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  • Moat Investing

    More of the Same (Good) Thing in Moat Investing

    Brandon Rakszawski, Senior ETF Product Manager
    17 December 2019
     

    The Morningstar® Wide Moat Focus IndexTM (“Moat Index”) has fortunately provided plenty of positive news to write about throughout 2019, particularly in the second half of the year, with impressive stock selection being a major story this year. November offered more of the same. This month gave the financials sector its turn to shine, extending the Moat Index’s year-to-date outperformance vs. the S&P 500 Index to more than five percent through November.

    Outperformance Across the Board

    Trailing Return (%) as of 30/11/2019

      1 MO YTD 1 YR 3 YR 5 YR
    Moat Index 4.27 32.85 20.70 17.94 13.39
    S&P 500 Index 3.63 27.63 16.11 14.88 10.98

    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.

    Moat Stocks Mega Merger

    Charles Schwab Corp. (SCHW) was the Moat Index standout in November. The company’s stock price rallied 22% during the month on the heels of the announced acquisition of narrow moat TD Ameritrade (AMTD). The all-stock transaction was valued at an estimated $26 billion. Morningstar views Charles Schwab’s massive scale and industry-leading cost efficiency as wide moat worthy. Despite the company’s decision to cut commission pricing to $0 in early October, Morningstar believes the company can sustain returns on invested capital well above the cost of capital. A recent note from Morningstar cited a potential 10-15% upside to Charles Schwab’s fair value estimate based on the proposed deal terms.

    Financials, Financials, Financials

    Three other financials companies, all from different segments of the sector, were among the top performing Moat Index constituents in November. Custody bank State Street Corp. (STT) continued riding the momentum following the strong earnings results it reported in October to post gains in November. Asset manager BlackRock Inc. (BLK) saw a fair value estimate increase in mid-October in light of higher than expected assets under management figures. Lastly, Wells Fargo & Co. (WFC) posted solid performance in November, continuing the strong positive trend that began in mid-August.

    Most Sectors Contribute to Positive Returns for Moat Index

    1 Month as of 30/11/2019
    Most Sectors Contribute to Positive Returns for Moat Index

    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.

    Down in the HOG Pit

    41 of the Moat Index’s 51 constituents contributed positively in November. One standout on the downside was Harley Davidson Inc. (HOG), which has struggled in the face of nonexistent switching costs as consumers replace their bikes with cheaper alternatives. Morningstar notes HOG’s dominant position in the U.S. motorcycle market but also recognizes competitive pressures from lower cost providers and international competition in cyclical downturns or periods of exchange-rate differentials that allow foreign companies to discount their bikes domestically.

    Top Performing Moat Index Companies
    Name November Return (%)
    Charles Schwab Corp 22.07
    ServiceNow Inc 14.47
    State Street Corporation 13.67
    Altria Group Inc 10.96
    Amgen Inc 10.80

    Bottom Performing Moat Index Companies
    Name November Return (%)
    Harley-Davidson Inc -6.50
    KLA Corp -2.60
    Cheniere Energy Inc -1.64
    Comcast Corp Class A -1.49
    Blackbaud Inc -1.13

    Source: Morningstar. Past performance is no guarantee of future results. These are not recommendations to buy or to sell any security.


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    For informational and advertising purposes only.

    This commentary originates from VanEck Investments Ltd, a UCITS Management Company under Irish law regulated by the Central Bank of Ireland and VanEck Asset Management B.V., a UCITS Management Company under Dutch law regulated by the Netherlands Authority for the Financial Markets. It is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice. VanEck Investments Ltd, VanEck Asset Management B.V. 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 commentary. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the commentary’s 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 Vectors Morningstar US Wide Moat UCITS ETF (the “Fund”) is a sub-fund of VanEck Vectors® 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.

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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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