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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.
Trailing Return (%) as of 30/11/2019
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.
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.
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.
1 Month as of 30/11/2019
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.
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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