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  • Moat Investing

    Moats React to Continued Global Volatility

    Brandon Rakszawski, Senior ETF Product Manager
    April 23, 2018
     

    For the Month Ending March 31, 2018

    Performance Overview

    The volatility and sell-off experienced across markets in February continued to some degree in March, with varying impact on moat companies. International moats, as represented by the Morningstar® Global ex-US Moat Focus IndexSM (MGEUMFUN, or "International Moat Index"), led the MSCI All Country World Index ex-USA again in March (-1.35% vs. -1.76%, respectively). The U.S.-oriented Morningstar® Wide Moat Focus IndexSM (MWMFTR, or "U.S. Moat Index") lagged the broad U.S. market as represented by the S&P 500® Index (-3.49% vs. -2.54%, respectively).

    International Moats: Utilities’ Time to Shine

    There were several bright spots among moat-rated companies in the International Moat Index in March. Driven by ENN Energy Holdings Ltd. (2688 HK, +15.91%), Gas Natural SDG SA (GAS SM, +3.92%), and China Resources Gas Group Ltd. (1193 HK, +2.92%), utilities was the top contributing sector to the index despite its relatively small weighting. Medical technology firm Elekta AB (EKTAB SS, +16.06%) was the top performer in the index, following strong third quarter results that point to a continued recovery for the firm. Despite these strong performers, the International Moat Index could not escape March’s deteriorating market conditions. Financials was the top detracting sector from index performance, with Australia bank Westpac Banking Corp. (WBC AU, -10.08%) leading the sector’s underwhelming performance. Westpac, Australia’s oldest bank, continued to trade at a discount to Morningstar’s fair value estimate at month-end. MGM China Holdings Ltd. (2282 HK, -12.40%) also struggled in March following a long-term run-up in the major Macau gaming companies since late 2016. Interestingly, Morningstar now views these companies as near or over fair value. At the index’s first quarter review in late March, ENN Energy Holdings Ltd., Elekta AB, and MGM China Holdings Ltd. were removed from the index.

    U.S. Domestic Moats: Two Is a Crowd

    Healthcare was once again the culprit driving the U.S. Moat Index’s weak performance. The sector has been overweight in the index since early 2016 and has experienced multiple swings in performance as several headline-worthy events unfolded. Remarks by President Trump, innovative private healthcare announcements, and the attempted repeal of the Affordable Care Act have all impacted the sector since early 2016. Patterson Companies Inc. (PDCO US, -29.61%) inflicted its last bit of damage on the U.S. Moat Index prior to exiting the index at the March review as a result of its moat rating downgrade. L Brands (LB US, -22.54%), another volatile index constituent in recent months, continues to face near-term headwinds, resulting in a fair value estimate reduction in mid-April by Morningstar analysts. Morningstar does still believe in L Brands’ long-term moat rating but is continuing to monitor its store’s growth plans, namely Victoria’s Secret. Excluding the two aforementioned worst performers, the index performed more in-line with the broad U.S. market.

     

    (%) Month Ending 3/31/18

    Domestic Equity Markets

    International Equity Markets

    (%) As of 3/31/18

    Domestic Equity Markets

    International Equity Markets

    (%) Month Ending 3/31/18

    Morningstar
    Wide Moat Focus Index (MWMFTR)

    Top 5 Index Performers
    Constituent Total Return
    Allergan PLC 9.12
    TransDigm Group Inc 6.46
    Veeva Systems Inc Class A 4.76
    Microchip Technology Inc 2.73
    Starbucks Corp 1.38

    Bottom 5 Index Performers
    Constituent Total Return
    Patterson Companies Inc -29.61
    L Brands Inc -22.54
    Wells Fargo & Co -10.27
    Bank of New York Mellon Corp -9.64
    AmerisourceBergen Corp -9.41

    View MOAT's current constituents
    View MWMZX's current constituents

    Morningstar
    Global ex-US Moat Focus Index (MGEUMFUN)

    Top 5 Index Performers
    Constituent Total Return
    Elekta AB B 16.06
    ENN Energy Holdings Ltd 15.91
    KION GROUP AG 8.36
    GKN PLC 7.67
    KDDI Corp 5.16

    Bottom 5 Index Performers
    Constituent Total Return
    MGM China Holdings Ltd -12.40
    SINA Corp -10.83
    GEA Group AG -10.55
    SoftBank Group Corp -10.08
    Westpac Banking Corp -8.44

    View MOTI's current constituents

    As of 3/16/18

    Morningstar
    Wide Moat Focus Index (MWMFTR)

    Index Additions
    Added Constituent Ticker
    McDonald's Corp MCD US
    Procter & Gamble PG US
    General Mills Inc GIS US
    Dominion Energy Inc D US
    Campbell Soup Co CPB US
    Hershey Foods Corp HSY US
    Cheniere Energy Inc LNG US
    Microchip Technology Inc MCHP US
    Comcast Corp A CMCSA US
    Franklin Resources Inc BEN US
    PepsiCo Inc PEP US

    Index Deletions
    Deleted Constituent Ticker
    Visa Inc A V US
    VF Corp VFC US
    Polaris Inds Inc PII US
    The Bank of New York Mellon Corp BK US
    Veeva Systems Inc A VEEV US
    United Technologies Corp UTX US
    TransDigm Group TDG US
    CBRE Group Inc. CBG US
    Bristol-Myers Squibb BMY US
    Emerson Electric Co EMR US
    Patterson Cos Inc PDCO US

    View Latest MOAT Reconstitution Report
    View MOAT's list of current constituents

    Morningstar
    Global ex-US Moat Focus Index (MGEUMFUN)

    Index Additions
    Added Constituent Country
    Beijing Enterprises Holdings Ltd. China
    LINE Corp Japan
    GEA AG Germany
    Unilever United Kingdom
    Vodafone Group United Kingdom
    Grupo Aeroportuario del Pacifico, Mexico
    Sun Hung Kai Properties Ltd. Hong Kong
    KION Group AG Germany
    SK Telecom Co Ltd South Korea
    Genting Singapore Plc Singapore
    Koninklijke KPN NV Netherlands
    Beijing Capital International Airport Co. Ltd. China
    Brambles Industries Ltd Australia
    Banco Bilbao Vizcaya Argentaria SA Spain
    Rolls-Royce Holdings Plc United Kingdom
    CapitaLand Mall Trust REIT Singapore
    Uni Charm Corp Japan
    Capitaland Ltd Singapore
    Symrise AG Germany
    Svenska Handelsbanken A Sweden
    LafargeHolcim Ltd Switzerland
    Hong Kong Land Hldgs Ltd China
    Smiths Group United Kingdom
    Grifols SA Spain
    Seven & I Holdings Co Ltd Japan
    Kubota Corp Japan

    Index Deletions
    Deleted Constituent Country
    Cameco Corp Canada
    Canadian Pacific Railway Ltd Canada
    Enbridge Inc Canada
    Cemex SA CPO Mexico
    America Movil SAB de CV L Mexico
    Embraer S.A. Brazil
    Airbus SE France
    Sanofi-Aventis France
    Luxottica Group SpA Italy
    Crown Resorts Ltd Australia
    Sonic Healthcare Ltd Australia
    Westpac Banking Corp Australia
    AMP Ltd Australia
    Commonwealth Bank Australia Australia
    QBE Insurance Group Ltd Australia
    Magellan Financial Group Limited Australia
    Inditex SA Spain
    Telefonica SA Spain
    MGM China Holdings Ltd Hong Kong
    Roche Hldgs AG Ptg Genus Switzerland
    Elekta B Sweden
    Sina Corp (Caymans) China
    ENN Energy Holdings Ltd China
    DBS Group Holdings Singapore
    Overseas-Chinese Banking Singapore
    KBC Group NV Belgium

    View Latest MOTI Reconstitution Report
    View MOTI's list of current constituents