com/biotech/j-j-bags-150m-option-genmab-s-darzalex-successor ↑

4. Return shown as at 30 June 2025 since the Fund’s inception date of 9 September 2022. Past performance is not indicative of future performance. Fund returns are calculated in A$ using net asset value per unit at the start and end of the specified period and do not reflect the brokerage or bid-ask spread that investors may incur when buying and selling units on the ASX. Returns are after fund management costs, assume reinvestment of any distributions and do not take into account income tax. ↑