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Video Transcript

Andrew Lane: Within the Morningstar equity research department, we keep a close eye on the performance of the Wide Moat Focus Index, a collection of the most undervalued U.S. wide-moat-rated stocks under our coverage. Typically, the strategy holds roughly 50 stocks, with the reconstitution and rebalancing process taking place four times per year. The index is important to us, as its construction represents the cross-section of our differentiated economic moat methodology and our rigorous bottom-up valuation work.

In the first quarter of 2019, the Wide Moat Focus Index generated a 13.4% total return, but modestly underperformed its benchmark, the Morningstar US Market Index, by 67 basis points. This comes on the heels of a very strong performance in 2018, during which the strategy outperformed its benchmark by 431 basis points. Since the index's February of 2007 inception date, it has beaten its benchmark by 358 basis points annually, an impressive long-term track record.

Since the strategy's inception, stock selection, rather than sector positioning, has driven the lion's share of excess returns. Along these lines, in the first quarter, a favorable stock selection effect was more than offset by a negative allocation effect from sector positioning. Unfavorable sector positioning proved to be a headwind across most sectors, with an overweight exposure to healthcare the most significant. Regarding stock selection, the impressive performance of the index's consumer defensive holdings stood out as technology and basic materials names also performed well. In terms of total contribution to the portfolio, the top three performers were General Mills, KLA-Tencor, and Philip Morris.

The index continues to hold a number of materially undervalued wide-moat stocks, and we're hopeful that the strategy's positive momentum will be restored in the second quarter and beyond.


IMPORTANT DISCLOSURE

Please note that Van Eck Securities Corporation (an affiliated broker-dealer of Van Eck Associates Corporation) may offer investments products that invest in the asset class(es) discussed in this video.

The views and opinions expressed are those of the speaker and are current as of the video’s posting date. Video commentaries are general in nature and should not be construed as investment 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. Any discussion of specific securities mentioned in the video is neither an offer to sell nor a solicitation to buy these securities

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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.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.