Moat Index Adds Tech as Volatility Reveals Value
06 April 2025
The Morningstar® Wide Moat Focus IndexSM(the “Moat Index” or “Index”) underwent its quarterly review on 21 March 2025. Below are a few highlights from the latest review. The full results are available here: 1Q 2025 Index Reconstitution.
Moat Index Review Takeaways:
- Volatility Brings Tech Opportunities to Surface
The Moat Index picked up several tech companies during the quarterly review as semiconductor and software companies (largely semiconductor-related software companies) found themselves in undervalued territory. Tech, which has been a significant underweight and headwind to relative Moat Index performance, may now present an opportunity. As markets sell off and become less efficient, that dynamic has historically offered the Moat Index’s systematic allocation process a chance to capitalize on companies unfairly punished by broader momentum in the market. - Growth Exposure Increases, Value Remains Largest Overweight
Despite the pullback in U.S. equity markets, mega caps continue to dominate the S&P 500 Index’s makeup. The Moat Index’s contrarian nature has resulted in a value bias relative to the headline large cap index and allows investors to meaningfully participate in the U.S. equity market while ensuring portfolio diversification. The Index’s methodology also allows it to target attractive valuation opportunities regardless of a company’s “style.” This quarter, the Moat Index’s growth exposure increased slightly while its value exposure decreased. Investors should keep in mind the limited diversification risk of investing in Moat-related funds. - Semiconductor Innovation Propels Moat Index Newcomers
There were two companies that were added to the Moat Index for the first time in its over 17-year history. Morningstar believes that as long as the semiconductor industry exists and is innovating, these two companies will be a necessary part of that innovation and earn excess returns on invested capital:
Cadence Design Systems (CDNS): Cadence provides electronic design automation tools and IP critical to the semiconductor chip design process. It was upgraded to a wide moat rating from narrow in December 2024.
Synopsys (SNPS): Like Cadence, Synopsys specializes in electronic design automation software used by engineers in the chip design and build phases. Its moat rating was also upgraded from narrow to wide in December 2024.
1Q 2025 Moat Index Review Results
Moat Index Sector Shifts Following 1Q 2025 Review
Moat Index Sector Exposure Relative to S&P 500 Index
Moat Index Style Exposure Relative to S&P 500 Index: Value Bias Persists
Source: Morningstar. As of 21/03/2025 unless otherwise noted.
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Source for all data unless otherwise noted: Morningstar.
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This is a marketing communication for professional investors only. Please refer to the UCITS prospectus and to the Key Investor Information Document (KIID) before making any final investment decisions.
This is a marketing communication for professional investors only. Please refer to the UCITS prospectus and to the Key Investor Information Document (KIID) before making any final investment decisions. This information originates from VanEck Securities UK Limited (FRN: 1002854), an Appointed Representative of Sturgeon Ventures LLP (FRN: 452811) which is authorised and regulated by the Financial Conduct Authority in the UK. The information is intended only to provide general and preliminary information to FCA regulated firms such as Independent Financial Advisors (IFAs) and Wealth Managers. Retail clients should not rely on any of the information provided and should seek assistance from an IFA for all investment guidance and advice. VanEck Securities UK Limited 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 information. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the 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 is believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. Brokerage or transaction fees may apply.
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