Banks with Competitive Advantages Show Resilience
May 03, 2023
Read Time 2 MIN
The term “economic moat” describes a company’s ability to maintain its competitive advantages and defend long-term profitability. Morningstar analysts joined the recent VanEck webinar to discuss how financial firms with strong “moats” are faring through turmoil in the banking industry.
Banks Are Put to the Test
The turmoil in the banking industry, initiated by the collapse of Silicon Valley Bank (SVB), has raised concerns about funding costs and the future profitability of banks. While the banking industry has stabilized, investors remain cautious and have become increasingly selective. In this environment of heightened uncertainty, Morningstar believes banks with well-established economic moats will prove to be more resilient to market fluctuations and funding cost pressures. Their competitive advantages should enable them to maintain profitability, even as their peers struggle. Below, we take a closer look at two bank portfolio holdings in the VanEck Morningstar Wide Moat ETF (MOAT®) and the VanEck Morningstar SMID Moat ETF.
Comerica
While Comerica’s1 business model relies heavily on interest rates, Morningstar believes the bank’s superior deposit costs and business relationships set the stock up for long-term success through a market cycle. Although the stock may suffer from broader banking concerns in the short term, they believe the company’s strong cost advantages will help it outperform over the long term. In Morningstar’s view, the recent pullback in the stock pushed the discount even farther below their estimate for fair value. Comerica was added to the Morningstar US Small-Mid Cap Moat Focus Index in December 2022 and scaled up in March 2023.
Comerica Inc. 1 Year Price and Fair Value
US Bancorp
US Bancorp2 is the largest non-global systemically important bank in the United States. Few domestic competitors can match its operating efficiency and returns on equity over the past 15 years. US Bancorp’s diverse product lineup increases switching costs by locking customers into its unique ecosystem and making it expensive to move. Like Comerica, US Bancorp’s stock has pulled back with other banks and trades significantly below Morningstar’s estimate for fair value. US Bancorp was added to the Morningstar Wide Moat Focus Index in December 2022 and scaled up in March 2023.
US Bancorp 1 Year Price and Fair Value
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IMPORTANT DISCLOSURES
1 Comerica, Inc. is 0.87% of net assets for the VanEck Morningstar SMID Moat ETF (SMOT) as of 4/27/2023.
2 US Bancorp is 1.74% of net assets of the VanEck Morningstar Wide Moat ETF (MOAT) as of 4/27/2023.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. 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. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its employees.
Holdings will vary for the MOAT ETF and its corresponding Index. For a complete list of holdings in the ETF, please click here: https://www.vaneck.com/etf/equity/moat/holdings/.
Holdings will vary for the SMOT ETF and its corresponding Index. For a complete list of holdings in the ETF, please click here: https://www.vaneck.com/etf/equity/smot/holdings/.
An investment in the VanEck Morningstar Wide Moat ETF (MOAT®) may be subject to risks which include, among others, risks related to investing in equity securities, consumer discretionary sector, health care sector, industrials sector, information technology sector, financials sector, medium-capitalization companies, market, operational, high portfolio turnover, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversification and index-related concentration risks, all of which may adversely affect the Fund. Medium-capitalization companies may be subject to elevated risks.
An investment in the VanEck Morningstar SMID Moat ETF (SMOT) may be subject to risks which include, among others, risks related to investing in equity securities, small- and medium-capitalization companies, consumer discretionary sector, financials sector, health care sector, industrials sector, information technology sector, market, operational, high portfolio turnover, index tracking, authorized participant concentration, new fund, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, and index-related concentration risks, all of which may adversely affect the Fund. Small- and medium-capitalization companies may be subject to elevated risks.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.
Related Funds
IMPORTANT DISCLOSURES
1 Comerica, Inc. is 0.87% of net assets for the VanEck Morningstar SMID Moat ETF (SMOT) as of 4/27/2023.
2 US Bancorp is 1.74% of net assets of the VanEck Morningstar Wide Moat ETF (MOAT) as of 4/27/2023.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. 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. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its employees.
Holdings will vary for the MOAT ETF and its corresponding Index. For a complete list of holdings in the ETF, please click here: https://www.vaneck.com/etf/equity/moat/holdings/.
Holdings will vary for the SMOT ETF and its corresponding Index. For a complete list of holdings in the ETF, please click here: https://www.vaneck.com/etf/equity/smot/holdings/.
An investment in the VanEck Morningstar Wide Moat ETF (MOAT®) may be subject to risks which include, among others, risks related to investing in equity securities, consumer discretionary sector, health care sector, industrials sector, information technology sector, financials sector, medium-capitalization companies, market, operational, high portfolio turnover, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversification and index-related concentration risks, all of which may adversely affect the Fund. Medium-capitalization companies may be subject to elevated risks.
An investment in the VanEck Morningstar SMID Moat ETF (SMOT) may be subject to risks which include, among others, risks related to investing in equity securities, small- and medium-capitalization companies, consumer discretionary sector, financials sector, health care sector, industrials sector, information technology sector, market, operational, high portfolio turnover, index tracking, authorized participant concentration, new fund, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, and index-related concentration risks, all of which may adversely affect the Fund. Small- and medium-capitalization companies may be subject to elevated risks.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.