Health Care and Tech Stocks Weigh on Moat Index
September 10, 2021
Read Time 3 MIN
The Morningstar® Wide Moat Focus IndexSM (the “Moat Index” or “Index”) underperformed the S&P 500® Index in August (1.43% vs. 3.04%, respectively). The final month of summer marked the third consecutive month the Index lagged the S&P 500 Index, but it remained ahead by 2.5% year to date through August (24.47% vs. 21.95%, respectively).
As is typically the case, the Moat Index’s relative performance was influenced predominantly by stock selection and its selection within the health care and information technology sectors was the most influential for the period.
Aspen Technology: Revenue Miss, But Moat Stock Remains on Solid Footing
Aspen Technology (AZPN) provides automation solutions to customers in complex industrial environments, lending to Aspens’ high customer switching costs that support its wide moat rating from Morningstar. Aspen reported a decline in quarterly revenue in mid-August and its shares sold off rapidly thereafter.
While some customer segments, such as refining and chemicals saw signs of life, others remain in a subdued demand environment, and management projected a back-end loaded 2022, according to Morningstar.
Despite near-term hurdles, Morningstar increased Aspen’s fair value estimate in August from $145 per share to $151 and remains confident in the underlying value and applicability of Aspen’s solutions, as is reflected in Aspen’s full pipeline and continuing and increasing customer engagement. Shares of Aspen finished August at a 14% discount to its fair value estimate, according to Morningstar.
Zimmer Biomet: Health Care Moat Company Lingers in Waiting Room
Zimmer Biomet (ZBH) is a medical device company specializing in the implants used in large joint reconstruction. Because the extensive instrumentation, or tool sets, used to prepare bones and install implants are specific to each company, there are significant switching costs applicable to an orthopedic surgeon when choosing a new device manufacturer. Not only can the process be costly and time consuming for the surgeon, there is reputational risk at stake when learning a new process or procedure related to surgery. This switching cost is the primary driver Morningstar attributes to Zimmer Biomet’s wide economic moat.
The firm reported somewhat disappointing second quarter results at the beginning of August. Management attributed this to the unevenness of large joint replacement patients returning for treatment following a prolonged period of postponed elective medical procedures in the U.S. Morningstar was uncertain about this line from Zimmer Biomet’s management, as rival wide moat firm, Stryker Corp., was apparently not impacted by such trends.
Nonetheless, Morningstar did not see anything to suggest Zimmer Biomet’s wide moat was impaired in any way and left its fair value estimate in place pointing to a 20% discount to fair value for shares at the end of August.
Diagnosis Not all Bad in Health Care and Tech Moat Stocks
Ironically, the leading contributors to Moat Index returns in August were also from the health care and information technology sectors. These companies, which included ServiceNow, Salesforce.com, Alphabet Inc., Pfizer and Facebook, among others, were not enough to overcome other detractors for the month when compared to the S&P 500 Index.
Morningstar Wide Moat Focus Index Leaders and Laggards – August 2021
Leading Contributors to Return
| Company | Ticker | Sector | Contribution (%) |
| ServiceNow Inc. | NOW | Information Technology | 0.28 |
| Salesforce.com Inc. | CRM | Information Technology | 0.24 |
| Alphabet Inc. | GOOGL | Communication Services | 0.21 |
| Pfizer Inc. | PFE | Health Care | 0.20 |
| Facebook Inc. | FB | Information Technology | 0.17 |
Leading Detractors from Return
| Company | Ticker | Sector | Contribution (%) |
| Aspen Technology | AZPN | Information Technology | -0.27 |
| Zimmer Biomet Holdings Inc. | ZBH | Health Care | -0.19 |
| Cerner Corp. | CERN | Health Care | -0.12 |
| Constellation Brands Inc. | STZ | Consumer Staples | -0.12 |
| Polaris Inc. | PII | Consumer Discretionary | -0.11 |
Source: Morningstar. Past performance is no guarantee of future results. Individual company and index performance is not illustrative of fund performance. For fund performance current to the most recent month-end, visit vaneck.com.
VanEck Morningstar Wide ETF (MOAT) seeks to replicate as closely as possible, before fees and expenses the price and yield performance of the Morningstar Wide Moat Focus Index.
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Important Disclosures
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. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
This commentary is not intended as a recommendation to buy or to sell any of the sectors or securities mentioned herein. 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/.
An investor cannot invest directly in an index. Returns reflect past performance and do not guarantee future results. Results reflect the reinvestment of dividends and capital gains, if any. Certain indices may take into account withholding taxes. Index returns do not represent Fund returns. The Index does not charge management fees or brokerage expenses, nor does the Index lend securities, and no revenues from securities lending were added to the performance shown.
Fair value estimate: the Morningstar analyst's estimate of what a stock is worth.
Price/Fair Value: ratio of a stock's trading price to its fair value estimate.
The Morningstar® Wide Moat Focus IndexSM was created and is maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Morningstar Wide Moat ETF and bears no liability with respect to that ETF or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar® Wide Moat Focus IndexSM is a service mark of Morningstar, Inc.
The Morningstar® Wide Moat Focus IndexSM consists of U.S. companies identified as having sustainable, competitive advantages and whose stocks are attractively priced, according to Morningstar.
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.
The S&P 500® 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 © 2021 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.
An investment in the VanEck Morningstar Wide Moat ETF (MOAT®) may be subject to risks which include, among others, investing in equity securities, consumer discretionary, consumer staples, financials, health care, industrials and information technology sectors, medium-capitalization companies, market, operational, 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 concentration risks, which may make these investments volatile in price or difficult to trade. 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 a Fund's investment objective, risks, charges and expenses carefully before investing. To obtain a prospectus and summary prospectus for VanEck Funds and VanEck ETFs, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus for VanEck Funds and VanEck ETFs carefully before investing.
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Important Disclosures
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. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
This commentary is not intended as a recommendation to buy or to sell any of the sectors or securities mentioned herein. 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/.
An investor cannot invest directly in an index. Returns reflect past performance and do not guarantee future results. Results reflect the reinvestment of dividends and capital gains, if any. Certain indices may take into account withholding taxes. Index returns do not represent Fund returns. The Index does not charge management fees or brokerage expenses, nor does the Index lend securities, and no revenues from securities lending were added to the performance shown.
Fair value estimate: the Morningstar analyst's estimate of what a stock is worth.
Price/Fair Value: ratio of a stock's trading price to its fair value estimate.
The Morningstar® Wide Moat Focus IndexSM was created and is maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Morningstar Wide Moat ETF and bears no liability with respect to that ETF or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar® Wide Moat Focus IndexSM is a service mark of Morningstar, Inc.
The Morningstar® Wide Moat Focus IndexSM consists of U.S. companies identified as having sustainable, competitive advantages and whose stocks are attractively priced, according to Morningstar.
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.
The S&P 500® 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 © 2021 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.
An investment in the VanEck Morningstar Wide Moat ETF (MOAT®) may be subject to risks which include, among others, investing in equity securities, consumer discretionary, consumer staples, financials, health care, industrials and information technology sectors, medium-capitalization companies, market, operational, 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 concentration risks, which may make these investments volatile in price or difficult to trade. 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 a Fund's investment objective, risks, charges and expenses carefully before investing. To obtain a prospectus and summary prospectus for VanEck Funds and VanEck ETFs, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus for VanEck Funds and VanEck ETFs carefully before investing.