• Moat Investing

    When Did You Own Facebook?

    Brandon Rakszawski, Senior ETF Product Manager
    23 May 2019
     

    For the Month Ending April 30, 2019

    The Morningstar® Wide Moat Focus IndexSM ("U.S. Moat Index") finished the month of April ahead of the broad U.S. equity markets as represented by the S&P 500 Index (4.65% vs. 4.05%, respectively). This followed a disappointing March in which the U.S. Moat Index lagged the S&P 500 Index by nearly 2%, due in large part to its exposure to biotech company Biogen Inc. (BIIB), whose share price dropped after announcing the discontinuation of its aducanumab Alzheimer drug trials.

    Strong performance from information technology and communication services companies fueled the April rebound, placing the U.S. Moat Index ahead of the S&P 500 Index on a year-to-date basis (18.69% vs. 18.25%, respectively) at month’s end. The Walt Disney Co. (DIS), Microchip Technology, Inc. (MCHP), and Facebook Inc. (FB) were among the top U.S. Moat Index performers in April. In fact, 37 of the 46 index constituents finished the month in the black while the majority of the negative performing constituents were from the struggling health care sector.

    Facebook: Friending and Unfriending

    Facebook offers a fascinating case study of the efficacy of allocating to wide moat companies at attractive valuations. The social network has found itself in the U.S. Moat Index three times since its initial public offering in 2012, when it was immediately awarded a wide economic moat rating by Morningstar equity research. Although the company has traded closer to $200 per share in recent months than the $38.23 per share closing price on its May 18, 2012 IPO day, its trading history has not been entirely smooth.

    Each instance Facebook was included in the U.S. Moat Index, it was trading at an attractive price relative to Morningstar’s forward-looking fair value estimate. For much of the rest of Facebook’s trading history, it has traded at or above Morningstar’s fair value estimate, which meant its exclusion from the index. There was a full five-year stint when Facebook was not included in the index. Then a selloff in the summer of 2018 presented a compelling allocation opportunity. Facebook was added to the index in September 2018 and its weighting increased in December 2018.

    Date Included Date Removed Facebook Inc.
    Total Return (%)
    S&P 500 Index
    Total Return (%)
    24/9/2012 21/12/2012 14.87 -1.44
    24/6/2013 20/9/2013 93.60 7.95
    24/9/2018 N/A* 18.70 1.75
    24/12/2018 N/A* 54.78 22.72

    *Facebook was added to the U.S. Moat Index in September 2018 and its position was subsequently increased at the December 2018 review. It remains in the index and returns are for these positions are displayed though 30 April 2018.

    Source: Morningstar. Past performance is no guarantee of future results. For illustrative purposes only. Not a recommendation to buy or sell any security. Visit vaneck.com to view daily ETF and index holdings.

    To be fair, not all allocations play out as well or as quickly as Facebook. Some companies take longer to right wrongs, or in some cases, Morningstar simply misses the mark on their economic moat or valuation research. A key to investing is getting it right more often than getting it wrong, and looking at long-term performance, we think it is fair to say there is something to Morningstar’s moat investing philosophy.


  • 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.