Moat Stocks Rebound on Earnings Surprises

After a bruising April, U.S. equities defied the old “Sell in May and go away” adage by roaring back to life during the month. The Nasdaq Composite rallied nearly 10 percent, the S&P 500 added 6.3 percent, and the Dow Jones Industrial Average returned 4 percent as investors embraced a stronger than expected earnings season and a lull in tariff saber-rattling. A low Consumer Price Index release mid-month further soothed nerves, reinforcing hopes that inflation remains on a downward path. Technology shares led the advance, buoyed by upbeat artificial-intelligence commentary and a strong report from NVIDIA, even with lingering concerns over export restrictions to China. History shows that a strong May often sets a constructive tone for the following year, and sentiment grew steadily more optimistic as the month unfolded.

The Morningstar Wide Moat Focus Index (the “Moat Index”) rose 4.2 percent, capturing much of the market upswing while holding fast to its emphasis on competitive advantages and valuations. Its equally weighted structure left it with a smaller stake in the mega-cap technology cohort that led May’s charge, yet strong earnings from holdings such as Microchip Technology and Disney provided a solid boost. The Index’s larger health care position did temper the headline return amid ongoing drug-tariff chatter, leading to a finish behind the tech-concentrated S&P 500 but in line with the equal-weighted variant of the benchmark.

The Morningstar US Small-Mid Cap Moat Focus Index (the “SMID Moat Index”) advanced 5.4 percent, effectively matching the mid-cap benchmark and outpacing broad small-caps. Notable contributions from consumer-oriented names reflected both healthy stock selection and upbeat earnings across the portfolio. The Index’s moat investing philosophy and blended size profile helped it stay ahead of both small-caps and mid-caps on a year-to-date basis.

Markets Regain Their Footing in May

Source: Morningstar. Data as of 5/31/2025. Past performance is no guarantee of future results. Index performance is not representative of fund performance. It is not possible to invest directly in an index. Please see index definitions and other important disclosures at the end of this content. Fund performance current to the most recent month end is available by visiting vaneck.com or by calling 800.826.2333.

Moat Index May Highlights: Chipmakers Climb, Disney Dazzles

Sector positioning, more than individual stock choices, shaped the Moat Index’s performance relative to the S&P 500 in May. An underweight in technology during a large-cap growth rally and an overweight in health care, where pharmaceutical-tariff concerns persisted, both dragged on returns. However, positive stock selection within the health care segment as well as strong earnings from several moat companies helped offset the sector exposure headwind.

Wide-moat chipmaker Microchip Technology (MCHP) claimed the Moat Index’s top spot in May after its shares surged over 25 percent during the month on an upbeat earnings release. Reported revenue was down year over year, though the market celebrated a figure that came in above expectations as well as April chip orders that were the strongest of any month in the prior quarter. Looking ahead, the company expects next quarter revenue to climb about 8 percent sequentially and reiterated a long-term gross-margin target of 65 percent, a signal that the semiconductor downturn may have reached bottom. Morningstar maintained its $63 fair-value estimate, pointing to sticky microcontroller design wins and high switching costs that anchor the firm’s wide economic moat.

Close behind was The Walt Disney Company (DIS), which rallied over 20 percent in May after what Morningstar called a spectacular quarterly report. Disney saw revenue and operating income improve year over year, with domestic park bookings mid-single-digits ahead of last year, and a streaming media portfolio that continued on a path toward sustained profitability. Management now expects operating income to finish at the top end of its prior growth target, and the upbeat outlook lifted the shares more than 10 percent on the day of the release. Morningstar increased its fair-value estimate to $120, crediting Disney’s timeless franchises and world-class theme parks for the company’s durable competitive edge.

Other top contributors within the Moat Index during the month include the well-known aerospace and defense giant Boeing Co. (BA), agricultural inputs and crop protection leader Corteva (CTVA), and the life sciences software solutions company Veeva Systems (VEEV).

Detracting most, for the second consecutive month, were companies within the tariff threatened health care sector, including orthopedic implants provider Zimmer Biomet (ZBH), pharmaceutical developer Merk & Co. (MRK), and biotech, diagnostics, and life sciences company Danaher (DHR). Two Consumer Staples names, Campbell’s Co. (CPB) and Constellation Brands (STZ), were also primary detractors this month.

Moat Index Top Contributors and Detractors - May 2025

Contributors

Detractors

Source: Morningstar, May 2025. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein.

SMID Moat Index May Highlights: Carnival Cruise Makes Waves

The SMID Moat Index benefited from strong stock selection in May, particularly within the Consumer Discretionary and Health Care segments of the market. Sector positioning pulled in the opposite direction, though, offsetting much of that advantage and leaving the Index to finish roughly in step with the broader small and mid-cap benchmarks.

Carnival Corp. (CCL) cruised to the top of the SMID Moat Index in May, its shares jumping 26 percent after the company posted a record-setting first quarter and raised its full year outlook. Revenue reached new highs and operating profit almost doubled from last year as pent-up travel demand and healthy onboard spending packed its ships. Management capitalized on the momentum by refinancing a large slice of debt, cutting future interest costs, and highlighted that advance bookings and prices for sailings through 2026 are tracking at record levels. With those tailwinds, Carnival now expects earnings to grow meaningfully faster than it projected just a few months ago, reinforcing investor confidence that the cruise giant’s post-pandemic comeback still has plenty of open water ahead. Even after May’s impressive rally, Morningstar’s fair-value estimate of $31 suggests Carnival’s shares still have more room to run.

Shifting from the high seas to high finance, moat company LPL Financial Holdings (LPLA) landed just behind Carnival as the number two performer in May, climbing 21 percent. The advance followed a solid first-quarter report that featured strong organic asset inflows and news of a planned purchase of Commonwealth Financial Network, which would be the largest deal in LPL’s history. The acquisition could add roughly $260 billion in client assets and more than 2,500 advisors, expanding LPL’s platform by about 15 percent.

The biggest laggards were packaged-food stalwart Campbell’s (CPB), money-transfer specialist Western Union (WU), orthopedic implant maker Zimmer Biomet (ZBH), collaboration-software provider Atlassian (TEAM), and advertising agency network Interpublic Group (IPG).

SMID Moat Index Top Contributors and Detractors - May 2025

Contributors

Detractors

Source: Morningstar, May 2025. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein.

Choose Your Moat Strategy

VanEck’s suite of moat investing strategies is powered by Morningstar’s equity research team, which seeks quality companies trading at attractive valuations. The below ETFs offer access to moat companies across market segments:

VanEck Morningstar Wide ETF (MOAT): companies with a wide moat rating, which means Morningstar believes the company is likely to sustain its competitive advantage for at least the next 20 years.

Source for all data unless otherwise noted: Morningstar.