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Moat Investing

Morningstar´s forward-looking equity research turns this philosophy into an actionable investment strategy.

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Moat investing is based on a simple concept: Invest in companies with sustainable competitive advantages trading at attractive valuations.

Risk: The key risk of moat investing is the focus on single companies per sector.


Finding Economic Moats

Economic moats are sustainable competitive advantages that are expected to allow companies to fend off competition and sustain profitability into the future. Morningstar has identified five sources of economic moats.

Switching Costs
Intangible Assets
Network Effect
Cost Advantage
Efficient Scale

Switching Costs

Switching costs give a company pricing power by locking customers into its unique ecosystem. Beyond the expense of moving, they can also be measured by the effort, time, and psychological toll of switching to a competitor.

Example: Microsoft Corp.

Risk: Investing in equity securities is subject to risks associated with general market and economic conditions. Risk of loss of capital.

Intangible Assets

Though not always easy to quantify, intangible assets may include brand recognition, patents, and regulatory licenses. They may prevent competitors from duplicating products or allow a company to charge premium pricing.

Example: Starbucks Corp.

Risk: Investing in equity securities is subject to risks associated with general market and economic conditions. Risk of loss of capital.

Network Effect

A network effect is present when the value of a product or service grows as its user base expands. Each additional customer increases the product’s or service’s value exponentially.

Example: Visa Inc.

Risk: Investing in equity securities is subject to risks associated with general market and economic conditions. Risk of loss of capital.

Cost Advantage

Companies that are able to produce products or services at lower costs than competitors are often able to sell at the same price as competition and gather excess profit, or have the option to undercut competition.

Example: Walmart Inc.

Risk: Investing in equity securities is subject to risks associated with general market and economic conditions. Risk of loss of capital.

Efficient Scale

In a market limited in size, potential new competitors have little incentive to enter because doing so would lower the industry’s returns below the cost of capital.

Example: Union Pacific Corp.

Risk: Investing in equity securities is subject to risks associated with general market and economic conditions. Risk of loss of capital.

The Philosophy Behind the Strategy

The moat investing philosophy, powered by Morningstar’s equity research, brings together its Economic Moat Rating and its forward-looking Fair Value Estimate.

Proven Long-Term Outperformance

Applying Morningstar’s moat investing philosophy to U.S. companies has historically generated excess returns 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.

 

Source: Morningstar. Past performance is no guarantee of future results. Index performance is not representative of fund performance. Investors cannot invest directly in the Index.


Morningstar Analyst Team

Morningstar’s equity research team of more than 100 analysts covers over 1,500 companies globally. More than 200 asset managers and 75,000 financial advisors rely on Morningstar’s research. All of Morningstar’s equity analysts follow a single, consistent research methodology.

Fundamental Analysis
Economic Moat Rating
Company Valuation
Fair Value Estimate
Moat Investing

Fundamental Analysis

Analyst conducts company and industry research, which may include financial statement analysis, trade show visits, industry reports, site visits and conference calls.

Economic Moat Rating

Analyst assesses the strength of the company’s competitive advantage, or moat, assigning a rating of None, Narrow, or Wide.

Company Valuation

Analyst considers past financial results, competitive position, and future prospects to forecast the company’s cash flows. Assumptions are entered into proprietary discounted cash flow model.

Fair Value Estimate

Using Morningstar’s proprietary discounted cash flow model, the analyst develops a Fair Value Estimate, which represents the intrinsic value of that company.

Moat Investing

Identify companies with sustainable competitive advantages and attractive valuations.


Explore Our ETFs

Leverage Morningstar’s forward-looking moat investment philosophy across the U.S. and the global equity markets.


Important Disclosures

For informational and advertising purposes only.

This website 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 Website. Opinions 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. 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 in a fund.

VanEck Vectors Morningstar US Wide Moat UCITS ETF and VanEck Vectors Morningstar Global Wide Moat UCITS ETF (the “Funds”) are sub-funds of VanEck Vectors UCITS ETFs plc, an investment scheme which is registered in Ireland and subject to the European regulation of collective investment schemes under the UCITS Directive. The Funds are managed by VanEck Investments Ltd that delegated the investment management for VanEck Vectors Morningstar US Wide Moat UCITS ETF to Van Eck Associates Corporation, an US based investment advisor registered with the SEC and the investment management for VanEck Vectors Morningstar Global Wide Moat UCITS ETF to VanEck Asset Management B.V., a UCITS management company under Dutch law registered with the Netherlands Authority for the Financial Markets. Both Funds are registered with the Central Bank of Ireland and track equity indices. The value of an ETF's assets may fluctuate widely as a result of its investment policy. If the underlying index falls in value, the ETF also falls in value.

The Sales Prospectus, the Key Investor Information Document (KIID), the Articles of Association and the latest annual and semi-annual reports are available free of charge from www.vaneck.com or can be obtained from the Management Company VanEck Investments Ltd or from the local information agents as applicable, contact details of whom to be found on www.vaneck.com. The documents, except for KIIDs, are only available in English and certain other languages as applicable.

You can lose money by investing in a fund. The value of the investments may go up or down and the investor may not get back the amount invested. Past performance is not a guide to future performance and should not be the sole factor of consideration when selecting a product. Any investment in a fund should be part of an overall investment program, not a complete program. An investor should consider investment objectives, risks, charges, and expenses of the investment carefully before investing.

Fair value estimate: the Morningstar analyst's estimate of what a stock is worth.

The Morningstar® Wide Moat Focus IndexSM and Morningstar® Global Wide Moat Focus IndexSM were created and are maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Vectors Morningstar Global Wide Moat UCITS ETF or the VanEck Vectors Morningstar US Wide Moat UCITS ETF and bears no liability with respect to these funds or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar Wide Moat Focus Index and Morningstar Global Wide Moat Focus Index are service marks of Morningstar, Inc.

Effective 20 June 2016, Morningstar implemented several changes to the Morningstar Wide Moat Focus Index construction rules. Among other changes, the index increased its constituent count from 20 stocks to at least 40 stocks and modified its rebalance and reconstitution methodology. These changes may result in more diversified exposure, lower turnover and longer holding periods for index constituents than under the rules in effect prior to this date.

The S&P 500® Index consists of 500 widely held common stocks covering industrial, utility, financial and transportation sector; as an Index, it is unmanaged and is not a security in which investments can be made.

The S&P 500 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 © 2017 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.

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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