• Moat Investing

    Reflect and Move Forward

    Brandon Rakszawski, Senior ETF Product Manager
     

    For the Month Ending December 31, 2018

    The Morningstar® Wide Moat Focus IndexSM (MWMFTR, or "U.S. Moat Index") ended the year with a loss of -0.74% versus -4.38% for the broad U.S. equity market as represented by the S&P 500® Index.

    Strong performance for the year was driven in large part by the Index’s overweight to healthcare stocks, such as Eli Lilly and Co (LLY), Merck & Co., Inc. (MRK), and Express Scripts Holding Co. (ESRX). The communication services sector also saw success in 2018, driven largely by Twenty-First Century Fox Inc. (FOXA), which was also among the index’s top performers.

    Not all positions benefited the U.S. Moat Index in 2018. L Brands, Inc. (LB) and General Electric (GE) were the most high profile performance detractors for the year as both saw their Economic Moat Ratings downgraded from wide to narrow by Morningstar’s equity analysts. But, in the aggregate, the index impressed in 2018.

    New Year, New Positioning

    The U.S. Moat Index is reviewed quarterly to ensure the Index is allocated to companies that Morningstar believes possess a sustainable competitive advantage and, just as importantly, are among the most attractively priced of those companies. Following the market sell-off in the fourth quarter, the U.S. Moat Index’s December review resulted in its most dramatic sector allocation shifts of the year.

    U.S. Moat Index December Repositioning

    U.S. Moat Index December Repositioning Chart

    Source: Morningstar. Index positioning not representative of fund positioning.

    The Index pared its exposure to healthcare and consumer staples companies while adding to its information technology, financials, and industrials exposure.

    Healthcare was the top sector contributor to returns of the U.S. Moat Index for the year and saw its weighting adjusted in December accordingly as several companies no longer represented a valuation opportunity. Interestingly, communications services and consumer discretionary companies were the second and third best contributors, respectively, in 2018 but both maintained similar exposure in the Index.

    The most notable shift in the portfolio was the increase in information technology exposure. The U.S. Moat Index weighting of roughly 20% to information technology is now back to market weight relative to the S&P 500. Information technology was a significant underweight for most of 2018.

    Clearly, valuation opportunities among wide moat companies changed as the year came to an end. The strategy locked in gains in several positions, exited some laggards, and allocated to several new companies with potential upside in the eyes of Morningstar equity analysts.


  • Important Disclosure

    For informational and advertising purposes only.

    This information originates from VanEck (Europe) GmbH which has been appointed as distributor of VanEck products in Europe by the Management Company VanEck Asset Management B.V., incorporated under Dutch law and registered with the Dutch Authority for the Financial Markets (AFM). VanEck (Europe) GmbH with registered address at Kreuznacher Str. 30, 60486 Frankfurt, Germany, is a financial services provider regulated by the Federal Financial Supervisory Authority in Germany (BaFin). The information is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice. VanEck (Europe) GmbH and its associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. 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. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index.

    VanEck Vectors Morningstar US Wide Moat UCITS ETF (the “Fund”) is a sub-fund of VanEck Vectors® UCITS ETFs plc., organised under the laws of Ireland, managed by VanEck Investments Ltd. VanEck Investments Ltd delegated the investment management of the Fund to Van Eck Associates Corporation, an investment manager regulated by the U.S. Securities and Exchange commission (SEC). Any investment decision must be made on the basis of the prospectus and the key investor information document (“KIID”), which is available at www.vaneck.com. These are available in English and certain other languages at www.vaneck.com or can be requested free of charge from VanEck Investments Ltd or from the relevant local information agent details of whom to be found on www.vaneck.com. The Fund is registered with the Central Bank of Ireland and tracks an equity index.

    Morningstar® Wide Moat Focus IndexTM is a trade mark of Morningstar inc. and has been licensed for use for certain purposes by VanEck. VanEck Vectors Morningstar US Wide Moat UCITS ETF is not sponsored, endorsed, sold or promoted by Morningstar and Morningstar makes no representation regarding the advisability of investing in VanEck Vectors Morningstar US Wide Moat UCITS ETF.

    The S&P 500 Index (“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 © 2020 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 www.spdji.com. 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.

    S&P 500® Index: consists of 500 widely held common stocks covering the leading industries of the U.S. economy. Morningstar® Wide Moat Focus IndexTM consists of at least 40 U.S. companies identified as having sustainable, competitive advantages, and whose stocks are the most attractively priced, according to Morningstar.

    All performance information is historical and is no guarantee of future results. Investing is subject to risk, including the possible loss of principal. You must read the Prospectus and KIID before investing.

    No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.

    © VanEck (Europe) GmbH

     

  • Authored by

    Brandon Rakszawski
    Senior ETF Product Manager

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