Moat Index Bounces Back Ahead of Review

30 September 2019

The Morningstar^®Wide Moat Focus Index^TM(“Moat Index”) is ahead of the S&P 500 Index by more than two percent for the current month through September 20, 2019 (4.52% vs. 2.36%, respectively). This follows a difficult August in which the Moat Index trailed the S&P 500^®Index by nearly one percent on a total return basis (-2.30% vs. -1.58%, respectively).

Much of August’s struggles were driven by the financials sector. In particular, brokerage firm Charles Schwab Corp. (SCHW) and custody bank State Street Corp. (STT) were among the Moat Index’s five worst performing stocks for the month. One of its few energy sector holdings, Core Laboratories (CLB), had a particularly poor August despite featuring one of the largest economic moats in Morningstar’s oil field services coverage universe. CLB’s stock price has since reversed course and has helped elevate the Moat Index, leading all constituents from a total return perspective in September thus far.

This surge led into the index’s standard quarterly review. During the review, the eligible universe of U.S. stocks is assessed to allow for the Moat Index to represent wide moat companies with attractive valuations. Companies that have appreciated to near or above fair value may be replaced with companies that are more attractively priced. Alternatively, companies that have not realized their fair value may remain in the Moat Index or see their weighting increased to allow the market more time to realize the potential mispricing inherent in those companies’ prices.

Moat Index’s New Fall Look

Following the quarterly review, the Moat Index did not change its sector exposure significantly. Its health care weighting increased slightly, remaining the largest overweight relative to the S&P 500 Index, while information technology companies remain slightly underweight. However, there was a good deal of activity this quarter. Four companies that were partially removed from the Moat Index in June 2019 following a previous downgrade to their economic moat rating were fully removed this quarter. One additional constituent, General Mills (GIS) was removed from the Moat Index after the Morningstar equity research team downgraded its economic moat from wide to narrow in July, citing secular headwinds related to evolving consumer nutritional preferences.

Nine companies were removed because they were trading too close to fair value relative to other eligible wide moat companies. Several companies were added that are either new to the Moat Index or have not been seen in the index in quite some time, such as Domino Pizza Inc. (DPZ) and Altria Group Inc. (MO).

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:
UK - Facilities Agent: Computershare Investor Services PLC
Austria - Facility Agent: Erste Bank der oesterreichischen Sparkassen AG
Germany - Facility Agent: VanEck (Europe) GmbH
Spain - Facility Agent: VanEck (Europe) GmbH
Sweden - Paying Agent: Skandinaviska Enskilda Banken AB (publ)
France - Facility Agent: VanEck (Europe) GmbH
Portugal - Paying Agent: BEST – Banco Eletrónico de Serviço Total, S.A.
Luxembourg - Facility Agent: VanEck (Europe) GmbH

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.