Moat Investing: Strong Performance Across the Board
December 07, 2022
Read Time 3 MIN
Despite another 75 basis point rate hike by the Federal Reserve, U.S. equity markets continued their recovery in November off the back of positive macro data released early in the month indicating that inflation may finally be starting to cool. Federal Reserve Chairman Jerome Powell then followed up later in the month with an upbeat and positive tone noting that smaller interest rate increases were likely ahead. The better-than-expected CPI data and more dovish Fed posturing fueled the market’s hopes that peak inflation was now behind us and that the end to the rate hiking cycle was not far off, giving stocks a considerable boost.
The Morningstar® Wide Moat Focus IndexSM (the “Moat Index” or “Index”) returned 8.77% in November, leading the S&P 500 index by a little more than 300 basis points during the month (8.77% versus 5.59%, respectively). For the year, the Moat Index remains ahead of the S&P 500 by over 500 basis points year-to-date (-8.05% vs. -13.10%, respectively) as of 11/30/2022.
Outperformance for the Moat Index throughout 2022 is attributable to both strong stock selection and favorable sector allocations relative to the S&P 500. However, in November, it was almost entirely stock selection driving the positive alpha, with overweight’s in Etsy Inc. (ETSY), Boeing Co. (BA), and Lam Research Co. (LRCX) as top contributors to performance for the month.
Moat Strategies Outperform Across the Board
With more than 15 years of live performance history, the flagship Moat Index’s strong performance is well documented and often the primary topic of these monthly posts. However, many may overlook, or simply be unaware of, the recent stretch of success posted by Morningstar’s other moat-driven indexes, each focusing on a distinct area of the equity market.
| Moat Suite Success | |||||
| Region | United States | United States | United States | International (ex-U.S.) | Global |
| Moat-Driven Index | Morningstar® Wide Moat Focus IndexSM | Morningstar® US Small-Mid Cap Moat Focus IndexSM | Morningstar® US Sustainability Moat Focus IndexSM | Morningstar® Global ex-US Moat Focus IndexSM | Morningstar® Global Wide Moat Focus IndexSM |
| Broad Market Benchmark | S&P 500 Index | Russell 2500 Index | MSCI USA Extended ESG Focus Index | MSCI ACWI ex USA | MSCI ACWI |
| November Excess Return | 3.18% | 3.90% | 2.09% | 3.16% | 1.23% |
| 2022 YTD Excess Return | 5.06% | - | 0.99% | 8.10% | 6.24% |
| Corresponding VanEck ETF | VanEck Morningstar Wide Moat ETF (MOAT) | VanEck Morningstar SMID Moat ETF (SMOT) | VanEck Morningstar ESG Moat ETF (MOTE) | VanEck Morningstar International Moat ETF (MOTI) | VanEck Morningstar Global Moat ETF (MOTG) |
Source: Morningstar as of 11/30/22. Index performance is not illustrative of Fund performance. Fund performance current to the most recent month end is available by visiting vaneck.com or by calling 800.826.2333. Past performance is no guarantee of future results. Indexes are unmanaged and are not securities in which an investment can be made.
The Morningstar® US Small-Mid Cap Moat Focus IndexSM (the “SMID Moat Index”) is the newest of the suite but was built using the same time-tested approach of the other moat indexes: target moat-rated companies with attractive valuations. The SMID Moat Index was launched in July of 2022 and focuses on moat-rated valuation opportunities, specifically within the small- and mid-cap U.S. equity universe. The Index has impressed since its recent launch, most recently outperforming its broad market benchmark, the Russell 2500 Index, by nearly 400 basis points in November. Given the noteworthy valuation discounts currently seen in small- and mid-cap companies, the SMID Moat Index may be well positioned if the U.S. economic backdrop continues to improve.
In terms of the international equity markets, the Morningstar® Global ex-US Moat Focus IndexSM (the “International Moat Index”) and the Morningstar® Global Wide Moat Focus IndexSM (the “Global Moat Index”), which each apply the Moat investing philosophy to opportunities abroad, have both also performed well in 2022 posting sizeable outperformance versus their respective broad market benchmarks during the year. Performance for both the International and Global Moat Indices were exceptionally strong in November (14.98% and 9.03%, respectively) given the weakening in the U.S. Dollar that occurred, which could continue to provide a supportive tailwind into next year if the trend persists.
While ESG strategies have generally underperformed this year due to less exposure to the carbon-intensive energy sector, the Moat Suite’s ESG index, the Morningstar® US Sustainability Moat Focus IndexSM (the “ESG Moat Index”), which targets the same attractively priced U.S. companies with long-term competitive advantages as the flagship Moat Index, but also applies screens for ESG risks, has still managed to outperform its board market benchmark so far in 2022. Environmental and ethically responsible investing has been a major theme recently and will no doubt continue to be a matter of increasing importance to investors. VanEck’s Morningstar ESG Moat ETF (MOTE) seeks to replicate the ESG Moat Index and can provide a solution to investors who are seeking a sustainable approach to moat investing.
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Important Disclosures
Source for all data unless otherwise noted: Morningstar.
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/.
The MSCI ACWI (All Country World Index) ex USA Index captures large and mid-cap representation across 22 of 23 developed markets countries (excluding the U.S.) and 24 emerging markets countries.
MSCI All Country World Index captures large and mid-cap representation across Developed Markets and Emerging Markets countries.
The S&P 500® Index consists of 500 widely held common stocks covering industrial, utility, financial and transportation sector; as an Index, it is unmanaged and is not a security in which investments can be made.
The Russell 2500 Index is a broad, market-cap-weighted stock market index featuring 2,500 small-cap and mid-cap stocks.
The MSCI USA Extended ESG Focus Index is designed to maximize exposure to positive environmental, social and governance (ESG) factors while exhibiting risk and return characteristics similar to those of the its parent index the MSCI USA Index.
The Morningstar moat-driven indexes represent various regional, market-cap, or ESG exposures and consist of companies identified as having sustainable, competitive advantages and whose stocks are attractively priced, according to Morningstar.
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.
The Morningstar® US Small-Mid Cap Moat Focus IndexSM and Morningstar® Wide Moat Focus IndexSM were created and are maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Morningstar SMID 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® Global ex-US Moat Focus IndexSM was created and is maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Morningstar International Moat ETF and bears no liability with respect to that ETF or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar® Global ex-US Moat Focus IndexSM is a service mark of Morningstar, Inc.
The Morningstar® Global 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 Global Wide Moat ETF and bears no liability with respect to that ETF or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar® Global Wide Moat Focus IndexSM is a service mark of Morningstar, Inc.
The Morningstar® US Sustainability Moat Focus IndexSM was created and is maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Morningstar ESG Moat ETF and bears no liability with respect to that ETF or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar® US Sustainability Moat Focus IndexSM is a service mark of Morningstar, Inc.
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.
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. Past performance is no guarantee of future results.
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 https://www.spglobal.com/spdji/en/. 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, 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.
The VanEck Morningstar ESG Moat ETF’s ESG strategy could cause it to perform differently compared to funds that do not have an ESG focus. The Fund’s ESG strategy may result in the Fund investing in securities or industry sectors that underperform other securities or underperform the market as a whole. The companies included in the US Sustainability Moat Focus Index may differ from companies included in other indices that use similar ESG screens. The Fund is also subject to the risk that the companies identified by the Index provider do not operate as expected when addressing ESG issues. Additionally, the Index provider’s proprietary valuation model may not perform as intended, which may adversely affect an investment in the Fund. Regulatory changes or interpretations regarding the definitions and/or use of ESG criteria could have a material adverse effect on the Fund’s ability to invest in accordance with its ESG strategy.
An investment in the VanEck Morningstar ESG Moat ETF may be subject to risks which include, among others, ESG investing strategy risks, investing in equity securities, consumer discretionary, financials, industrials and information technology sectors, medium-capitalization companies, market, operational, high portfolio turnover, index tracking, authorized participant concentration, new fund, absence of prior active 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.
An investment in the VanEck Morningstar International Moat ETF may be subject to risks which include, among others, in equity securities, communication services, consumer discretionary, financials, industrials and health care sectors, medium-capitalization companies, foreign securities, foreign currency, special risk considerations of investing in Asian, Chinese, European, United Kingdom and emerging market issuers, depositary receipts, cash transactions, 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 concentration risks, which may make these investments volatile in price or difficult to trade. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund's returns. Medium-capitalization companies may be subject to elevated risks.
An investment in the VanEck Morningstar Global Wide Moat ETF may be subject to risks which include, among others, equity securities, small- and medium-capitalization companies, consumer discretionary sector, financials sector, health care sector, industrials sector, information technology sector, market, operational, index tracking, authorized participant concentration, new fund, absence of prior active market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, and concentration risks, all of which may adversely affect the Fund. Small- and medium-capitalization companies may be subject to elevated risks.
An investment in the VanEck Morningstar SMID Moat ETF may be subject to risks which include, among others, equity securities, small- and medium-capitalization companies, consumer discretionary sector, financials sector, health care sector, industrials sector, information technology sector, market, operational, index tracking, authorized participant concentration, new fund, absence of prior active market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, and 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 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.
© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.
Related Funds
Important Disclosures
Source for all data unless otherwise noted: Morningstar.
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/.
The MSCI ACWI (All Country World Index) ex USA Index captures large and mid-cap representation across 22 of 23 developed markets countries (excluding the U.S.) and 24 emerging markets countries.
MSCI All Country World Index captures large and mid-cap representation across Developed Markets and Emerging Markets countries.
The S&P 500® Index consists of 500 widely held common stocks covering industrial, utility, financial and transportation sector; as an Index, it is unmanaged and is not a security in which investments can be made.
The Russell 2500 Index is a broad, market-cap-weighted stock market index featuring 2,500 small-cap and mid-cap stocks.
The MSCI USA Extended ESG Focus Index is designed to maximize exposure to positive environmental, social and governance (ESG) factors while exhibiting risk and return characteristics similar to those of the its parent index the MSCI USA Index.
The Morningstar moat-driven indexes represent various regional, market-cap, or ESG exposures and consist of companies identified as having sustainable, competitive advantages and whose stocks are attractively priced, according to Morningstar.
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.
The Morningstar® US Small-Mid Cap Moat Focus IndexSM and Morningstar® Wide Moat Focus IndexSM were created and are maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Morningstar SMID 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® Global ex-US Moat Focus IndexSM was created and is maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Morningstar International Moat ETF and bears no liability with respect to that ETF or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar® Global ex-US Moat Focus IndexSM is a service mark of Morningstar, Inc.
The Morningstar® Global 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 Global Wide Moat ETF and bears no liability with respect to that ETF or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar® Global Wide Moat Focus IndexSM is a service mark of Morningstar, Inc.
The Morningstar® US Sustainability Moat Focus IndexSM was created and is maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Morningstar ESG Moat ETF and bears no liability with respect to that ETF or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar® US Sustainability Moat Focus IndexSM is a service mark of Morningstar, Inc.
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.
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. Past performance is no guarantee of future results.
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 https://www.spglobal.com/spdji/en/. 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, 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.
The VanEck Morningstar ESG Moat ETF’s ESG strategy could cause it to perform differently compared to funds that do not have an ESG focus. The Fund’s ESG strategy may result in the Fund investing in securities or industry sectors that underperform other securities or underperform the market as a whole. The companies included in the US Sustainability Moat Focus Index may differ from companies included in other indices that use similar ESG screens. The Fund is also subject to the risk that the companies identified by the Index provider do not operate as expected when addressing ESG issues. Additionally, the Index provider’s proprietary valuation model may not perform as intended, which may adversely affect an investment in the Fund. Regulatory changes or interpretations regarding the definitions and/or use of ESG criteria could have a material adverse effect on the Fund’s ability to invest in accordance with its ESG strategy.
An investment in the VanEck Morningstar ESG Moat ETF may be subject to risks which include, among others, ESG investing strategy risks, investing in equity securities, consumer discretionary, financials, industrials and information technology sectors, medium-capitalization companies, market, operational, high portfolio turnover, index tracking, authorized participant concentration, new fund, absence of prior active 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.
An investment in the VanEck Morningstar International Moat ETF may be subject to risks which include, among others, in equity securities, communication services, consumer discretionary, financials, industrials and health care sectors, medium-capitalization companies, foreign securities, foreign currency, special risk considerations of investing in Asian, Chinese, European, United Kingdom and emerging market issuers, depositary receipts, cash transactions, 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 concentration risks, which may make these investments volatile in price or difficult to trade. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund's returns. Medium-capitalization companies may be subject to elevated risks.
An investment in the VanEck Morningstar Global Wide Moat ETF may be subject to risks which include, among others, equity securities, small- and medium-capitalization companies, consumer discretionary sector, financials sector, health care sector, industrials sector, information technology sector, market, operational, index tracking, authorized participant concentration, new fund, absence of prior active market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, and concentration risks, all of which may adversely affect the Fund. Small- and medium-capitalization companies may be subject to elevated risks.
An investment in the VanEck Morningstar SMID Moat ETF may be subject to risks which include, among others, equity securities, small- and medium-capitalization companies, consumer discretionary sector, financials sector, health care sector, industrials sector, information technology sector, market, operational, index tracking, authorized participant concentration, new fund, absence of prior active market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, and 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 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.
© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.