• Moat Investing

    Moat Index Bounces Back Ahead of Review

    30 September 2019

    The Morningstar® Wide Moat Focus IndexTM (“Moat Index”) is ahead of the S&P 500 Index by more than two percent for the current month through September 20, 2019 (4.52% vs. 2.36%, respectively). This follows a difficult August in which the Moat Index trailed the S&P 500® Index by nearly one percent on a total return basis (-2.30% vs. -1.58%, respectively).

    Much of August’s struggles were driven by the financials sector. In particular, brokerage firm Charles Schwab Corp. (SCHW) and custody bank State Street Corp. (STT) were among the Moat Index’s five worst performing stocks for the month. One of its few energy sector holdings, Core Laboratories (CLB), had a particularly poor August despite featuring one of the largest economic moats in Morningstar’s oil field services coverage universe. CLB’s stock price has since reversed course and has helped elevate the Moat Index, leading all constituents from a total return perspective in September thus far.

    This surge led into the index’s standard quarterly review. During the review, the eligible universe of U.S. stocks is assessed to allow for the Moat Index to represent wide moat companies with attractive valuations. Companies that have appreciated to near or above fair value may be replaced with companies that are more attractively priced. Alternatively, companies that have not realized their fair value may remain in the Moat Index or see their weighting increased to allow the market more time to realize the potential mispricing inherent in those companies’ prices.

    Moat Index’s New Fall Look

    Following the quarterly review, the Moat Index did not change its sector exposure significantly. Its health care weighting increased slightly, remaining the largest overweight relative to the S&P 500 Index, while information technology companies remain slightly underweight. However, there was a good deal of activity this quarter. Four companies that were partially removed from the Moat Index in June 2019 following a previous downgrade to their economic moat rating were fully removed this quarter. One additional constituent, General Mills (GIS) was removed from the Moat Index after the Morningstar equity research team downgraded its economic moat from wide to narrow in July, citing secular headwinds related to evolving consumer nutritional preferences.

    Nine companies were removed because they were trading too close to fair value relative to other eligible wide moat companies. Several companies were added that are either new to the Moat Index or have not been seen in the index in quite some time, such as Domino Pizza Inc. (DPZ) and Altria Group Inc. (MO).

  • Important Disclosure

    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 is a sub-fund of VanEck Vectors® UCITS ETFs plc., organised under the laws of Ireland. 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.

    Morningstar® Wide Moat Focus IndexTM is a trade mark of Morningstar inc. and has been licensed for use for certain purposes by VanEck. VanEck Vectors Morningstar US Wide Moat UCITS ETF is not sponsored, endorsed, sold or promoted by Morningstar and Morningstar makes no representation regarding the advisability of investing in VanEck Vectors Morningstar US Wide Moat UCITS ETF.

    The S&P 500 Index (“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 © 2020 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.

    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.

    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.

    No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.

    © VanEck Investments Ltd / VanEck Asset Management B.V.