Skip directly to Accessibility Notice

Strong Showing by Recent Moat Stock Picks: Northrop, Google

June 15, 2021


The Morningstar Wide Moat Focus Index (the “Moat Index” or “Index”) undergoes its systematic quarterly review on June 18, 2021 whereby it will reposition one of its two sub-portfolios to reflect 40 of the most attractively priced wide-moat companies according to Morningstar’s equity research team. I’ve written previously about the Index’s shift away from growth-oriented companies throughout 2020 to more of a value posturing. This, in part, led to the first calendar year of underperformance since 2015, relative to the S&P 500 Index.

However, the focus on valuations within the Index has since rewarded investors with outperformance of nearly 6% relative to the S&P 500 Index (18.42% vs. 12.62%, respectively) for the year through May.

As we approach the next quarterly review, let’s have a look at some of the leaders and laggards from the March 2021 Moat Index review. Each of the following companies were added to the sub-portfolio under review effective after the close of markets on March 19, 2021. Some have impressed, while others have yet to do so. All told, six of the nine additions to the Index are ahead of the S&P 500 Index from the day they were added through June 9, 2021.

Strong Showing by March 2021 Moat Index Additions

Total Return (%) 3/22/2021 – 6/9/2021
Company Ticker Return (%)
Northrop Grumman Corp. NOC 21.24
Alphabet Inc. GOOGL 18.80
Adobe Inc. ADBE 16.58
Roper Technologies Inc. ROP 14.32
Facebook Inc. FB 13.84
Cerner Corp. CERN 11.56
S&P 500 -- 8.16
Dominion Energy Inc. D 5.15
Tyler Technologies Inc. TYL -0.89
ServiceNow Inc. NOW -1.30

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

Moat Index Leaders

Northrop Grumman Corp. (NOC)

Northrop Grumman was added to the Index’s sub-portfolio at a discount of approximately 7% to its fair value on March 19, 2021. The defense contractor had traded below its fair value consistently from October 2020 to that time. In fact, the company was also added to the Index’s other sub-portfolio at its December 2020 review at a slightly steeper discount to fair value. Northrop’s wide economic moat stems from intangible assets related to product complexity and long contract life spans paired with switching costs associated with the mission-criticality of product, extended product cycles, a lack of viable alternative products, and the substantial time investment required for switching. Northrop reported strong first quarter results in late April, driving its price higher to where it now trades at approximately 10% above fair value, according to Morningstar.

Alphabet Inc. (GOOGL)

Alphabet has found its way into the Moat Index several times before, though it hasn’t traded very far from fair value historically and has represented a far lower weighting in the Index than most other U.S. equity indexes and strategies. Most recently it was added to the Index in both December 2020 and March 2021, entering at 22% discount to Morningstar’s fair value at the latter review. Despite Alphabet’s strong run since March, the company remains attractively priced according to Morningstar, following an increase to its fair value estimate in April 2021 from $2,605 per share to $2,925 per share. Alphabet benefits from intangible assets and network effect. Morningstar believes its intangible assets are related to its overall technological expertise in search algorithms and machine learning as well as its access to and accumulation of data deemed valuable to advertisers. Add to that the obvious brand associated with “Googling” something. Alphabet’s network effect is created from its ability to collect data through an extensive network and, in turn, offer the best return on investment for advertisers, further building its network of advertising customers.

Moat Index Laggards

Tyler Technologies Inc. (TYL)

Tyler Technologies is a lesser known wide moat company that offers software solutions and services to municipalities. These solutions include enterprise resource planning and court management systems, among others. Morningstar believes Tyler earns its wide moat rating from high customer switching costs and, to a lesser extent, intangible assets. Because Tyler provides core systems that enable normal operation of government units and governmental contracts tend to be long-tail in nature, Morningstar believes Tyler’s customer retention will be extremely high moving forward. Morningstar also posits that Tyler benefits from building up a portfolio of software that would be difficult for a startup, or even an established software vendor without government expertise, to replicate. Tyler has been assigned a wide moat rating by Morningstar since early 2019 but was first added to the Moat Index in March 2021 when it first displayed valuations attractive enough for addition to the Index. Tyler completed the acquisition of NIS, a leading digital government solution and payments company in April 2020, and Morningstar has maintained its fair value of $475 and continue to see shares as undervalued as of this writing.

ServiceNow Inc. (NOW)

ServiceNow was a strong performer for the Moat Index at different times in the last few years and saw its exposure reduced and eventually removed in December 2020 as its shares traded at or above its Morningstar-assigned fair value. With shares falling along with many other software names in the early part of the year, ServiceNow found its way back into the Index in March 2021 at an 18% discount to Morningstar’s fair value estimate. ServiceNow is a software as a service company focused primarily on the IT function for enterprise customers. It has offerings for HR, customer service, and security operations as well. Like Tyler Technologies, Morningstar cites high customer switching costs as a source of ServiceNow’s wide moat. Though it was founded in 2004, it already controls approximately 40% of the IT service management market, according to Morningstar.

We’ll learn which companies make the cut on June 18. More to follow.

VanEck Vectors 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.

For further reading:

Related Insights

Moat Investing Blog

January 13, 2022

Moat Investing Webinar

January 11, 2022

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:

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 Vectors 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 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 Vectors 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 Vectors ETFs, which contains this and other information, call 800.826.2333 or visit Please read the prospectus and summary prospectus for VanEck Funds and VanEck Vectors ETFs carefully before investing.

1 - 3 of 3