Throughout 2018, the Morningstar® Wide Moat Focus IndexSM (MWMFTR, or "U.S. Moat Index") has offered differentiated exposure to U.S. stocks when compared to many common broad-based indices. Morningstar’s unique forward-looking focus on companies with sustainable competitive advantages and attractive valuations gave the index an overweight to healthcare stocks while resulted in more selective exposure to sectors that, as a whole, were viewed as overvalued throughout the year.
For example, Morningstar’s process identified Salesforce.com (CRM US) as an attractive wide moat tech company in June 2016 and has stuck with that position since. The company has performed positively over that time period, and Morningstar equity research analysts have raised their fair value estimate several times in the last few years, indicating their belief that the company remains attractively priced relative to their estimate of fair value. Recently, the firm posted solid third quarter results and raised its revenue and earnings outlook. Morningstar believes Salesforce.com’s moat is reinforced by switching costs—meaning its customers tend to be sticky because significant work and costs would be involved in switching to a competing client relationship management software. The U.S. Moat Index has been significantly underweight in the information technology sector this year, and after the late year sell-off in this sector, it will be interesting to see how the index allocates (or not) later this week at its December review based on current valuation opportunities.
Several stocks in the U.S. Moat Index have underwhelmed in 2018, such as L Brands (LB US) and General Electric (GE US). Morningstar’s forward-looking process has identified and assessed these companies’ shortcomings, and the systematic index process has begun to replace these positions with more attractive companies.
Ultimately, investors tend to judge an investment philosophy or strategy based on outcomes, and Morningstar’s forward-looking moat investment philosophy stands out in the crowd. Despite recent turmoil in the markets, the VanEck Vectors Morningstar Wide Moat ETF (MOAT®) is among the top performing ETFs and mutual funds in the Morningstar US Fund Large Blend Category across multiple periods through November 30, 2018. In fact, MOAT is ranked number one for the three-year period based on total return.
Top Decile across the Board Based on total return as of November 30, 2018
MOAT Rankings Relative to Morningstar US Fund LargeBlend Category (Returns %) As of 9/30/2018
Performance data quoted represent past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect temporary contractual fee waivers and/or expense reimbursements. Had the ETFs incurred all expenses and fees, investment returns would have been reduced. Investment returns and ETF share values will fluctuate so that investors' shares, when redeemed, may be worth more or less than their original cost. ETF returns assume that dividends and capital gains distributions have been reinvested in the fund at NAV. The "Net Asset Value" (NAV) of a VanEck Vectors ETF is determined at the close of each business day, and represents the dollar value of one share of the fund; it is calculated by taking the total assets of the fund, subtracting total liabilities, and dividing by the total number of shares outstanding. The NAV is not necessarily the same as the ETF's intraday trading value. VanEck Vectors ETF investors should not expect to buy or sell shares at NAV. Please call 800.826.2333 or visit vaneck.com for performance current to the most recent month ended.
MOAT expenses: Gross 0.48% and Net 0.48%. Expenses AT are capped contractually at 0.49% until February 1, 2019. Cap excludes acquired fund fees and expenses, interest expense, trading expenses, taxes and extraordinary expenses.
This material is for informational purposes only. 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 are 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 https://www.vaneck.com/etf/equity/moat/holdings/.
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 , Morningstar® Global ex-US Moat Focus IndexSM, and Morningstar® Global Wide Moat Focus IndexSM were created and are maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Vectors Morningstar Wide Moat ETF, VanEck Vectors Morningstar International Moat ETF, or VanEck Vectors Morningstar Global Wide Moat ETF and bears no liability with respect to the ETFs or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar Wide Moat Focus Index, Morningstar Global ex-US Moat Focus Index, and Morningstar® Global Wide Moat Focus IndexSM are service marks 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.
The Morningstar® Global ex-US Moat Focus IndexSM consists of companies outside of the U.S. identified as having sustainable, competitive advantages and whose stocks are attractively priced, according to Morningstar.
S&P 500® Index: consists of 500 widely held common stocks covering the leading industries of the U.S. economy.
Morningstar US Funds Large Blend Category: Average returns of U.S. funds with at least 70% of their assets comprised of domestic stocks with a mix of both growth-and value-oriented styles.
The Morningstar® Wide Moat Focus IndexSM , Morningstar® Global ex-US Moat Focus IndexSM , and Morningstar® Global Wide Moat Focus IndexSM were created and are maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Vectors Morningstar Wide Moat ETF, VanEck Vectors Morningstar International Moat ETF, or VanEck Vectors Morningstar Global Wide Moat ETF and bears no liability with respect to the ETFs or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar Wide Moat Focus Index, Morningstar Global ex-US Moat Focus Index, and Morningstar® Global Wide Moat Focus IndexSM are service marks of Morningstar, Inc.
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.
Effective June 20, 2016, Morningstar implemented several changes to the Morningstar Global ex-US Moat Focus Index construction rules. Among other changes, the index increased its constituent count from 50 stocks to at least 50 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. Past performance is no guarantee of future results.
An investment in the VanEck Vectors Morningstar Wide Moat ETF (MOAT®), VanEck Vectors Morningstar International Moat ETF (MOTI®), VanEck Vectors Morningstar Global Wide Moat ETF (GOAT) and VanEck Morningstar Wide Moat Fund, (the “Funds”) may be subject to risks which include, among others, investing in the health care, consumer discretionary, consumer staples, industrials, telecommunications, information technology, financial services, medium-capitalization companies, equity securities, market, operational, high portfolio turnover, index tracking and data, emerging market issuers, special risk considerations of investing in European and Asian issuers, depositary receipts, cash transactions, underlying fund, new fund, market, operational, high portfolio turnover, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, replication management, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified, and concentration risks, which may make these investments volatile in price or difficult to trade. Medium-capitalization companies may be subject to elevated risks. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund's returns.
MOAT, MOTI and GOAT Fund shares are not individually redeemable and will be issued and redeemed at their net asset value (NAV) only through certain authorized broker-dealers in large, specified blocks of shares called "creation units" and otherwise can be bought and sold only through exchange trading. Shares may trade at a premium or discount to their NAV in the secondary market. You will incur brokerage expenses when trading Fund shares in the secondary market. Past performance is no guarantee of future results.
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