Differentiation Matters as Moat Stocks Lead in July

Key Risks
Equity-market risk; concentration in technology shares; small-/mid-cap volatility; currency fluctuations; integration of sustainability risks may result in certain investments being avoided or divested, which could limit diversification; index methodology risk. These factors can lead to significant losses, and past rallies may not be repeated. Complete information on all risks is available in the prospectus and in the KID/KIID, which can be accessed free of charge at vaneck.com.

Key Takeaways

• Earnings announcements, tax cut extensions and AI momentum lifted U.S. equity markets for a third consecutive month of gains in July.
• The Moat Index’s differentiated exposure led to outperformance against the broad market in July, but is below the S&P 500 Index over longer periods.
• Strong stock selection in consumer staples and industrials, led by Teradyne and Huntington Ingalls, offset the Moat Index’s underweight to mega-cap tech, which frequently acted as a headwind for the strategy.
• SMID Moat Index topped small- and mid-cap benchmarks, led by Norwegian Cruise Line and Chart Industries.

In July, U.S. equity markets continued their summer advance, marking the third straight month of gains as the S&P 500 rose and set a fresh new record high. The Nasdaq Composite gained, while the Dow Jones Industrial Average ended the month largely flat. Investor sentiment was bolstered by corporate earnings, positive GDP data¹, and the passage of the One Big Beautiful Bill, which enacted new tax legislation extending previous cuts². However, renewed tariff discussions with multiple countries³ and a softer-than-expected jobs report⁴ toward month's end introduced volatility. The Technology sector remained at the forefront, propelled by AI developments, even as the Federal Reserve once again kept interest rates unchanged⁵. Continued large downward revisions in jobs data did, however, boost market expectations for possible rate reductions later in the year.

The Morningstar Wide Moat Focus Index (the “Moat Index”) also gained in July, outpacing both the broad market S&P 500 as well as the equal-weighted variant. The outperformance came despite the Moat Index’s structural underweight to top mega-cap technology names, which frequently acts as a headwind for the strategy. Strong stock selection during the month, particularly within the consumer staples and industrial sectors, more than offset sector allocations. The strategy continues to provide differentiated exposure, which has become increasingly difficult for investors to find, amid historical levels of concentration in the U.S. equity markets.

Smaller stocks also saw advances during the month, but like much of the year so far, the cohort’s performance lagged relative to large-caps. The Morningstar US Small-Mid Cap Moat Focus Index (the “SMID Moat Index”) posted a gain in July, outpacing both the broad small- and mid-cap benchmarks. Despite their muted performance, many are keeping a close eye on small- and mid-caps as the segment’s prospects could improve with a dovish pivot by the Fed. Smaller stocks, like in the SMID moat index, may be more risky overall and might react more strongly to the potential negative sentiment in the future.

Moat Stocks Lead the Pack in July

Source: Morningstar. Data as of 31/07/2025. Past performance does not predict future returns. Index performance is not representative of fund performance. It is not possible to invest directly in an index. Please see index definitions and other important disclosures at the end of this content. Fund performance current to the most recent month end is available by visiting vaneck.com. All past-performance figures are shown in U.S. dollars; investment returns may rise or fall in local currency terms as a result of currency fluctuations. *Performance below one year is not annualized.

Moat Index July Highlights: Chips and Ships Steer Gains

In July, the Moat Index benefited from strong stock selection, as several companies delivered earnings results that prompted the market to revalue their shares more in line with Morningstar’s fair value estimates. This earnings-driven rerating more than offsets headwinds from the Index’s equal-weighted construction in the current mega-cap driven market. As a result, the Index outpaced the broader, tech-heavy market while continuing to provide differentiated exposure. Investors should look at the longer performance periods before investing and not rely solely on the last month's returns.

Wide-moat semiconductor testing leader Teradyne (TER) was the top contributor to the Moat Index in July, with shares rising nearly 20% following second-quarter earnings and positive forward commentary. While sales declined year over year, management’s guidance pointed to a return to growth in the second half of 2025⁶, and upbeat messaging around demand for AI chip testing and robotics drove a sharp rerating. Morningstar believes Teradyne is well positioned to benefit from growing complexity in semiconductors, particularly in high-bandwidth memory and custom AI accelerators, and sees a recent robotics design win as a meaningful growth driver heading into 2026. With its leading market share, sticky customer relationships, and a robust R&D pipeline, Morningstar maintains a $115 fair value estimate, suggesting there may still be additional upside ahead. While this might be the case, it is also possible that the current momentum will not continue in the future.

Defense contractor Huntington Ingalls (HII) was also a key contributor to the Moat Index performance in July, with shares gaining on the back of strong quarterly results and guidance. While quarterly profit declined due to temporary shipbuilding delays, revenue rose modestly, and management highlighted the arrival of key components that should allow construction to accelerate in the second half of the year⁷. Morningstar expects gradual margin improvement over the coming years, driven by more efficient throughput and higher-margin contracts, particularly in submarine programs. With the U.S. Navy continuing to invest in shipyard capacity and submarine production, Morningstar sees durable long-term demand for Huntington Ingalls’ uniquely positioned shipbuilding operations. Following the update, Morningstar raised its fair value estimate to $324 per share, suggesting shares remain attractively priced. It is worth noting that defense companies tend to be sensitive to government policy changes and the sentiment towards defense spendings.

Other top contributors within the Moat Index during the month include global prestige beauty market leader, Estee Lauder (EL), security products and solutions company, Allegion (ALLE), as well as semiconductor design software provider, Synopsys (SNPS).

Companies detracting the most in July came from a mix of sectors, with industrials accounting for two of the five names on the list: United Parcel Service (UPS) and fluidics equipment manufacturer IDEX Corp. (IEX). Other notable detractors included fixed-income trading platform MarketAxess (MKTX), software and analytics giant Adobe Inc. (ADBE), and enterprise cloud leader Salesforce Inc. (CRM).

Moat Index Top Contributors and Detractors - July 2025

Contributors

Detractors

Source: Morningstar. These companies are a selection within the index as of 31 July 2025 and only represent a part of the underlying portfolio. Past performance does not predict future returns. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein. All past-performance figures are shown in U.S. dollars; investment returns may rise or fall in local currency terms as a result of currency fluctuations.

SMID Moat Index July Highlights: Travel Strength and M&A Activity Shine

The SMID Moat Index outpaced both the small-cap and mid-cap benchmarks in July, driven by strong stock selection across several parts of the portfolio. Industrials and consumer discretionary were standout areas, with four of the month’s top five contributors coming from these two sectors. Investors should look at the longer performance periods before investing and not rely solely on the last month's returns.

Norwegian Cruise Line Holdings (NCLH) topped the SMID Moat Index in July, marking its second consecutive month as a leading contributor. Shares rallied 26% as investor confidence grew around the company’s consistent pricing strength, robust travel demand, and expanding onboard spend⁸. Morningstar believes Norwegian remains well positioned to deliver improving returns on invested capital, supported by efficient scale, cost advantages and brand loyalty across its portfolio. The company’s younger fleet and pipeline of new ships provide ongoing pricing power, while cost initiatives and scale benefits continue to support margin expansion. Morningstar maintains its fair value estimate of $31.50 per share, suggesting shares may still have room to run. At the same time, the tourism sector might react particularly strongly to changes in the sentiment on the economy, and the recent returns could be eroded.

Chart Industries (GTLS), a provider of cryogenic equipment and specialty solutions used across LNG, hydrogen, and industrial gas markets, was also a top contributor to SMID Moat Index performance in July, with shares jumping 20% following news that the company had entered into a definitive agreement to be acquired by Baker Hughes⁹. The all-cash deal, valued at $13.6 billion or $210 per share, marked a premium over Chart’s prior trading levels and sent the stock sharply higher. Morningstar views the offer price as aligned with its fair value estimate and sees the acquisition as a positive outcome for Chart shareholders, offering greater certainty than a prior bid from Flowserve. Despite softer second-quarter sales, the company’s aftermarket service business remains a key strength, and Morningstar continues to believe Chart’s specialty products and repair-driven revenue model support its economic moat. This might, of course, reverse in the future as past performance is not a guarantee of future results.

Companies detracting the most in July within the SMID Moat Index included two names from the auto industry, with auto retailers Lithia Motors (LAD) and CarMax (KMX) weighing on performance during the month. Other notable laggards were toy manufacturer Mattel (MAT), health care supplier Baxter International (BAX), and communications provider Charter Communications (CHTR).

SMID Moat Index Top Contributors and Detractors - July 2025

Contributors

Source: Morningstar. These companies are a selection within the index as of 31 July 2025 and only represent a part of the underlying portfolio. Past performance does not predict future returns. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein. All past-performance figures are shown in U.S. dollars; investment returns may rise or fall in local currency terms as a result of currency fluctuations.

Choose Your Moat Strategy

VanEck’s suite of moat investing strategies is powered by Morningstar’s equity research team, which seeks quality companies trading at attractive valuations. The below ETFs offer access to moat companies across market segments:

VanEck Morningstar US Wide Moat UCITS ETF (MOTU): Seeks exposure to US companies considered by Morningstar’s equity analysts to have durable competitive advantages and appealing valuations.

VanEck Morningstar US ESG Wide Moat UCITS ETF (MOAT): Invests in potentially attractively priced, ESG-filtered US companies identified for sustainable competitive advantages by Morningstar. ESG Screens include exclusion of companies deriving revenues from Controversial Weapons, Civilian Firearms and Thermal Coal as defined by Sustainalytics as well as companies with higher levels of ESG-related risks according to Sustainalytics Estimates. Applying ESG Screens might also cause the investment universe to be limited in size, and the ETF may perform differently compared to non-screened portfolios. Investors should check all the characteristics of the fund before making any investment decision. Relevant disclosures can be found on fund page as well as under this link.

VanEck Morningstar US SMID Moat UCITS ETF (SMOT): Focuses on potentially undervalued US small- and mid-cap companies identified for their possible durable competitive advantages.

VanEck Morningstar Global Wide Moat UCITS ETF (GOAT): Targets high-quality global companies with wide economic moats and potential for long-term growth according to Morningstar.

The ETFs mentioned involve several risks. These include stock market risk (the value of your investment can go up or down), concentration risk (the ETFs may focus on certain sectors or companies and invest in fewer securities than those tracking plain benchmarks), and currency risk (returns can be affected by exchange rate changes).

Additional risks include valuation risk (companies that seem cheap may not perform well), smaller company risk (as smaller firms can be more volatile. Because the ETFs use equal weighting, each company has the same impact on performance, which may lead to different results compared to market-cap-weighted benchmarks. There’s also a chance the ETF doesn’t fully match its index performance (tracking error).

For further information on risks and other important information, please refer to the KID/KIID and the Prospectus of the funds, available at www.vaneck.com before investing.

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Additional Glossary

• “equal-weight” - each stock held in identical proportions
• “market-weight” - holdings sized in line with their market value or free-float market value
• “mega-cap” refers to companies with particularly large market capitalisations. Thresholds might vary
• “overweight” and “underweight” refers to holding a larger or smaller share in a sector or stock than the reference index (e.g. S&P 500 Index)
• “headwinds” means factors that can slow or reduce returns
• “tailwinds” means factors that can accelerate or increase returns
• “economic moat” means a sustainable competitive advantage that helps a company protect its long-term profitability
• “fair value estimate” – the Morningstar analyst's estimate of what a stock is worth
• “price/fair value” – ratio of a stock's trading price to its fair value estimate

The source for all performance data points, contributions, and company research is Morningstar Direct, as of 31 July 2025.