Key Takeaways

• Technology was the only sector to gain in September as mega-cap strength masked broad market weakness.
• The Moat Index fell 7.63%, trailing the S&P 500 as its equal weighted construction and technology underweight worked against it.
• FICO was the top detractor after regulators opened mortgage scoring to competition, while Datadog and Meta led gains.
• The SMID Moat Index fell 7.76%, trailing both mid- and small-cap benchmarks amid broad stock selection weakness.
• TransUnion fell roughly 28% on sector pressure and a CFO departure, while Cloudflare and Datadog were the top contributors.

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.

U.S. equities were mixed in September, as gains in a narrow group of mega-cap technology stocks masked broad weakness beneath the surface. The S&P 500 Index slipped 0.35%, while the S&P 500 Equal Weight Index fell 4.81%. Technology was the only sector to finish the month higher, with materials and financials lagging. On September 16, the Federal Reserve raised its policy rate by a quarter point to a range of 3.75% to 4.00%, the first hike under Chairman Kevin Warsh and the first since 2023, citing inflation that has reaccelerated alongside higher energy prices. Renewed U.S.-Iran tensions kept crude prices elevated for much of the month and Treasury yields moved higher, adding pressure to rate-sensitive and cyclical areas of the market.

The Morningstar Wide Moat Focus Index (the “Moat Index”) declined 7.63% in September, trailing the S&P 500 in a month when the market’s gains were concentrated in its largest technology constituents. Its equal-weighted construction and underweight to technology left the Index positioned against that narrow leadership. Stock selection was the primary driver of the shortfall, and the Index trailed from the first trading day as the gap widened through month end. The decline followed a strong stretch in which the Index gained 10.49% against 1.68% for the S&P 500 over the three months ending in August as market breadth widened. September’s reversal gave back much of that advantage, leaving the Index up 1.77% for the third quarter, modestly behind the S&P 500’s 2.30% gain but ahead of the S&P 500 Equal Weight Index’s 1.87% decline.

The Morningstar US Small-Mid Cap Moat Focus Index (the “SMID Moat Index”) fell 7.76% in September, trailing the S&P MidCap 400 Index’s 4.22% decline and the S&P SmallCap 600 Index’s 5.58% decline. Smaller-cap stocks broadly lagged large caps as higher rates weighed on performance. The Index tracked its benchmarks through the first week before falling behind, with the gap widening over the final week. Stock selection drove most of the relative shortfall, particularly within health care and industrials, while an underweight to technology also weighed. Despite September’s decline, the SMID Moat Index held up better than both benchmarks for the third quarter, falling 3.63% compared with declines of 6.36% for the S&P MidCap 400 and 7.93% for the S&P SmallCap 600.

Narrowing Market Breadth Drove Moat Stocks Retreat

Source: Morningstar. Data as of 9/30/2026. 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 Indexes Complete Their Third-Quarter Reviews

Both the Moat and SMID Moat Indexes underwent their quarterly reviews in September, refreshing each portfolio toward the most attractively priced, high-quality companies in their respective universes. Our recent blog, Moat Index Rotates Out of Software Winners, covers key takeaways, and full results are available here for the Moat Index and SMID Moat Index. For a deeper look at the latest reconstitution results and where Morningstar’s analysts see the most compelling opportunities heading into year-end, join us and Morningstar’s equity research team on October 22 for our webinar, Get Selective: Wide Moats for Q4.

Moat Index Highlights: AI Leaders Rise Amid Broad Selloff

September was a difficult month for the Moat Index, as declines were broad-based across the portfolio and only a handful of holdings finished higher. Stock selection was the primary driver of underperformance, most notably within technology, where the Index’s software and data holdings declined even as the benchmark’s mega-cap technology names advanced. Selection within industrials and consumer staples also weighed, while the Index’s underweight to technology was a further headwind.

The Index’s top contributors shared a common thread in artificial intelligence (AI). Datadog Inc. (DDOG), a cloud observability platform, rebounded roughly 16% after being the Index’s largest detractor in August, as management noted that revenue growth had accelerated and broadened beyond its AI-native customers. Morningstar assigns Datadog a wide moat based on switching costs and network effects, reflecting how deeply its platform is embedded in customers’ technology infrastructure. Meta Platforms Inc. (META) advanced approximately 27% following the launch of Muse, a personal AI agent that quickly climbed to the top of Apple’s App Store, renewing investor confidence in its ability to monetize AI investments. Morningstar assigns Meta a wide moat supported by the network effect of its Family of Apps and the intangible assets in its user data, and continues to view the shares as undervalued. Semiconductor holdings Entegris Inc. (ENTG) and Applied Materials Inc. (AMAT), repeat contributors in recent months, each gained more than 10% on continued demand tied to the AI buildout.

Agilent Technologies Inc. (A), a provider of analytical instruments and consumables for the life sciences and diagnostics markets, gained roughly 12%, extending its advance after quarterly earnings results showed accelerating revenue growth, an improving China business and a raised full-year outlook. Morningstar assigns Agilent a wide moat supported by intangible assets in its differentiated technology and switching costs, particularly in biopharmaceutical manufacturing, where its tools are written into regulatory filings for drug production.

Companies detracting the most from Moat Index performance were driven largely by company-specific developments, several of which reversed recent gains. Fair Isaac Corp. (FICO), the credit-scoring company, was the largest detractor, falling roughly 48% after the Federal Housing Finance Agency directed Fannie Mae and Freddie Mac to accept a competing credit score from all mortgage lenders, raising concerns about its mortgage scoring pricing power. Guidewire Software Inc. (GWRE), a provider of core software for property and casualty insurers and a top contributor in August, declined roughly 30% as near-term revenue guidance fell short of expectations despite solid quarterly results. LPL Financial Holdings Inc. (LPLA), a brokerage platform; Copart Inc. (CPRT), an online vehicle auction operator; and Airbnb Inc. (ABNB), the travel marketplace, also weighed on results.

Moat Index Top Contributors and Detractors - September 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: Cloud Names Lead as Small Caps Slide

Similarly to the Moat Index, the SMID Moat Index faced broad-based declines in September, with technology the only sector to contribute positively. Stock selection was the primary driver of underperformance, led by health care and industrials, while the Index’s overweight to health care, one of the market’s more resilient sectors, provided a partial offset.

Datadog was also the SMID Moat Index’s top contributor, joined by Cloudflare Inc. (NET), a security-focused content delivery and edge computing network, which gained roughly 14%. Cloudflare has emerged as a beneficiary of AI adoption, as inference workloads and agentic traffic increasingly flow across its network, supporting a raised full-year sales outlook with its most recent quarterly results. Morningstar assigns Cloudflare a wide moat based on switching costs and network effects, noting that the data flowing across a network handling more than 20% of global internet traffic continually strengthens its security offerings.

Other notable contributors included CNH Industrial N.V. (CNH), a manufacturer of agricultural and construction equipment, along with Agilent and Entegris.

Companies detracting the most from the SMID Moat Index were spread across sectors, reflecting the breadth of September’s selloff. TransUnion (TRU), a credit reporting agency, was the largest detractor, falling roughly 28% in a challenging month for credit data providers that also included the announced departure of its longtime chief financial officer. Lamb Weston Holdings Inc. (LW), a supplier of frozen potato products; Ionis Pharmaceuticals Inc. (IONS), a developer of RNA-targeted medicines; The Carlyle Group Inc. (CG), an alternative asset manager; and Albemarle Corp. (ALB), a lithium and specialty chemicals producer, also weighed on results.

SMID Moat Index Top Contributors and Detractors - September 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.