An Investor’s Guide to Cost Advantage
October 28, 2026
Read Time 3 MIN
The term “economic moat” describes a company’s ability to maintain its competitive advantages and defend its long-term profitability. This moat investing education series explores the five primary sources of moat, according to Morningstar: 1) switching costs; 2) intangible assets; 3) network effect; 4) cost advantage; 5) efficient scale. Here we explore the concept of cost advantage.
Cost Leadership Provides Market Control
Companies that are able to produce and offer products or services at lower costs than competitors are often able to achieve higher profit margins. Within many industries, cost leaders often exert significant control over market prices, which may give them an advantage over competitors. The cost advantage moat source is the second most frequent source of economic moat ratings, according to Morningstar.
Cost Advantage: Firms with a structural cost advantage can either undercut competitors on price while earning similar margins, or can charge market-level prices while earning relatively high margins.
Cost advantages are often gained through economies of scale, lower distribution and manufacturing costs, and/or access to a low-cost resource base. The increasing level of competition in today’s global economy makes this competitive advantage one of the most difficult for companies to maintain. For example, over the past 30 years, the U.S. manufacturing and consumer goods industries have been flattened by punishing price competition from overseas.
Cost Advantage in Action
Walmart Inc. (WMT) is the largest retailer in the U.S. and has carved out an enviable position in a fragmented and competitive landscape, according to Morningstar. “The firm leverages its unmatched scale by spreading its omnichannel and distribution investments over a wider sales and profit base, allowing the firm to adapt to the dynamic retail environment while maintaining robust profitability.” As Morningstar explains, the company has built its moat around both its strong brand and leverage over suppliers and a vast supply chain network to drive down costs.
United Parcel Service Inc. is exceptionally capable of keeping would-be competitors at bay for a prolonged period. “An upstart would incur immense financial losses while trying to amass the volume and density necessary to absorb the remarkably high capital outlays and fixed costs associated with a global parcel delivery network,” according to Morningstar. “In replicating a network of planes, trucks, sorting facilities, and skilled employees, a new entrant would face massive investment before it could win a critical volume of customers from the entrenched incumbents.”
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Disclosures
Company-specific information based on Morningstar analyst notes last updated as follows: Walmart Inc.: 9/23/2026; United Parcel Service: 7/28/2026.
Fund holdings will vary and are subject to change. For a complete list of holdings for each respective fund, please visit vaneck.com.
This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. 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. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
An investment in the VanEck Morningstar Wide Moat ETF (MOAT) may be subject to risks which include, among others, risks related to investing in equity securities, health care sector, consumer staples sector, industrials sector, information technology sector, medium-capitalization companies, market, operational, high portfolio turnover, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount, liquidity of fund shares, non-diversification, index-related concentration and competitive advantage assessment risks, all of which may adversely affect the Fund. Medium-capitalization companies may be subject to elevated risks.
An investment in the VanEck Morningstar SMID Moat ETF (SMOT) may be subject to risks which include, among others, risks related to investing in equity securities, small- and medium-capitalization companies, consumer discretionary sector, health care sector, industrials sector, information technology sector, market, operational, high portfolio turnover, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount, liquidity of fund shares, and index-related concentration risks, all of which may adversely affect the Fund. Small- and medium-capitalization companies may be subject to elevated risks.
An investment in the VanEck Morningstar Wide Moat Value ETF (MVAL) may be subject to risks which include, among others, risks related to investing in equity securities, value style investing, health care sector, industrials sector, consumer staples sector, large- and medium-capitalization companies, market, operational, high portfolio turnover, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount, liquidity of fund shares, non-diversified, and index-related concentration risks, all of which may adversely affect the Fund. Large- and medium-capitalization companies may be subject to elevated risks. The Fund’s value strategy may result in the Fund investing in securities or industry sectors that underperform the market as a whole. Furthermore, the value companies identified by the Index provider may not operate as expected, and there is no guarantee that the index provider’s proprietary valuation model will perform as intended.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.
Related Funds
Disclosures
Company-specific information based on Morningstar analyst notes last updated as follows: Walmart Inc.: 9/23/2026; United Parcel Service: 7/28/2026.
Fund holdings will vary and are subject to change. For a complete list of holdings for each respective fund, please visit vaneck.com.
This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. 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. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
An investment in the VanEck Morningstar Wide Moat ETF (MOAT) may be subject to risks which include, among others, risks related to investing in equity securities, health care sector, consumer staples sector, industrials sector, information technology sector, medium-capitalization companies, market, operational, high portfolio turnover, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount, liquidity of fund shares, non-diversification, index-related concentration and competitive advantage assessment risks, all of which may adversely affect the Fund. Medium-capitalization companies may be subject to elevated risks.
An investment in the VanEck Morningstar SMID Moat ETF (SMOT) may be subject to risks which include, among others, risks related to investing in equity securities, small- and medium-capitalization companies, consumer discretionary sector, health care sector, industrials sector, information technology sector, market, operational, high portfolio turnover, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount, liquidity of fund shares, and index-related concentration risks, all of which may adversely affect the Fund. Small- and medium-capitalization companies may be subject to elevated risks.
An investment in the VanEck Morningstar Wide Moat Value ETF (MVAL) may be subject to risks which include, among others, risks related to investing in equity securities, value style investing, health care sector, industrials sector, consumer staples sector, large- and medium-capitalization companies, market, operational, high portfolio turnover, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount, liquidity of fund shares, non-diversified, and index-related concentration risks, all of which may adversely affect the Fund. Large- and medium-capitalization companies may be subject to elevated risks. The Fund’s value strategy may result in the Fund investing in securities or industry sectors that underperform the market as a whole. Furthermore, the value companies identified by the Index provider may not operate as expected, and there is no guarantee that the index provider’s proprietary valuation model will perform as intended.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.