• Moat Investing

    Moat Investing Stays in Style

    Brandon Rakszawski, Senior ETF Product Manager

    Once again, September lived up to its billing as the most difficult month of the year for U.S. equities. The S&P 500 Index finished the month in negative territory (-4.65%), which was its first monthly loss since January 2021, and the worst monthly return since March 2020, when economies across the world closed to address the early spread of COVID-19. U.S. equity markets had plenty to navigate in September, from debt ceiling negotiations and the prospect of Federal Reserve (Fed) tapering to persistent uncertainty surrounding the global pandemic and its potential trajectory. The Morningstar® Wide Moat Focus IndexSM (the “Moat Index” or “Index”), though not immune to market pressures, proved somewhat resilient with a -4.17% return.

    Few areas of the market escaped the month unscathed, with both growth stocks and value stocks in negative territory. The Russell 1000 Growth Index posted a -5.60% return in September and the Russell 1000 Value Index was only down -3.48%. After a long run of growth outperforming value, the two styles have exchanged blows in 2020, with value outdoing growth for a few months and growth then bouncing back. Despite this push/pull environment, the Moat Index has managed to outperform the S&P 500 Index, Russell 1000 Growth Index and Russell 1000 Value Index in 2021 through September.

    Moat Index Still in Style

    As of 30 September 2021

    Moat Index Still in Style: Performance vs. S&P 500 Index, Russell 1000 Value Index and Russell 1000 Growth Index

    Source: Morningstar. Past performance is no guarantee of future results. Individual company and index performance is not illustrative of fund performance.

    Tech Selections Boost Moat Index in September

    Salesforce.com (CRM) was a standout for the Moat Index in September and its overweight compared to the S&P 500 Index boosted relative performance. Shares of Salesforce spiked following its investor day in late September. Subsequently, Morningstar raised its fair value estimate from $292 per share to $312, leaving shares attractively priced despite gains for the month. Morningstar noted encouraging increases to 2022 and 2023 guidance as well as an emerging margin story and intense interest in all things Slack following the completion of its acquisition of Slack Technologies this summer.

    Blackbaud Inc. (BLKB) and Guidewire Software (GWRE), both software companies, also provided strong relative returns in October and both owe their wide moat rating to high customer switching costs. Both operate in niche areas (Blackbaud in the non-profit ecosystem and Guidewire in the property and casualty industry) and both have entrenched their products and services in their customers’ business models. Both remain modestly undervalued according to Morningstar.

    Health Care Detractors Cause Portfolio Pain

    Biogen Inc. (BIIB), Veeva Systems Inc. (VEEV) and Bristol-Myers Squibb Co (BMY), all overweight in the Moat Index vs. the S&P 500, were the three largest relative detractors from returns for the month. Biogen and Bristol-Myers Squibb have been forced to navigate upcoming congressional proposals and a plan from the U.S. Department of Health and Human Services that are putting drug pricing policy back in the spotlight. However, Morningstar has not seen a proposal to date that appears moderate enough to pass the razor thin Democratic majority in the Senate. Therefore, Morningstar does not anticipate any near term changes to fair value estimates or moat ratings for its biotech and pharmaceutical coverage. They expect innovative drugs will carry strong pricing powers, a core pillar in moat ratings and valuations for the industry.

    Index Review Yields Modest Changes

    The Moat Index underwent its third quarter review in late September. While eight companies were added and removed from the sub-portfolio under review, there weren’t any major shifts in sector or style exposure. Value stocks remained the largest exposure in the Index at approximately 43%, followed by core stocks at approximately 32% and growth stocks at nearly 25%.

    The tech sector saw its prominence in the Index increase, driven mostly by semiconductor companies KLA Corp., Lam Research Corp. and Microchip Technologies re-joining the Index this quarter. Health care, a long-term overweight in the Index saw a modest decrease to its exposure.

    VanEck Morningstar US Wide Moat UCITS 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.

  • Important Disclosure

    For informational and advertising purposes only.

    This information originates from VanEck (Europe) GmbH which has been appointed as distributor of VanEck products in Europe by the Management Company VanEck Asset Management B.V., incorporated under Dutch law and registered with the Dutch Authority for the Financial Markets (AFM). VanEck (Europe) GmbH with registered address at Kreuznacher Str. 30, 60486 Frankfurt, Germany, is a financial services provider regulated by the Federal Financial Supervisory Authority in Germany (BaFin). The information is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice. VanEck (Europe) GmbH and its associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index.

    VanEck Morningstar US Wide Moat UCITS ETF (the “Fund”) is a sub-fund of VanEck® UCITS ETFs plc., organised under the laws of Ireland, managed by VanEck Investments Ltd. VanEck Investments Ltd delegated the investment management of the Fund to Van Eck Associates Corporation, an investment manager regulated by the U.S. Securities and Exchange commission (SEC). Any investment decision must be made on the basis of the prospectus and the key investor information document (“KIID”), which is available at www.vaneck.com. These are available in English and certain other languages at www.vaneck.com or can be requested free of charge from VanEck Investments Ltd or from the relevant local information agent details of whom to be found on www.vaneck.com. The Fund is registered with the Central Bank of Ireland and tracks an equity index.

    Morningstar® Wide Moat Focus IndexTM is a trade mark of Morningstar inc. and has been licensed for use for certain purposes by VanEck. VanEck Morningstar US Wide Moat UCITS ETF is not sponsored, endorsed, sold or promoted by Morningstar and Morningstar makes no representation regarding the advisability of investing in VanEck Morningstar US Wide Moat UCITS ETF.

    The S&P 500 Index (“Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2020 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spdji.com. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.

    S&P 500® Index: consists of 500 widely held common stocks covering the leading industries of the U.S. economy. Morningstar® Wide Moat Focus IndexTM consists of at least 40 U.S. companies identified as having sustainable, competitive advantages, and whose stocks are the most attractively priced, according to Morningstar.

    All performance information is historical and is no guarantee of future results. Investing is subject to risk, including the possible loss of principal. You must read the Prospectus and KIID before investing.

    No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.

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  • Authored by

    Brandon Rakszawski
    Senior ETF Product Manager

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