This ASX ETF employs a unique strategy to generate income.
Typically, investors see their portfolio rise in value thanks to dividends from company profits or capital gains from share price appreciation.
These depend on the company's operations, costs, and market conditions.
However, the Betashares Global Royalties ETF (ASX: ROYL) uses a different focus.
Royalties
According to Betashares, the ROYL ASX ETF aims to track the performance of an index (before fees and expenses) that provides exposure to a portfolio of global companies that earn a substantial portion of their revenue from royalty income, royalty-related income, and intellectual property (IP) income.
Royalties are payments made to asset owners for the right to use those assets.
Originally tied to land and natural resources, royalties have evolved to encompass a wide range of assets, including music, pharmaceuticals, technology, and other intellectual property.
The unique business model underpinning royalty companies has historically resulted in them having low correlation to the broader Australian and global sharemarket, providing potential portfolio diversification benefits.
Examples of royalties:
- Mining and energy: Companies sell royalty interests in future production of resources like oil, gas, precious metals, and minerals.
- Intellectual Property (IP): Creators earn royalties from licensing IP rights in industries including music, biotech, and technology.
- Royalty financing and streaming: Businesses provide upfront capital in exchange for a share of future revenues.
Has it been profitable?
While it's all well and good to use different strategies to build an ASX ETF, the bottom line is the fund needs to rise.
This ASX ETF has done just that.
Since its inception in 2022, the fund has risen more than 67%.
This includes more than 24% YTD.
This ASX ETF has exposure to several sectors that have risen significantly in that time, such as:
- Gold (36.7% weighting)
- Biotechnology (13.3% weighting)
- Oil & Gas Exploration & Production (13.0% weighting)
- Movies & Entertainment (11.0% weighting)
- Semiconductors (10.3% weighting)
At the time of writing, it is made up of 35 holdings.
Its largest exposure by company is:
- Arm Holdings (NASDAQ: ARM): 12.2%
- Wheaton Precious Metals Corp (NYSE: WPM): 11.3%
- Franco-Nevada (NYSE: FNV): 10.8%
