Moat Stocks Climb in a Concentrated Market

Key Risks
Equity-market risk; concentration in technology shares; small-/mid-cap volatility; currency fluctuations; integration of sustainability risks may result in certain investments being avoided or divested, which could limit diversification; index methodology risk. These factors can lead to significant losses, and past rallies may not be repeated. Complete information on all risks is available in the prospectus and in the KID/KIID, which can be accessed free of charge at vaneck.com.

Key Takeaways:

• Moat Index outpaced the S&P 500 in October, driven by strong stock selection.
• Teradyne and Thermo Fisher Scientific led Moat Index contributors.
• SMID Moat Index declined 0.6%, but held up better than small-cap peers amid consumer weakness.
• WESCO International and Ionis Pharmaceuticals were top SMID Moat Index contributors.

In October, the S&P 500 marked its sixth straight monthly gain and set fresh record highs, as a strong third quarter earnings season and announcements of continued AI-driven capital spending kept risk appetite intact. Equities were further supported by the Federal Reserve’s second 25 basis point cut of the year and the signaling of an end to quantitative tightening. Hopes for an incremental thaw in U.S.-China trade relations also helped, rounding out a constructive backdrop heading into November. However, market breadth remained narrow during the month. Leadership continued to be concentrated in the typical mega-cap technology names, while small caps faced pressure from the continued government shutdown and resulting gaps in critical economic data releases.

The Morningstar Wide Moat Focus Index (the “Moat Index”) gained 2.66% in October, outpacing the S&P 500 which advanced 2.34%. Strong stock selection was the primary driver of relative outperformance, led by health care and industrials where several holdings beat sector peers. The outperformance was despite headwinds to equal-weight strategies during the month, illustrated by the equal-weight S&P 500, which finished down nearly a full percentage point.

In contrast, smaller cap companies trailed, as investors continued to favor large-cap technology leaders even after another quarter point rate cut. The Morningstar US Small-Mid Cap Moat Focus Index (the “SMID Moat Index”) declined 0.60% during the month, falling in between the broad small- and mid-cap benchmarks given the strategy’s mixed size exposure.

Wide Moat Stock Shows Strength as Market Breadth Shrinks

Source: Morningstar. Data as of 31/10/2025. Past performance does not predict future returns. 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. All past-performance figures are shown in U.S. dollars; investment returns may rise or fall in local currency terms as a result of currency fluctuations. *Performance below one year is not annualized.

Moat Index Highlights: Semis and Science Lead

In October, the Moat Index finished ahead of the S&P 500, overcoming headwinds faced generally by equal-weighted strategies during the month. Strong stock selection was the primary driver of relative performance, but sector allocations in certain segments, namely overweights in health care and industrials, also proved beneficial during the month.

Teradyne (TER) was the top contributor to the Moat Index in October as shares rose 32% following a strong earnings release. Third quarter sales rose 4%, which was at the high end of guidance, and management called for additional revenue growth in the fourth quarter on accelerating AI demand. Morningstar highlights a stronger position in AI chip testing, including custom accelerators from Broadcom and high bandwidth memory, with rising confidence that Teradyne can qualify as a second testing source for GPUs at Nvidia and AMD. With AI now the primary growth driver and mobile becoming less central, Morningstar raised its fair value estimate to $140 per share from $115 and reiterates a wide moat view on the firm’s automated test leadership. While the stock looks slightly rich to that estimate after the move, Morningstar expects double digit chip testing growth over the next two years as AI buildouts add capacity and complexity.

Also within the top contributors this month was Thermo Fisher Scientific Inc. (TMO), a global leader in life science tools and services that span instruments, consumables, logistics, and clinical trial support. Shares gained 17% in October after the company announced the $8.9B acquisition of Clario Holdings, a provider of clinical trial data solutions, with closing targeted for mid-2026. Clario’s end point data software is used in roughly 70% of U.S. drug approvals and will expand Thermo Fisher’s clinical trial solutions portfolio. Management expects Clario’s $1.25B revenue base to grow at a high single-digit rate and be immediately accretive to adjusted operating margin. TMO’s wide moat reflects unmatched scale, a one stop shop portfolio, and switching costs that come from deep integration with pharma workflows and a large base of recurring consumables and services. Morningstar maintains a $630 per share fair value estimate and a wide moat rating.

Other top contributors within the Moat Index during the month included semiconductor equipment leader Applied Materials Inc. (AMAT), life science tools and diagnostics provider Agilent Technologies Inc. (A), and global package delivery and logistics provider United Parcel Service Inc. (UPS).

Companies detracting the most in October included consumer health company Kenvue Inc. (KVUE), semiconductor leader NXP Semiconductors (NXPI), global food and beverage company Mondelez International Inc. (MDLZ), household products maker Clorox Co. (CLX), and athletic footwear and apparel brand Nike Inc. (NKE).

Moat Index Top Contributors and Detractors - October 2025

Contributors

Detractors

Source: Morningstar. These companies are a selection within the index as of 31 October 2025 and only represent a part of the underlying portfolio. Past performance does not predict future returns. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein. All past-performance figures are shown in U.S. dollars; investment returns may rise or fall in local currency terms as a result of currency fluctuations.

SMID Moat Index Highlights: Cables and Capsules Climb

The SMID Moat Index performance was muted this month, falling in between the small- and mid-cap benchmarks given its exposure to both size cohorts. The strategy benefited from its overweight allocation in health care, a top performing sector during the month, as well as from its underweight to the financials. However, headwinds to consumer discretionary names acted as an offset.

WESCO International (WCC) was the top contributor to the SMID Moat Index in October as shares rallied 23% on strong quarterly earnings results. Organic sales increased and EPS grew year-over-year despite some margin pressure. Momentum remained strongest in data center solutions, marking a fifth straight quarter with sales up more than 50% and bringing that end market to nearly 20% of Wesco’s revenue. Wesco is also benefiting from U.S. infrastructure spending and multiyear projects where it provides value added services. Morningstar raised its fair value estimate to $240 and maintained WCC’s economic moat. The moat reflects scale, broad supplier and product reach, and service capabilities such as vendor managed inventory that deepen customer relationships and support a cost advantage.

Ionis Pharmaceuticals Inc. (IONS) was a top contributor for the second consecutive month, rising about 13% in October. Momentum followed strong uptake for their rare disease drug, Tryngolza, which delivered $32M in quarterly sales and grew 68% sequentially, prompting a higher revenue guidance outlook. Management is also planning near-term U.S. filings for two additional products, olezarsen and zilganersen, and Morningstar assigns a 90% approval probability to each with launches expected in 2026. Ionis’ narrow moat is supported by its proprietary antisense platform and layered intellectual property, and by progress building independent commercial capabilities. Morningstar maintains a $74 fair value estimate and a positive long-term outlook.

Other top contributors include Agilent Technologies Inc. (A), a life science tools and diagnostics provider, Huntington Ingalls Industries (HII), the largest U.S. military shipbuilder, and Albemarle Corp. (ALB), a leading lithium producer serving electric vehicle supply chains.

Companies detracting the most in October within the SMID Moat Index spanned multiple sectors, but consumer discretionary was the notable stand out. Names included online sports betting firm DraftKings Inc. (DKNG), cruise operator Norwegian Cruise Line Ltd. (NCLH), sleep and respiratory care device maker ResMed Inc. (RMD), confectionery company The Hershey Co. (HSY), and alternative asset manager The Carlyle Group Inc. (CG).

SMID Moat Index Top Contributors and Detractors - October 2025

Contributors

Source: Morningstar. These companies are a selection within the index as of 31 October 2025 and only represent a part of the underlying portfolio. Past performance does not predict future returns. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein. All past-performance figures are shown in U.S. dollars; investment returns may rise or fall in local currency terms as a result of currency fluctuations.

The source for all performance data points, contributions, and company research is Morningstar Direct, as of October 31, 2025.

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 US Wide Moat UCITS ETF (MOTU): Seeks exposure to US companies considered by Morningstar’s equity analysts to have durable competitive advantages and appealing valuations.

VanEck Morningstar US ESG Wide Moat UCITS ETF (MOAT): Invests in potentially attractively priced, ESG-filtered US companies identified for sustainable competitive advantages by Morningstar. ESG Screens include exclusion of companies deriving revenues from Controversial Weapons, Civilian Firearms and Thermal Coal as defined by Sustainalytics as well as companies with higher levels of ESG-related risks according to Sustainalytics Estimates. Applying ESG Screens might also cause the investment universe to be limited in size, and the ETF may perform differently compared to non-screened portfolios. Investors should check all the characteristics of the fund before making any investment decision. Relevant disclosures can be found on fund page as well as under this link.

VanEck Morningstar US SMID Moat UCITS ETF (SMOT): Focuses on potentially undervalued US small- and mid-cap companies identified for their possible durable competitive advantages.

VanEck Morningstar Global Wide Moat UCITS ETF (GOAT): Targets high-quality global companies with wide economic moats and potential for long-term growth according to Morningstar.

The ETFs mentioned involve several risks. These include stock market risk (the value of your investment can go up or down), concentration risk (the ETFs may focus on certain sectors or companies and invest in fewer securities than those tracking plain benchmarks), and currency risk (returns can be affected by exchange rate changes).

Additional risks include valuation risk (companies that seem cheap may not perform well), smaller company risk (as smaller firms can be more volatile. Because the ETFs use equal weighting, each company has the same impact on performance, which may lead to different results compared to market-cap-weighted benchmarks. There’s also a chance the ETF doesn’t fully match its index performance (tracking error).

For further information on risks and other important information, please refer to the KID/KIID and the Prospectus of the funds, available at www.vaneck.com before investing.

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