• 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 Disclosures

    This commentary originates from VanEck Investments Limited (“VanEck”) and does not constitute an offer to sell or solicitation to buy any security.

    VanEck’s opinions stated in this commentary may deviate from opinions presented by other VanEck departments or companies. Information and opinions in this commentary are based on VanEck’s analysis. Any forecasts and projections contained in the commentary appear from the named sources. All opinions in this commentary are, regardless of source, given in good faith, and may only be valid as of the stated date of this commentary and are subject to change without notice in subsequent versions of the commentary. Any projections, market outlooks or estimates in this material are forward-looking statements and are based upon certain assumptions that are solely the opinion of VanEck. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur.

    No investment advice

    The commentary is intended only to provide general and preliminary information to investors and shall not be construed as the basis for any investment decision. This commentary has been prepared by VanEck as general information for private use of investors to whom the commentary has been distributed, but it is not intended as a personal recommendation of particular financial instruments or strategies and thus it does not provide individually tailored investment advice, and does not take into account the individual investor’s financial situation, existing holdings or liabilities, investment knowledge and experience, investment objective and horizon or risk profile and preferences. The investor must particularly ensure the suitability of an investment as regards his/her financial and fiscal situation and investment objectives. The investor bears the risk of losses in connection with an investment.

    Before acting on any information in this publication or report, it is recommendable to consult one’s financial advisor.

    Forecasts, estimates, and certain information contained herein are based upon proprietary research and the information contained in this material is not intended to be, nor should it be construed or used as investment, tax or legal advice, any recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security. References to specific securities and their issuers or sectors are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities or gain exposure to such sectors.

    Each investor shall make his/her own appraisal of the tax and other financial merits of his/her investment.

    Sources

    This commentary may be based on or contain information, such as opinions, recommendations, estimates, price targets and valuations which emanate from: VanEck portfolio managers, analysts or representatives, publicly available information, information from other units or Companies of VanEck, or other named sources.

    To the extent this commentary is based on or contain information emerging from other sources (“Other Sources”) than VanEck (“External Information”), VanEck has deemed the Other Sources to be reliable but neither the VanEck companies, others associated or affiliated with said companies nor any other person, do guarantee the accuracy, adequacy or completeness of the External Information.

    Limitation of liability

    VanEck and its associated and affiliated companies assume no liability as regards to any investment, divestment or retention decision taken by the investor on the basis of this commentary. In no event will VanEck or other associated and affiliated companies be liable for direct, indirect or incidental, special or consequential damages resulting from the information in this publication or report.

    Risk information

    The risk of investing in certain financial instruments, is generally high, as their market value is exposed to a lot of different factors such as the operational and financial conditions of the relevant company, growth prospects, change in interest rates, the economic and political environment, foreign exchange rates, shifts in market sentiments etc. Where an investment or security is denominated in a different currency to the investor’s currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor. Past performance is not a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. When investing in individual shares, the investor may lose all or part of the investments. 

    Conflicts of interest

    VanEck, its affiliates or staff of VanEck companies, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives) of any company mentioned in this commentary.

    To limit possible conflicts of interest and counter the abuse of inside knowledge, the representatives, portfolio managers and analysts of VanEck are subject to internal rules on sound ethical conduct, the management of inside information, handling of unpublished research material, contact with other units of VanEck and personal account dealing. The internal rules have been prepared in accordance with applicable legislation and relevant industry standards. The object of the internal rules is for example to ensure that no analyst will abuse or cause others to abuse confidential information. This commentary has been prepared following the VanEck Conflict of Interest Policy. 

    Distribution restriction

    This commentary is not intended for, and must not be distributed to private customers.

    No part of this material may be reproduced in full or in part in any form, or referred to in any other publication without express written permission of VanEck. ©2019, VanEck.

    Index Descriptions

    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 © 2019 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.

    All indices named in the commentary are unmanaged indices and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.

    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.

    General

    VanEck Vectors UCITS ETFs plc. is an investment scheme which is registered in Ireland and which, as an umbrella fund, is subject to the European regulation of collective investment schemes under the UCITS Directive. The sales prospectuses for the VanEck Vectors UCITS ETFs contain a comprehensive description of the risks and conditions governing the fund. The sales prospectus, the Key Investor Information Document (KIID), the Articles of Association and the current annual and semi-annual reports are available free of charge from the following agents, contact details of whom may be found on www.vaneck.com.

    UK: Facilities Agent -- Computershare Investor Services PLC
    Germany: Information Agent -- VanEck (Europe) GmbH
    Spain: Designated Distributor -- Allfunds Bank S.A.
    Sweden: Paying Agent -- SEB Merchant Banking
    Swiss Represent: FIRST INDEPENDENT FUND SERVICES LTD, Klausstrasse 33, CH-8008 Zurich
    Paying Agent: Helvetische Bank AG Seefeldstrasse 215, CH-8008 Zurich

    In respect of the Shares distributed in Switzerland to Qualified Investors, the place performance and the place of jurisdiction is at the registered office of the Swiss representative.