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Moat Stocks Soar Through October Sky

14 November 2019

 

October was anything but scary for the Morningstar® Wide Moat Focus IndexTM (“Moat Index”). Its outperformance of the S&P 500 Index added to its strong 2019 relative performance and continued what has been an impressive several years for the Moat Index.

Outperformance

Trailing Return (%) as of 31/10/2019

  1 Mo YTD 1 Yr 3 Yr 5 Yr
Moat Index 4.17 27.41 21.34 18.41 12.90
S&P 500 Index 2.17 23.16 14.33 14.91 10.78

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.

Strong Dose of Health Care Keeps Moat Index Alive and Well

The top three Moat Index performers in October were health care companies. By far the strongest of the bunch was Biogen (BIIB), whose stock price popped following the surprise announcement of the biotech firm’s intention to proceed with FDA submission of the Alzheimer drug aducanumab. Discontinuation of trials of the same drug in March caused a sell-off in Biogen, and it’s safe to say the news was welcomed by the market as Biogen posted a return of 28.3% for the month. On 22 October 2019, Morningstar raised its fair value estimate by $30 to $383, signaling its belief that the stock remains attractively priced despite its recent performance.

Information Technology Moat Stocks Chipping In

The information technology sector was the second leading contributor to Moat Index performance in October despite its underweight relative to the S&P 500 Index. Strong stock selection within the sector helped elevate its profile within the index during the month. Intel (INTC) led within the sector after issuing third quarter results that were well ahead of its guidance, raising the company’s stock to levels not seen since April of this year. Guidewire Software (GWRE) extended its strong performance into October after reporting strong fourth quarter results in September and despite weak guidance for the current quarter. GWRE has traded near or slightly above Morningstar’s fair value estimate throughout October.

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All told, over 70% of Moat Index constituents posted positive returns in October. There were, however, several detractors worth noting. Widely recognized consumer discretionary companies, Nike (NKE) and McDonald’s (MCD), both disappointed. Nike shares began to fall after its CEO transition announcement. Morningstar does not expect this transition to impact its wide moat rating or fair value estimate. McDonald’s fell following disappointing U.S. sales figures reported with its quarterly earnings results. Morningstar maintained its fair value estimate despite the results. It has stood at $215 per share since July of this year.

Energy was the sole detracting sector in the Moat Index with both of its stocks posting negative returns. However, its low absolute weighting muted its impact for the month.

Important Disclosure

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This information originates from VanEck (Europe) GmbH, which has been appointed as distributor of VanEck products in Europe by the Management Company VanEck Asset Management B.V., incorporated under Dutch law and registered with the Dutch Authority for the Financial Markets (AFM). VanEck (Europe) GmbH with registered address at Kreuznacher Str. 30, 60486 Frankfurt, Germany, is a financial services provider regulated by the Federal Financial Supervisory Authority in Germany (BaFin).

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Effective December 17, 2021 the Morningstar® Wide Moat Focus IndexTM has been replaced with the Morningstar® US Sustainability Moat Focus Index.
Effective June 20, 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.
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