IMCB - SMOT: My First Look At VanEck's Mid-Cap Moat ETF

2024-05-31 22:45:28 ET

Summary

• SMOT tracks the Morningstar US Small-Mid Cap Moat Focus Index, selecting wide and narrow moat stocks from the 70-97th percentile of the investable market. Its expense ratio is currently 0.49%.
• SMOT is different from MOAT because it includes narrow moat stocks, a necessary change because only about 150 small- and mid-cap stocks have wide moat coverage from Morningstar.
• One consequence is that quality isn't necessarily very strong, though that is true for several other Morningstar Moat ETFs. Instead, SMOT's strength is its 15.02x forward P/E.
• SMOT's holdings also trade closer to their 52-week low prices than nearly every other mid-cap blend ETF. The catch is Wall Street analysts are generally bearish on its selections.
• In this sense, Morningstar analysts have adopted a somewhat contrarian style. It's not my preferred method, but it's still too early to judge, so I've assigned a neutral "hold" rating and commit to reviewing as its Index reconstitutes.

Investment Thesis

The VanEck Morningstar SMID Moat ETF ( SMOT ) launched on October 4, 2022, and, together with the VanEck Morningstar Wide Moat ETF ( MOAT ), allows investors to own wide and narrow moat companies trading at attractive valuations across all size segments. The concept is simple, as companies with sustainable competitive advantages will likely perform well in the long run. SMOT's 0.49% expense ratio, which includes a 0.10% waiver, isn't too much of a deterrent for me because if MOAT is any indication, these fees are worth the superior strategy you get in return....

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