Moat Stocks Take Early Lead in 2023
February 08, 2023
Read Time 5 MIN
U.S. stock market indices started off the year notably strong as investors were quick to put a bruising 2022 in the rear view. Confidence that interest rates may be nearing their ultimate level and increasing probability of a soft-landing for the economy has boosted stocks, particularly growth segments of the market. The technology focused Nasdaq Composite Index jumped nearly 11% in January, its best start to a year since 2001. However, some would caution that there is still some ways to go in bringing inflation down to the Federal Reserve’s target range and that the current market narrative could prove to be a bit rosy.
The Morningstar® Wide Moat Focus IndexSM (the “Moat Index” or “Index”) also started the year off strong—its strongest start to a new year ever, actually—with its best January since its inception in 2007. The Moat Index was up 11.8% for the month, outpacing the S&P 500 Index and even the Nasdaq Composite Index, which returned 6.3% and 10.7% during the same period, respectively.
The Moat Index’s outperformance in January, relative to the S&P 500 Index, was driven primarily by strong stock selection. This should not be a surprise to the studious readers of this blog, as stock selection has often been highlighted as a notable contributor to relative performance for the Moat Index. This phenomenon is owed to Morningstar’s forward-looking and rigorous equity research process, fueled by over 100 analysts, which plays a major role as the inputs driving the investment selections of the Moat Index. Details on the specific companies driving performance during the month are noted in the tables below.
| Top 5 Moat Index Contributors in January | |||
| Company | Ticker | Average Weight (%) | Return Contribution (%) |
| MercadoLibre Inc | MELI | 2.68 | 0.94 |
| Salesforce Inc | CRM | 2.52 | 0.64 |
| TransUnion | TRU | 2.48 | 0.60 |
| Meta Platforms Inc Class A | META | 2.50 | 0.56 |
| The Walt Disney Co | DIS | 2.34 | 0.54 |
| Bottom 5 Moat Index Contributors in January | |||
| Company | Ticker | Average Weight (%) | Return Contribution (%) |
| Emerson Electric Co | EMR | 2.55 | -0.17 |
| 3M Co | MMM | 2.35 | -0.10 |
| Kellogg Co | K | 1.13 | -0.05 |
| Gilead Sciences Inc | GILD | 1.50 | -0.04 |
| Zimmer Biomet Holdings Inc | ZBH | 2.45 | 0.00 |
Source: Morningstar, January 2023. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein.
Wide Moat Stock Highlights: MELI Leads, AAPL Joins Universe
MercadoLibre Inc. (MELI)1
Mercado Libre Inc. runs the largest e-commerce marketplace in Latin America, connecting a network of more than 140 million active users and over 1 million active sellers across an 18-country footprint. The company also operates a host of complementary businesses, with shipping solutions, a payment and financing operation, advertisements, classifieds and a turnkey e-commerce solution rounding out its arsenal. MELI generates revenue from final value fees, advertising royalties, payment processing, insertion fees, subscription fees and interest income from consumer and small-business lending. Morningstar attributes MELI’s wide moat rating to their strong network effect, driven by a large pool of users on both sides of the marketplace (buyers and sellers), which encourages even more users to join the platform. This creates a positive feedback loop of better product selection, lower costs and greater user participation.
MELI was the top contributor to performance for the Moat Index in January following supportive forecasts for the e-commerce segment and reports of continued user growth on the platform. MELI’s share price gained nearly 40% in January to end the month at about $1,150 per share, which puts the stock right at Morningstar’s current estimate of fair value after having traded at a discount since the end of 2021.
Apple Inc. (AAPL)2
Apple Inc., the well-known designer of a wide variety of popular consumer electronic devices and services, including smartphones (iPhone), tablets (iPad), PCs (Mac), smartwatches (Apple Watch) and AirPod, deserves a highlight, as Morningstar just recently upgraded the company’s economic moat rating from narrow to wide. This means that after years of being ineligible for the Moat Index, due to its narrow moat rating, Apple is now joining the eligible universe of wide moat companies that can be selected for inclusion in the Moat Index. Morningstar’s reasoning for the upgrade is noted below.
Morningstar Analyst Note: Abhinav Davuluri, CFA, Strategist, 20 Jan 2023
We are upgrading our economic moat rating for Apple to wide from narrow, as we have greater confidence in the firm’s competitive advantages stemming from high customer switching costs, intangible assets, and network effects associated with its iOS ecosystem. We believe switching costs from iOS are as strong as ever thanks to more auxiliary products and services that make switching away from iOS more difficult over time. Regarding intangible assets, Apple’s differentiated user experience via iOS coupled with its expertise in hardware, software and now semiconductor design allows the firm to build vertically integrated products more seamlessly. We also see network effects around iOS and its 1 billion-plus installed base with new app development favoring iOS.
While AAPL is now eligible for the Moat Index, to actually be selected for inclusion, it must also clear the hurdle of valuation, as only the top 40 most attractively valued U.S. wide moat companies make the cut each quarter. With Apple currently trading near Morningstar’s $150 estimate of fair value, it may be a bit longer before the popular consumer electronics company makes it first appearance in the Moat Index.
VanEck Morningstar Wide ETF (MOAT) seeks to replicate as closely as possible, before fees and expenses the price and yield performance of the Morningstar Wide Moat Focus Index.
Small- and mid-cap moat stocks also had a strong start to the year, with the Morningstar US Small-Mid Cap Moat Focus Index actually outpacing the Morningstar Wide Moat Focus Index in January. VanEck Morningstar SMID Moat ETF (SMOT) provides exposure to small- and mid-cap companies with sustainable competitive advantages and attractive valuations.
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Important Disclosures
1 2.95% of the Moat Index as of 1/31/2023.
2 0.00% of the Moat Index as of 1/31/2023.
Source for all data unless otherwise noted: Morningstar.
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.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. 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 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. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its employees.
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.
The Morningstar® Wide Moat Focus IndexSM was created and is maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Morningstar Wide Moat ETF and bears no liability with respect to that ETF or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar® Wide Moat Focus IndexSM is a service mark 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. Past performance is no guarantee of future results.
The Morningstar moat-driven indexes represent various regional exposures and consist of companies identified as having sustainable, competitive advantages and whose stocks are attractively priced, according to Morningstar.
The Morningstar® Wide Moat Focus IndexSM Intended to track the overall performance of attractively priced companies with sustainable competitive advantages according to Morningstar's equity research team.
The Nasdaq Composite Index includes all equity securities listed on the Nasdaq Stock Market and is a broad index heavily weighted toward the technology sector.
The S&P 500® Index consists of 500 widely held common stocks covering industrial, utility, financial and transportation sector; as an Index, it is unmanaged and is not a security in which investments can be made.
The S&P 500® 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 ©2023 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.spglobal.com/spdji/en/. 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.
An investment in the VanEck Morningstar Wide Moat ETF (MOAT®) may be subject to risks which include, among others, risks related to investing in equity securities, consumer discretionary sector, health care sector, industrials sector, information technology sector, financials sector, medium-capitalization companies, market, operational, high portfolio turnover, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversification and index-related concentration risks, all of which may adversely affect the Fund. Medium-capitalization companies may be subject to elevated risks.
An investment in the VanEck Morningstar SMID Moat ETF (SMOT®) may be subject to risks which include, among others, risks related to investing in equity securities, small- and medium-capitalization companies, consumer discretionary sector, financials sector, health care sector, industrials sector, information technology sector, market, operational, high portfolio turnover, index tracking, authorized participant concentration, new fund, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, and index-related concentration risks, all of which may adversely affect the Fund. Small- and medium-capitalization companies may be subject to elevated risks.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visitvaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.
Related Funds
Important Disclosures
1 2.95% of the Moat Index as of 1/31/2023.
2 0.00% of the Moat Index as of 1/31/2023.
Source for all data unless otherwise noted: Morningstar.
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.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. 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 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. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its employees.
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.
The Morningstar® Wide Moat Focus IndexSM was created and is maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Morningstar Wide Moat ETF and bears no liability with respect to that ETF or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar® Wide Moat Focus IndexSM is a service mark 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. Past performance is no guarantee of future results.
The Morningstar moat-driven indexes represent various regional exposures and consist of companies identified as having sustainable, competitive advantages and whose stocks are attractively priced, according to Morningstar.
The Morningstar® Wide Moat Focus IndexSM Intended to track the overall performance of attractively priced companies with sustainable competitive advantages according to Morningstar's equity research team.
The Nasdaq Composite Index includes all equity securities listed on the Nasdaq Stock Market and is a broad index heavily weighted toward the technology sector.
The S&P 500® Index consists of 500 widely held common stocks covering industrial, utility, financial and transportation sector; as an Index, it is unmanaged and is not a security in which investments can be made.
The S&P 500® 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 ©2023 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.spglobal.com/spdji/en/. 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.
An investment in the VanEck Morningstar Wide Moat ETF (MOAT®) may be subject to risks which include, among others, risks related to investing in equity securities, consumer discretionary sector, health care sector, industrials sector, information technology sector, financials sector, medium-capitalization companies, market, operational, high portfolio turnover, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversification and index-related concentration risks, all of which may adversely affect the Fund. Medium-capitalization companies may be subject to elevated risks.
An investment in the VanEck Morningstar SMID Moat ETF (SMOT®) may be subject to risks which include, among others, risks related to investing in equity securities, small- and medium-capitalization companies, consumer discretionary sector, financials sector, health care sector, industrials sector, information technology sector, market, operational, high portfolio turnover, index tracking, authorized participant concentration, new fund, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, and index-related concentration risks, all of which may adversely affect the Fund. Small- and medium-capitalization companies may be subject to elevated risks.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visitvaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.