Royalty Investing: How You Can Use Commodities to Hedge Against Inflation

Photo by Jingming Pan on Unsplash

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

Investing in the stock market always means you’re taking a risk. With that risk can come great reward, but it can also mean there’s a possibility of losses — big ones. That’s why you need to keep a close eye on where you invest your money, how long you hold your investments and when to sell. After all, your losses and gains are only on paper until you sell your assets.

That said, the goal of any investment is to watch your money grow, so you can end up in a wealthier position than you did at the start. The best way to do that is to diversify your portfolio across several investment vehicle types. That way, you could protect your bottom line from market fluctuations and inflation.

Why Consider Commodities?

Before considering adding commodities to your portfolio, you need to understand what a commodity is and the different ways you can invest. Commodities include agriculture, precious metals like gold and silver, livestock and natural resources. One reason you might want to add one or more of these assets to your portfolio is because commodities don’t typically move in line with traditional investments. So, while other investments might take a hit in the market, your gold or silver may not.

Also, keep in mind that the price of a commodity usually follows inflation, so as your other investments fall while inflation rates rise, precious metals typically don’t follow that pattern. That means you can use your commodity choices to hedge or protect your portfolio in those times when inflation increases.

But how do you acquire these commodities and add them to your portfolio? Here are a few ways to do just that:

• Buying a physical item such as bars of gold
• Purchasing and trading futures contracts
• Acquiring commodity shares
• Investing through mutual funds
• Relying on a royalty company like Vox Royalty VOX

What is a Royalty Company?

A royalty company is a business that buys and holds revenue income streams linked to the production from different mining properties around the world. A royalty company will typically buy a royalty contract for a one-off upfront price (eg. $1M - $20M), on either a producing mine or newly discovered exploration project, that will pay between 1% - 3% of all the future revenue from the mine (eg. quarterly checks of $500k - $5M per annum). The key to a successful royalty company is a technical management team of geologists and mining engineers that can pick the right mines to invest in, negotiate the best prices for a royalty contract and deliver high risk-adjusted returns for shareholders. It’s a good way to gain exposure to a wide array of commodities and introduce yourself to this sector of the market.

Vox Royalty, a mining royalty and streaming company, is the fastest-growing royalty company in the $70B royalty industry, with over 50 different royalties and streams in its portfolio across 9 unique jurisdictions. Vox’s weighted net asset value (NAV) consists of over 70% precious metals, supported by a range of other commodities, including battery metals and iron ore. More than 75% of its royalties are located in Australia and Western Australia is the number one ranked mining jurisdiction according to the Fraser Institute.

When making your commodity investment decision, note that royalty companies such as this royalty and streaming company typically attract a premium valuation over time and are known to outperform exchange-traded funds (ETFs) and physical commodities. Vox Royalty currently trades at a substantial discount to its peers on a Price to Net Asset Value (P/NAV) basis.

The Importance of Diversification

Keeping your eye on inflation is an essential part of strategic investing. If you can use past performance in the commodities market to protect your holdings against inflation-causing dips in your portfolio, a royalty company might be a worthy investment. That’s especially true if you’re new to commodities investing. Remember, the more asset diversification you can build into your portfolio, the more likely you’ll reach your short- and long-term investment goals.

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.