• Moat Investing, Powered by Morningstar

    Moat Investing, Powered by Morningstar®

  • Moat Investing: Finding companies with sustainable competitive advantages at attractive valuations

    Moat investing is based on a simple concept: invest in companies with sustainable competitive advantages trading at attractive valuations. Morningstar’s forward-looking equity research turns this philosphy into an actionable investment strategy. Its team of more than 100 equity analysts covers roughly 1,500 companies globally and applies one consistent methodology to its research.

    Leverage Morningstar’s forward-looking moat investment philosophy across global equity markets:


    • Morningstar Wide Moat Focus Index  

    Underlying Indices

    • Morningstar Global ex-US Moat Focus Index  


    • Morningstar Global Wide Moat Focus Index  


    Finding Economic Moats

    Morningstar aims to identify companies they believe possess sustainable competitive advantages, or economic moats. Economic moats are expected to allow companies to fend off competition and sustain profitability into the future. Morningstar has identified five sources of competitive advantages:

    Sources of Moats Description Example
    Network Effect Present when the value of a service grows as more people use a network. Visa Inc.
    Cost Advantage Allows firms to sell at the same price as competition and gather excess profit and/or have the option to undercut competition. Walmart Inc.
    Efficient Scale When a company serves a market limited in size, new competitors may not have an incentive to enter. Incumbents generate economic profits, but new entrants would cause returns for all players to fall well below cost of capital. Union Pacific Corp.
    Intangible Assets Things such as brands, patents, and regulatory licenses that block competition and/or allow companies to charge more. Starbucks Corp.
    Switching Costs Whether in time or money, the expenses that a customer would incur to change from one producer/provider to another. Stryker Corp.


    Focus on Valuations

    In order to avoid overpaying for moat companies, Morningstar assigns each company a current fair value based on projected future cash flows and assesses its current price against this fair value. This forward-looking valuation approach allows long-term investors to look beyond a company’s current price and potential noise in the market.


    Proven Long-Term Outperformance

    Applying Morningstar’s moat investing philosophy to U.S. companies has generated impressive outperformance relative to the broad U.S. equity markets. Strong stock selection has been a primary driver of excess returns since 2007 for this long-term, core investment strategy, which can be applied to multiple regions.

    Source: Morningstar.

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