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  • Moat Investing

    Tale of Two Markets

    Brandon Rakszawski ,Senior ETF Product Manager
    September 24, 2018
     

    For the Month Ending August 31, 2018

    Performance Overview

    Domestic moat companies, as represented by the Morningstar® Wide Moat Focus IndexSM (MWMFTR, or "U.S. Moat Index"), lagged the S&P 500® Index in August (1.94% vs. 3.26%, respectively) but remained only slightly behind for the YTD period (9.23% vs. 9.94%, respectively). International moats on the other hand proved more resilient than the broad international market for the month. The Morningstar® Global ex-US Moat Focus IndexSM (MGEUMFUN, or "International Moat Index") led the MSCI All Country World Index ex-USA in August (-1.32% vs. -2.09%, respectively) and ended the month ahead since the beginning of the year (-2.73% vs. -3.53%, respectively).

    U.S. Domestic Moats: Health Care Not Enough

    The healthcare sector led US Moat Index performance for the month, boosted by strong returns from CVS Health Corp. (CVS US, +16.00%) and Express Scripts Holding Co. (ESRX US, +10.77). CVS’s strong second quarter results, combined with its rigorous defense of its pharmacy benefit manager business and a favorable update related to its proposed Aetna acquisition, led Morningstar to reaffirm its positive outlook. The top performer in August was Guidewire Software Inc. (GWRE US, +16.67%), a software company that provides solutions to property and casualty insurers. Following its strong run, it approached fair value at the end of the month according to Morningstar analysts. Holding the US Moat Index back in August were retailer L Brands Inc. (LB US, -14.77%), which was downgraded to a narrow economic moat rating by Morningstar analysts in late July, and industrial and materials companies. Stericycle Inc. (SRCL US, -11.69%), which provides medical waste management services, struggled in August, though Morningstar believes the firm is grappling with near-term pricing issues and sees ample growth opportunities for the company. Philip Morris International Inc. (PM US, -9.75%) also posted negative returns in August. Morningstar analysts see an opportunity in this vice stock as tobacco valuations appear to be detached from fundamentals and the industry undergoes some of its biggest changes in decades.

    International Moats — A Lift from Australia

    As international stocks continue to struggle in 2018, the International Moat Index has weathered near-term pressures slightly better than the broad markets. Strong contribution from Australia, particularly TPG Telecom Ltd. (TPM AU, +45.92%), helped lift the International Moat Index in August. TPG Telecom rallied following the announcement at month end of its intended merger with Vodafone to form one of the largest telecomm companies in the Australian market. This rally pushed the company to a premium to its fair value, according to Morningstar’s fair value estimate. The International Moat Index’s two Mexican airports continued to perform well, with both among the top five performers for the index in August. Germany was the top detractor from a country perspective, in part driven by Bayer AG (BAYN GR, -16.09%). Bayer is navigating the fallout from a verdict reached on August 10 in relation to the many glyphosate weed killer lawsuits the company faces. With nearly 8,000 cases pending, Morningstar analysts acknowledge the potential litigation-related costs faced by Bayer, but also consider the August market reaction to be overdone.

     

    (%) Month Ending 8/31/18

    Domestic Equity Markets

    International Equity Markets

    (%) As of 8/31/18

    Domestic Equity Markets

    International Equity Markets

    (%) Month Ending 8/31/18

    Morningstar
    Wide Moat Focus Index (MWMFTR)

    Top 5 Index Performers
    Constituent Total Return
    Guidewire Software Inc 16.67
    CVS Health Corp 16.00
    Amazon.com Inc 13.24
    Salesforce.com Inc 11.32
    Express Scripts Holding Co 10.77

    Bottom 5 Index Performers
    Constituent Total Return
    L Brands Inc -14.77
    Stericycle Inc -11.69
    Philip Morris International Inc -9.75
    Franklin Resources Inc -7.52
    Microchip Technology Inc -7.51

    View MOAT's current constituents
    View MWMZX's current constituents

    Morningstar
    Global ex-US Moat Focus Index (MGEUMFUN)

    Top 5 Index Performers
    Constituent Total Return
    TPG Telecom Ltd 45.92
    Magellan Financial Group Ltd 14.14
    Grupo Aeroportuario del Pacifico SAB de CV Class B 13.84
    SoftBank Group Corp 12.29
    Grupo Aeroportuario del Centro Norte SAB de CV 8.48

    Bottom 5 Index Performers
    Constituent Total Return
    Telecom Italia SpA -17.21
    Genting Singapore Ltd -16.94
    Bayer AG -16.09
    Nabtesco Corp -15.35
    Banco Bilbao Vizcaya Argentaria SA -15.05

    View MOTI's current constituents

    As of 6/15/18

    Morningstar
    Wide Moat Focus Index (MWMFTR)

    Index Additions
    Added Constituent Ticker
    Campbell Soup Co CPB US
    General Mills Inc GIS US
    Comcast Corp A CMCSA US
    Philip Morris International PM US
    Dominion Energy Inc D US
    Procter & Gamble PG US
    Hershey Foods Corp HSY US
    PepsiCo Inc PEP US
    Colgate-Palmolive Co CL US
    Franklin Resources Inc BEN US

    Index Deletions
    Deleted Constituent Ticker
    Monsanto Co. MON US
    Veeva Systems Inc A VEEV US
    Stericycle Inc SRCL US
    VF Corp VFC US
    Lowes Cos Inc LOW US
    TransDigm Group TDG US
    John Wiley & Sons Inc. A JW.A US
    Emerson Electric Co EMR US
    Visa Inc A V US
    NIKE Inc B NKE US

    View Latest MOAT Reconstitution Report
    View MOAT's list of current constituents

    Morningstar
    Global ex-US Moat Focus Index (MGEUMFUN)

    Index Additions
    Added Constituent Country
    Cameco Corporation Canada
    Credit Suisse Group AG Switzerland
    Fanuc Corp Japan
    UBS Group AG Switzerland
    LINE Corp Shs Japan
    Beijing Capital Intl Airport China
    Agricultural Bank of China China
    SK Telecom South Korea
    Nabtesco Japan
    Shire PLC United Kingdom
    Denso Corporation Japan
    Rolls-Royce Holdings PLc United Kingdom
    CI Financial Inc. Canada
    National Australia Bank Australia
    HeidelbergCement Germany
    SCOR SE Act Prov Regpt France
    Murata Mfg Co. Ltd 100 Japan
    Magellan Financial Group Australia
    GlaxoSmithKline PLC United Kingdom
    Anta Sports Products China
    Yum China Holdings Inc China
    Platinum Asset Management Ltd Australia
    IOOF Holdings Limited Australia
    TPG Telecom Ltd Australia
    Kubota Corporation Japan

    Index Deletions
    Deleted Constituent Country
    Nordea Bank AB Common Stock Sweden
    Contact Energy Limited Common Stock New Zealand
    Telecom Italia Az. Italy
    Grupo Aeroportuario del Centro Norte S.A.B. de C.V. Mexico
    Smiths Group PLC Ordinary Shares United Kingdom
    Samsonite International S.A. Common Stock Hong Kong
    Meggitt PLC Shs United Kingdom
    Telefonica S.A. Common Stock Spain
    Infosys Ltd India
    Crown Resorts Ltd Australia
    Mobile TeleSystems PJSC * Russian Federation
    Danske Bank A/S Shs Denmark
    Vodafone Group PLC Common Stock United Kingdom
    Roche Holding AG Dividend Right Cert Switzerland
    Swedbank AB Ordinary Shares A Sweden
    Oversea-Chinese Banking Singapore
    GEA Group Aktiengesellschaft Germany
    Sanofi France
    Commonwealth Bank of Australia Ordinary Share Australia
    SoftBank Group Corp shs Japan
    Bayer AG Namen-Akt Germany
    Grupo Aeroportuario del Pacifico SAB de CV Com Stk B Mexico
    China Resources Gas Group Ltd China
    Wipro Ltd. India

    View Latest MOTI Reconstitution Report
    View MOTI's list of current constituents