• Moat-Investments

    Moat Index: Lithium Surprise Powers Compass Minerals

    Brandon Rakszawski, Senior ETF Product Manager

    Long-time Morningstar Wide Moat Focus Index (the “Moat Index” or “Index”) component Compass Minerals (CMP) received its fair share of attention in July after announcing the identification of a lithium brine resource with approximately 2.4 million metric tons of lithium carbonate equivalent at its active Ogden, UT solar evaporation site. CMP’s management is exploring strategic options for the lithium, and Morningstar’s base case assumes CMP will partner with another company on the project and pursue direct lithium extraction technology to produce lithium as a byproduct from its brine resources.

    This news preceded a boost that lithium producer stocks received in late July, following the news that the U.S. infrastructure bill was advancing in the Senate. The bill features $7.5 billion of funds that would be used to build 500,000 high-powered electric vehicle chargers throughout the country, according to Morningstar. Morningstar had already incorporated this information into their lithium price assumptions and ultimately increased CMP’s fair value estimate from $78 to $88 per share earlier in July. Despite the rally, CMP shares remained notably undervalued at the end of the month, according to Morningstar.

    July Performance Contributors and Detractors in Moat Index

    The Moat Index modestly underperformed the S&P 500® Index in July (1.99% vs. 2.38%, respectively). However, the Index remained ahead of the S&P 500 Index by over 4.0% year to date through July (22.16% vs. 17.99%, respectively).

    Outside of Compass Minerals’ strong month, several Moat Index constituents also stood out. Alphabet Inc. (GOOGL) was added to the Index in both December 2020 and March 2021 at what were attractive valuations. Since that point Morningstar has increased GOOGL’s fair value estimate to $2,955 and $3,200 in April and July, respectively. Shares remained roughly 15% undervalued at the end of July, according to Morningstar.

    Pfizer Inc. (PFE) was another standout in July. The company reported strong second quarter results ahead of Morningstar’s expectations, buoyed by exceptionally strong COVID-19 vaccine sales as well as solid growth from the core portfolio. Additionally, Morningstar increased its fair value estimate to $42 per share from $40 based on the strong traction Pfizer is showing coming out of the pandemic midway through 2021, with currently marketed drugs as well as pipeline advancements.

    Blackbaud Inc. (BLKB) slid following a strong June for the company’s share price. As a software company, it contributed to poor stock selection as a whole within the information technology sector in July. Poor stock selection paired with modest sector allocation effect made the tech sector the leading detractor to relative performance versus the S&P 500 Index.

    Biogen Inc. (BIIB) was another notable detractor as the company came back to earth following the June surprise FDA approval of its Alzheimer therapy. The headlines focused on the recent approval and controversy that surrounded it, but also notable was the company’s 25% decline in second quarter multiple sclerosis revenue. Despite this decline, Morningstar noted that Biogen's core MS business and expansion into depression, stroke and neurogenerative diseases support a wide moat, and Morningstar maintained its $391 fair value estimate for the company.

    A Note on Cerner’s Moat

    Though generally a rare occurrence, from time to time one of the Moat Index’s constituents will see its moat rating drop a notch to narrow. This time Cerner Corp. was downgraded. In late June, Morningstar cited strong switching costs associated with government contracts, but a lack of moat sources in their strategic growth areas such as Software as a Service and data reduced Morningstar’s confidence in the duration of Cerner’s moat. Without a wide moat rating, Cerner can be expected to be removed from the Moat Index in future reviews.

    VanEck Morningstar US Wide Moat UCITS ETF (MOAT) seeks to replicate as closely as possible, before fees and expenses the price and yield performance of the Morningstar Wide Moat Focus Index.

  • Important Disclosure

    For informational and advertising purposes only.

    This information originates from VanEck (Europe) GmbH which has been appointed as distributor of VanEck products in Europe by the Management Company VanEck Asset Management B.V., incorporated under Dutch law and registered with the Dutch Authority for the Financial Markets (AFM). VanEck (Europe) GmbH with registered address at Kreuznacher Str. 30, 60486 Frankfurt, Germany, is a financial services provider regulated by the Federal Financial Supervisory Authority in Germany (BaFin). The information is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice. VanEck (Europe) GmbH and its associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index.

    VanEck Morningstar US Wide Moat UCITS ETF (the “Fund”) is a sub-fund of VanEck® UCITS ETFs plc., organised under the laws of Ireland, managed by VanEck Investments Ltd. VanEck Investments Ltd delegated the investment management of the Fund to Van Eck Associates Corporation, an investment manager regulated by the U.S. Securities and Exchange commission (SEC). Any investment decision must be made on the basis of the prospectus and the key investor information document (“KIID”), which is available at www.vaneck.com. These are available in English and certain other languages at www.vaneck.com or can be requested free of charge from VanEck Investments Ltd or from the relevant local information agent details of whom to be found on www.vaneck.com. The Fund is registered with the Central Bank of Ireland and tracks an equity index.

    Morningstar® Wide Moat Focus IndexTM is a trade mark of Morningstar inc. and has been licensed for use for certain purposes by VanEck. VanEck Morningstar US Wide Moat UCITS ETF is not sponsored, endorsed, sold or promoted by Morningstar and Morningstar makes no representation regarding the advisability of investing in VanEck Morningstar US Wide Moat UCITS ETF.

    The S&P 500 Index (“Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2020 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spdji.com. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.

    S&P 500® Index: consists of 500 widely held common stocks covering the leading industries of the U.S. economy. Morningstar® Wide Moat Focus IndexTM consists of at least 40 U.S. companies identified as having sustainable, competitive advantages, and whose stocks are the most attractively priced, according to Morningstar.

    All performance information is historical and is no guarantee of future results. Investing is subject to risk, including the possible loss of principal. You must read the Prospectus and KIID before investing.

    No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.

    © VanEck (Europe) GmbH


  • Authored by

    Brandon Rakszawski
    Senior ETF Product Manager

  • Sign-up to Receive
    Our Latest Insights on
    Moat Investing