The Morningstar® Wide Moat Focus IndexSM (the “Index”) has outperformed the Morningstar US Market Index by more than 300 basis points annually through March 2021 since its inception on February 14, 2007 (13.30% vs. 9.86%, respectfully). While the Index focuses on wide moat companies with sustainable competitive advantages (i.e., “quality” companies) that are also trading at attractive valuations relative to Morningstar’s assessment of fair value (i.e., value), the Index is certainly not a multi-factor strategy.
Two prevalent style risk factors throughout the Index’s history—low exposure to momentum and (somewhat counterintuitively) a low exposure to quality—have actually proven a headwind to Index performance over time. The overwhelming majority of the Index’s excess returns since inception cannot be explained by traditional factor risks. Instead, the risk factors contributing to excess returns are attributable to stock selection over value, momentum, quality, size, etc.
Risk Factor Attribution: It’s All about Stock Selection
Morningstar Wide Moat Focus Index Cumulative Excess Returns vs. Morningstar US Market Index 1/2008 – 12/2020
Source: Morningstar. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. For fund performance current to the most recent month-end, visit vaneck.com.
You can read more on this topic in Morningstar Strategist Andrew Lane’s recent paper: Morningstar Wide Moat Focus Index Through a Factor Lens.
VanEck Vectors Morningstar Wide ETF (MOAT) seeks to replicate as closely as possible, before fees and expenses the price and yield performance of the Morningstar Wide Moat Focus Index.