2023-09-27 16:00:00 ET
Summary
- VanEck Morningstar Wide Moat ETF is a high-quality, market-beating ETF that has outperformed various benchmarks.
- MOAT focuses on wide-moat companies within Morningstar's research universe, aiming for relative outperformance.
- The fund follows a value-investing philosophy, buying undervalued wide-moat companies and avoiding overpriced stocks.
- However, as investors rotated out, MOAT has underperformed the S&P 500 since it topped out in July.
- I discuss why the selling downside could find buying support close to MOAT's April lows. Buyers waiting to pounce can start adding exposure and ride the next potential upcycle.
The VanEck Morningstar Wide Moat ETF ( MOAT ) is a high-quality, market- and peer-beating ETF that has proved its leadership in the large blend fund space.
According to VanEck, MOAT " has consistently ranked in the top 1% for the 5- and 10-year periods among large blend funds." In addition, it has also outperformed "various benchmarks," including the S&P 500 ( SPX ) ( SPY ).
According to the most recent 10Y total return, MOAT delivered a CAGR of 12.3% compared to SPY's 11.9%. The fund is passively managed, aiming to closely track the performance of the Morningstar Wide Moat Focus IndexSM.
While past performance doesn't guarantee future results, I believe MOAT's focus on wide-moat companies within Morningstar's research universe is a defensible and robust management approach toward relative outperformance. As such, investors buying into MOAT's thesis can be assured that 100% of its constituents are assessed as wide moat based on Morningstar's methodology of moat classification.
It's also important to note that the fund managers follow a value-investing philosophy in managing MOAT. As such, the team attempts to buy into undervalued wide-moat companies and take profit/cutting exposure into overvalued or more expensive ones. The fund also adopts Morningstar's fair value estimates when assessing whether the constituents selected are undervalued or overvalued based on the price/fair value ratio.
Name | Sector | Moat Rating | Price/Fair Value | Other |
---|---|---|---|---|
Emerson Electric ( EMR ) | Industrials | • | ||
Constellation Brands ( STZ ) | Consumer Staples | • | ||
ServiceNow ( NOW ) | Technology | • | ||
Meta Platforms ( META ) | Technology | • | ||
Domino's Pizza ( DPZ ) | Consumer Discretionary | • | ||
Workday ( WDAY ) | Technology | • | ||
Intuit ( INTU ) | Technology | • | ||
Lam Research ( LRCX ) | Technology | • | ||
Adobe ( ADBE ) | Technology | • | ||
Polaris ( PII ) | Consumer Discretionary | • |
Removed stocks. Data source: VanEck
MOAT underwent a recent reconstitution , which saw several tech stocks drop from the ETF as they failed the fund managers' screen. Based on the above screen, most were dropped as they were no longer attractively valued.
Charles Schwab ( SCHW ) | Financials | 0.75 P/FV | P/FV |
Agilent Technologies ( A ) | Health Care | 0.79 P/FV | P/FV |
Corteva ( CTVA ) | Materials | 0.73 P/FV | P/FV |
MarketAxess Holdings ( MKTX ) | Financials | 0.69 P/FV | P/FV |
NIKE ( NKE ) | Consumer Discretionary | 0.74 P/FV | P/FV |
Estee Lauder ( EL ) | Consumer Discretionary | 0.65 P/FV | P/FV |
Campbell Soup ( CPB ) | Consumer Staples | 0.68 P/FV | P/FV |
Honeywell ( HON ) | Industrials | 0.81 P/FV | P/FV |
RTX Corporation ( RTX ) | Industrials | 0.76 P/FV | P/FV |
Keysight Technologies ( KEYS ) | Information Technology | 0.79 P/FV | P/FV |
Name | Sector | Price/Fair Value | Previous Failed Screen |
---|
Added stocks. Data source: VanEck
In turn, significantly undervalued stocks from the sectors listed above were added. As seen in their P/FV screen, these stocks are more than 19% below their fair value estimates based on Morningstar's methodology.
Therefore, investors looking to buy into MOAT can be assured that the fund managers are aware of avoiding overpriced stocks, no matter their growth prospects. In addition, these stocks are fundamentally sound (wide-moat), providing robust defense in their competitive advantages for the long term. In Morningstar's methodology, wide-moat companies are assessed to have the capability to " sustain their competitive advantage for at least the next 20 years," helping the companies to earn a healthy excess ROIC over their WACC consistently.
Notwithstanding its construct and market-beating performance, MOAT has underperformed the S&P 500 since it topped out in July 2023, as it lost its short-term uptrend bias.
However, the extent of the selloff over the past four weeks could find a consolidation zone above the $72 level or MOAT's April lows. For MOAT to fall to that level, it would suggest a steep decline of nearly 15%, a healthy correction phase within a bull market uptrend.
As such, I expect dip buyers to return close to those levels, suggesting the risk/reward profile is reasonably attractive at the current levels. However, I must caution investors that I have not yet gleaned favorable price action indicating a bullish reversal. Hence, investors looking to buy now must anticipate further downside toward the $72 level before more constructive buying sentiments can be ascertained.
Rating: Initiate Buy.
Important note: Investors are reminded to do their due diligence and not rely on the information provided as financial advice. Please always apply independent thinking and note that the rating is not intended to time a specific entry/exit at the point of writing unless otherwise specified.
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For further details see:
MOAT: Gateway To Strong Companies With Lasting Competitive Advantages