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The Morningstar® Wide Moat Focus IndexSM (the “Index”) completed its quarterly rebalance and reconstitution on Friday, 19 June 2020. Several trends emerged as new names entered the Index and other big name companies saw their position dialed back. Many of the stocks that Morningstar identified as undervalued and added to the Index in March 2020 continued to feature attractive valuations, resulting in an increase to their weightings this quarter. Also notable, exposure to FAANG (Facebook, Apple, Amazon, Netflix, and Google) stocks was further reduced in the Index from an already low level.
Impressive performance resulted in unattractive relative valuations for Amazon (AMZN) and Facebook (FB) during the second quarter Index review. Both companies’ index weight was effectively cut in half following strong returns year-to-date.
FAANG stocks have received more than their share of investor and media attention in recent years as they have, at times, contributed to an outsized portion of the broad U.S. stock markets’ returns. The Index has naturally been underweight these stocks relative to most broad U.S. market indexes. Morningstar equity research analysts have assigned Apple (AAPL) and Netflix (NFLX) a narrow moat rating, leaving both ineligible for inclusion in the wide moat-only Index. Google, or Alphabet, Inc. (GOOGL), was included in the Index as recently as December 2019, but was removed as the company became too pricey relative to other eligible wide moat companies. Despite being underweight these stocks, the Index has maintained an impressive near- and long-term track record.
Communications services and information technology are currently a combined 13% underweight relative to the S&P 500 Index, signaling the increasing valuations among these companies and growth-oriented sectors broadly speaking.
As of 19/6/2020
Several highly recognizable consumer brand companies were added to the Index this quarter. These companies are consumer reliant, global, and have been impacted by the COVID-19 induced economic slowdown.
Below is a summary of the stocks added and removed in this quarter’s review.
*Dropped from parent index due to market cap requirement. Source: Morningstar. Price/fair value data as of 9 June 2020. Past performance is no guarantee of future results. For illustrative purposes only.
VanEck Vectors 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.
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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.
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