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  • Moat Investing

    Resilience, Not Reliance

    Brandon Rakszawski ,Senior ETF Product Manager
    November 16, 2018
     

    For the Month Ending October 31, 2018

    The Morningstar® Wide Moat Focus IndexSM (MWMFTR, or “U.S. Moat Index”) displayed strength in October relative to U.S. large cap stocks as represented by the Morningstar® US Large Cap IndexSM. The October selloff across U.S. stocks, particularly pronounced in the tech sector, wiped out a significant portion of U.S. market gains thus far in 2018. Consumer staples and utilities stocks were the only U.S. large cap sectors to post positive returns in October.

    The U.S. Moat Index displayed resilience, rather than reliance on tech, and finished ahead of U.S. large cap stocks in October and for the year-to-date period.

    U.S. Moats Outpacing U.S. Large Caps

    As of October 31, 2018

    U.S. Moats Outpacing U.S. Large Caps
    Source: Morningstar

    U.S. Moat Index Not Reliant on Tech

    The U.S. Moat Index has managed to outpace U.S. large cap stocks thus far in 2018 despite a significant underweight to the information technology sector. The index has made up for this missing portion of total return with a variety of exposures in the portfolio. As the largest weighting, health care has naturally been the top contributor to index returns this year, but strong returns from communications services and consumer staples companies and modest exposure to energy has made up for the high momentum tech underweight. As tech firms continue to grapple with sector concerns, the U.S. Wide Moat Index may be well positioned to navigate potential turmoil ahead.

    U.S. Moat Index Tech Underweight Results in Less Reliance for Return

    YTD as of October 31, 2018

    U.S. Moat Index Tech Underweight Results in Less Reliance for Returns
    Source: Morningstar

    Resilience Was More than a Tech Story

    The strength displayed by the U.S. Moat Index in October was not only a result of its underweighting to tech stocks. Strong stock selection within the communication services and consumer discretionary sectors provided a significant boost for the U.S. Moat Index, along with an advantageous overweight to consumer staples stocks and underweight to energy and industrials stocks.

    Resilience Beyond Tech Despite Health Care

    1 Month as of October 31, 2018

    Resilience Beyond Tech Despite Health Care
    Source: Morningstar

    Morningstar’s focus on attractive valuations is intended to result in underexposure to many of the high flying stocks that often come back to earth when markets as a whole sell off. The moat investing mantra remains: Invest in companies with sustainable competitive advantages at attractive valuations.

    Now Offering Global Exposure to Morningstar’s Moat Investing Philosophy

    With the recent launch of the VanEck Vectors Morningstar Global Wide Moat ETF (GOAT), VanEck now offers investors four ways to access Morningstar’s forward-looking equity research.

    Fund Name Ticker Underlying Index Equity Exposure
    VanEck Vectors Morningstar Wide Moat ETF MOAT® Morningstar® Wide Moat Focus IndexSM United States
    VanEck Morningstar Wide Moat Fund MWMZX
    MWMIX
    Morningstar® Wide Moat Focus IndexSM United States
    VanEck Vectors Morningstar International Moat ETF MOTI® Morningstar® Global ex-US Moat Focus IndexSM International
    VanEck Vectors Morningstar Global Wide ETF GOAT Morningstar® Global Wide Moat Focus IndexSM Global