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Reflect and Move Forward

25 January 2019

 

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

This is a marketing communication. Please refer to the prospectus of the UCITS and to the KID before making any final investment decisions.

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, VanEck Switzerland AG, VanEck Securities UK Limited and their 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 is believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. Brokerage or transaction fees may apply.

VanEck Asset Management B.V., the management company of VanEck Morningstar US Sustainable Wide Moat UCITS ETF (the "ETF"), a sub-fund of VanEck UCITS ETFs plc, is a UCITS management company under Dutch law registered with the Dutch Authority for the Financial Markets (AFM). The ETF is registered with the Central Bank of Ireland, passively managed and tracks an equity index. Investing in the ETF should be interpreted as acquiring shares of the ETF and not the underlying assets. Investors must read the sales prospectus and key investor information before investing in a fund. These are available in English and the KIIDs/KIDs in certain other languages as applicable and can be obtained free of charge at www.vaneck.com, from the Management Company or from the following local information agents:
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Morningstar® US Sustainability Moat Focus Index is a trade mark of Morningstar Inc. and has been licensed for use for certain purposes by VanEck. VanEck Morningstar US Sustainable Wide Moat UCITS ETF is not sponsored, endorsed, sold or promoted by Morningstar and Morningstar makes no representation regarding the advisability in VanEck Morningstar US Sustainable Wide Moat UCITS ETF.
Effective December 17, 2021 the Morningstar® Wide Moat Focus IndexTM has been replaced with the Morningstar® US Sustainability Moat Focus Index.
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.
It is not possible to invest directly in an index.

All performance information is based on historical data and does not predict future returns. Investing is subject to risk, including the possible loss of principal.

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 / VanEck Asset Management B.V.

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