International Moat Investing with Morningstar’s Equity Research
Identifying Moat Companies Outside of the U.S
DAN LEFKOVITZ: We find a significant number of companies domiciled outside of the United States that have sustainable competitive advantages. If you think about different economic sectors, there are many in which the global leader is based overseas. If you think about pharmaceuticals or automobiles, telecom, energy, for example, many of the global leaders are located in Europe or Japan. We also find smaller, more local-market-focused names that have economic moats as well.
Morningstar’s International Equity Research Capabilities
LEFKOVITZ: Morningstar's equity research capability is global in its scope, but local in its expertise. We have global-sector teams, including a global moat committee that ensures that moat ratings and the methodology are applied consistently across geography. We also have analysts located on the ground in the various markets in which they're covering, so they can be close to the companies and close to the markets which they're covering. We have analyst clusters in Chicago, in Amsterdam, in Sydney, Australia, Singapore, Hong Kong, Shenzhen, for example.
Unique Competitive Advantages in International Markets
LEFKOVITZ: There's no doubt that there's another layer of complexity when you're investing globally, across geographies. There are different regulatory schemes, different local market dynamics that analysts have to be aware of. There are risks associated with emerging markets investing, and there's no doubt about that. But we sometimes find that particular local market dynamics can confer a competitive advantage. We see companies economic moats that stem from particular local government regulations, or perhaps a geographic monopoly, or perhaps a small market that's efficiently served by a limited number of players.
Expanding Popular U.S. Index Methodology Globally
LEFKOVITZ: The U.S. wide moat focus index [the Morningstar® Wide Moat Focus IndexSM, MWMFTR] is based on analyst ratings going back to 2002. We launched the Index in 2007, and it's put up strong relative returns versus the U.S. market. We extended the methodology to overseas markets in 2015 because we think that this approach to investing – that is buying companies that have sustainable competitive advantages, but are trading at discounts -- is universally applicable. [International moats are tracked through the Morningstar® Global ex-US Moat Focus IndexSM , MGEUMFUN.]
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