Key Takeaways:

• The S&P 500 gained 5.26% in May, but leadership was narrow, with mega-cap tech driving most of the gain.
• Quarterly earnings from software and cybersecurity companies countered fears that AI would displace enterprise software.
• The Moat Index rose 3.34%, lifted by Fortinet (+60%) and Datadog (+80%) as cybersecurity and software surged.
• The SMID Moat Index rose 2.22%, with tech gains offset by weakness in energy and materials.

Index performance is not illustrative of fund performance. It is not possible to invest directly in an index. Past performance is no guarantee of future results.

Fair value estimates and price targets referenced herein are those of Morningstar's equity research team, are subject to change without notice, and do not constitute recommendations or investment advice.

U.S. equities extended their advance in May, with the S&P 500 gaining 5.26% to reach record highs in a second consecutive monthly gain. Leadership remained narrow, as the cap-weighted S&P 500 Index outpaced the S&P 500 Equal Weight Index by more than 2.5% and the Nasdaq Composite rose 8.43%. Technology was again the clear leader, but the rally broadened beyond semiconductors as strong earnings from software and cybersecurity companies eased earlier concerns that artificial intelligence (AI) would erode demand for enterprise software. Energy was the weakest area of the market as crude prices eased. With no Federal Reserve meeting in May, monetary policy stayed in the background after the central bank held rates steady at its late-April meeting.

The Morningstar Wide Moat Focus Index (the “Moat Index”) gained 3.34% in May, again trailing the S&P 500 in a narrow, technology-led market that has favored mega-cap names in recent months. The Index spent much of the month in modestly negative territory, down more than 1% by mid-month even as the benchmark pushed to new highs, before a late-month rally in its software and cybersecurity holdings lifted it into positive territory. Both sector allocation and stock selection weighed on relative performance. The Index’s equal-weighted, valuation-conscious construction limited its exposure to the mega-cap technology names that drove much of the benchmark’s gain, while overweights to lagging defensive sectors added to the shortfall.

The Morningstar US Small-Mid Cap Moat Focus Index (the “SMID Moat Index”) rose 2.22% in May, roughly in line with the S&P MidCap 400’s 2.45% gain and leading the S&P SmallCap 600, which advanced 1.04%. Smaller-cap stocks broadly trailed large-caps during the month, a reversal from April, as narrow large-cap leadership reasserted itself. As with the Moat Index, the SMID Moat Index drew its strongest contributions from technology holdings, particularly software, cybersecurity, and semiconductor names tied to the artificial intelligence infrastructure theme. Sector allocation was a modest tailwind, while stock selection was a slight drag, with weakness among materials holdings offsetting some of the strength in technology. The Index followed a similar intra-month path to its large-cap counterpart, slipping early in the month before rallying in the final stretch.

Software and Cybersecurity Lead Equities Higher in May

Source: Morningstar. Data as of 5/31/2026. Past performance is no guarantee of future results. Index performance is not representative of fund performance. It is not possible to invest directly in an index. Please see index definitions and other important disclosures at the end of this content. Fund performance current to the most recent month end is available by visiting vaneck.com or by calling 800.826.2333.

Moat Index Highlights: Software and Cybersecurity Strength Amid a Narrow Rally

May was another challenging month for the Moat Index on a relative basis, as both sector allocation and stock selection trailed the S&P 500 during a narrow, technology-led advance. The equal-weighted approach limited the Index’s participation in the mega-cap technology and semiconductor names that led the benchmark, while overweights to defensive sectors weighed further. Even so, the Index was supported by a concentration of strong contributions from software and cybersecurity holdings that capitalized on a broadening of the AI trade beyond semiconductors.

Fortinet Inc. (FTNT) and Palo Alto Networks Inc. (PANW) were among the leading contributors, as cybersecurity names rallied on growing recognition that AI is expanding, rather than shrinking, the market for security. Fortinet shares advanced more than 60% after the company reported strong quarterly earnings results and raised its full-year sales outlook, with management emphasizing that every new AI deployment widens the corporate attack surface and increases demand for protection. Morningstar continues to view Fortinet’s wide moat as supported by customer switching costs and a network effect that strengthens as more threat data flows across its platform. Palo Alto Networks gained approximately 57%, helped by industry developments reinforcing that AI model providers increasingly view large security vendors as partners. Morningstar assigns Palo Alto a wide moat, underpinned by high switching costs across its network, cloud, and security operations platforms, and continues to view the shares as trading below its fair value estimate.

Datadog Inc. (DDOG) and Oracle Corp. (ORCL) led a broader recovery in enterprise software, as strong results eased fears that artificial intelligence would displace traditional software business models. Datadog shares rose more than 80% after the observability software provider reported a strong quarter and pointed to artificial intelligence as an accelerating source of demand for its monitoring tools. Morningstar continues to assign Datadog a wide moat, supported by switching costs and network effects that deepen as more customer data flows through its platform. Oracle advanced roughly 40%, supported by momentum in its cloud infrastructure business and rising demand tied to AI model training and the broader data-center buildout, areas where the stickiness of its database and enterprise software offerings supports durable customer relationships.

Companies detracting the most from Moat Index performance were concentrated in defensive and value-oriented areas of the market that were overlooked during the technology-led advance. Zoetis Inc. (ZTS), an animal health company, was the largest detractor following a sharp decline in its shares. LPL Financial Holdings Inc. (LPLA), a brokerage platform; Constellation Brands Inc. (STZ), a producer of beer, wine, and spirits; Huntington Ingalls Industries Inc. (HII), a defense shipbuilder; and Otis Worldwide Corp. (OTIS), an elevator and escalator manufacturer, also weighed on results. The group spanned health care, financials, consumer staples, and industrials, reflecting the broad rotation away from defensive holdings as investors favored higher-growth technology names.

Moat Index Top Contributors and Detractors - May 2026

Contributors

Detractors

Source: Morningstar. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein.

SMID Moat Index Highlights: Technology Leadership Extends Across Market Caps

The SMID Moat Index also drew its strongest contributions from technology, where software, cybersecurity, and semiconductor holdings tied to the AI theme led performance. Sector allocation was a modest tailwind during the month, while stock selection was a slight drag, with weakness among materials holdings the primary offset.

Several of the same software and cybersecurity names that lifted the Moat Index contributed here as well. Datadog Inc. (DDOG), held in both indexes, was the top contributor as its observability platform benefited from accelerating AI-driven demand, and Fortinet Inc. (FTNT) added to gains on the same cybersecurity strength. Akamai Technologies Inc. (AKAM), a distributed network, security, and cloud computing provider, advanced approximately 45% as investors responded to its expansion into AI edge computing, including a multiyear agreement to supply compute capacity to a large AI model developer.

Semiconductor holdings tied to AI infrastructure also contributed meaningfully. Marvell Technology Inc. (MRVL), a repeat top contributor in recent months, advanced more than 20% after raising its growth outlook, with Morningstar pointing to accelerating demand for its custom AI silicon and optical connectivity chips and viewing the shares as undervalued. Morningstar assigns Marvell a narrow moat, supported by intangible assets in networking chip design and customer switching costs. ON Semiconductor Corp. (ON) rose roughly 20% as signs of a cyclical recovery in automotive and industrial chip demand were reinforced by growing exposure to data center power. Morningstar views ON Semiconductor’s narrow moat as supported by a cost advantage in power chips and intangible assets in its automotive image sensors.

Companies detracting the most from SMID Moat Index performance were concentrated in energy and materials, areas pressured by soft commodity prices during the month. Devon Energy Corp. (DVN), an oil and gas producer, extended the weakness among energy names that has persisted as the sector’s geopolitically driven gains earlier in the year unwound. Celanese Corp. (CE) and Albemarle Corp. (ALB), both specialty chemical producers, also declined, alongside Vontier Corp. (VNT), a mobility and industrial technology company, and Oshkosh Corp. (OSK), a specialty vehicle manufacturer. The concentration among commodity-linked and cyclical names reflected the market’s clear preference for technology and growth during the month.

SMID Moat Index Top Contributors and Detractors - May 2026

Contributors

Detractors

Source: Morningstar. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein.

Choose Your Moat Strategy

VanEck’s suite of moat investing strategies is powered by Morningstar’s equity research team, which seeks quality companies trading at attractive valuations. The below ETFs offer access to US moat companies:

VanEck Morningstar Wide Moat ETF (MOAT): companies with a wide moat rating, which means Morningstar believes the company is likely to sustain its competitive advantage for at least the next 20 years.

VanEck Morningstar SMID Moat ETF (SMOT): small and mid-cap moat companies.

VanEck Morningstar Wide Moat Value ETF (MVAL): wide moat companies within Morningstar’s value style category.

To receive more Moat Investing insights, sign up in our subscription center.