Morningstar Sees Opportunities in Wide Moat, Value Stocks
January 11, 2022
Read Time 2 MIN
U.S. value stocks are off to quite a start in 2022, outperforming growth stocks handily through the first week. Though we are very early in the year, this trend aligns with much of what Morningstar’s Chief U.S. Market Strategist, Dave Sekera, wrote in a recent equity market outlook.
Market Overvalued
Based on Morningstar’s equity research, the U.S. market appears 5% overvalued with core and growth stocks trading at the highest premium to fair value. Large- and mid-cap stocks in Morningstar’s coverage universe appear mostly overvalued while opportunities exist in small-caps.
U.S. Market Valuations:
Price/Fair Value Ratio as of 12/23/2021
Source: Morningstar. Price/Fair Value Ratio represents stock price relative to Morningstar’s fair value estimate. Dark green shading represents significantly undervalued, light green shading represents undervalued, red shading represents significantly overvalued, yellow shading represents overvalued, and no shading represents fairly valued. For illustrative purposes only. Past performance is no guarantee of future results.
Opportunities Among Wide Moat Stocks
While on the whole U.S. wide moat companies are fairly valued, they are currently more attractively priced than narrow moat companies (14% overvalued) and companies without a moat (5% overvalued). And within the U.S. wide moat universe, Morningstar sees opportunities in both value and growth segments.
Seek to Be Opportunistic with Wide Moat Stocks:
Price/Fair Value Ratio as of 12/23/2021
Source: Morningstar. Price/Fair Value Ratio represents stock price relative to Morningstar’s fair value estimate. Dark green shading represents significantly undervalued, light green shading represents undervalued, red shading represents significantly overvalued, yellow shading represents overvalued, and no shading represents fairly valued. For illustrative purposes only. Past performance is no guarantee of future results.
VanEck Morningstar Wide Moat ETF (MOAT) Well Positioned for 2022
MOAT seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Morningstar® Wide Moat Focus IndexSM, which leverages Morningstar’s equity research to systematically target the most attractively priced U.S. wide moat companies on a quarterly basis. The Index currently features a significant market overweight to value stocks, notable underweight to core stocks and slight underweight to growth stocks.
Dave Sekera notes in his research, “We don't try to time the market, but with equities ending 2021 at all-time highs and numerous headwinds in 2022, we wouldn't be surprised to see a market correction. Generally, the stocks of companies with wide moats hold their value better to the downside during any potential market corrections. In addition, if inflation is persistent, these companies typically exhibit strong pricing power to quickly pass-through cost increases to maintain margins.”
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Important Disclosures
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. 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 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.
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.
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.
An investment in the VanEck Morningstar Wide Moat ETF (MOAT®) may be subject to risks which include, among others, investing in equity securities, consumer discretionary, consumer staples, financials, health care, industrials and information technology sectors, medium-capitalization companies, market, operational, 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 concentration risks, which may make these investments volatile in price or difficult to trade. 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 a Fund's investment objective, risks, charges and expenses carefully before investing. To obtain a prospectus and summary prospectus for VanEck Funds and VanEck ETFs, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus for VanEck Funds and VanEck ETFs carefully before investing.
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Important Disclosures
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. 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 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.
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.
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.
An investment in the VanEck Morningstar Wide Moat ETF (MOAT®) may be subject to risks which include, among others, investing in equity securities, consumer discretionary, consumer staples, financials, health care, industrials and information technology sectors, medium-capitalization companies, market, operational, 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 concentration risks, which may make these investments volatile in price or difficult to trade. 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 a Fund's investment objective, risks, charges and expenses carefully before investing. To obtain a prospectus and summary prospectus for VanEck Funds and VanEck ETFs, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus for VanEck Funds and VanEck ETFs carefully before investing.