Delegate the Work of Valuation

The part of Morningstar’s economic moat research process that I like the most is that Morningstar ascribes a “fair value” to each of the stocks that it covers. Based on this fair value, at each quarterly review of the Morningstar^® Wide Moat Focus Index^SM, over-valued wide moat stocks leave the index and under-valued stocks enter the index.

There are not many ETFs that provide this benefit.

While the Morningstar Wide Moat Focus Index is anything but a value strategy, it is interesting to note that the index has recently shifted towards a “value” bias.

Valuation Opportunities Drive Style Exposure

Size of circles increase from start date to end date. March 31, 2021 represented by white outline.

Source: Morningstar. Morningstar style box represents the holdings-based exposure to market capitalization (Micro through Giant capitalization) and style (Deep Value through High Growth).

Some of those changes may surprise you. In March 2021, the index added Google and sold Bank of America.

Attractive Price/Fair Value Brings Alphabet (GOOGL) into the Moat Index

Source: Morningstar. Data as of 3/31/2021. Past performance is no guarantee of future results. For illustrative purposes only.

Bank of America (BAC) Exits the Moat Index After Becoming Over-valued

Source: Morningstar. Data as of 3/31/2021. Past performance is no guarantee of future results. For illustrative purposes only.

Moat Index Q1 Review: Buys and Sells

Source: Morningstar.

For a complete list of changes, see the latest moat index review results here. If you’d like to receive regular moat investing updates, please subscribe here.