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Forward-Looking Investing

Moat Investing: Resilience, Not Reliance

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Written by: Brandon Rakszawski, Senior ETF Product Manager

The Morningstar® Wide Moat Focus IndexSM (MWMFTR, or “U.S. Moat Index”) displayed strength in October relative to U.S. large cap stocks as represented by the Morningstar® US Large Cap IndexSM. The October selloff across U.S. stocks, particularly pronounced in the tech sector, wiped out a significant portion of U.S. market gains thus far in 2018. Consumer staples and utilities stocks were the only U.S. large cap sectors to post positive returns in October.

The U.S. Moat Index displayed resilience, rather than reliance on tech, and finished ahead of U.S. large cap stocks in October and for the year-to-date period.

U.S. Moat Index Not Reliant on Tech

The U.S. Moat Index has managed to outpace U.S. large cap stocks thus far in 2018 despite a significant underweight to the information technology sector. The index has made up for this missing portion of total return with a variety of exposures in the portfolio. As the largest weighting, health care has naturally been the top contributor to index returns this year, but strong returns from communications services and consumer staples companies and modest exposure to energy has made up for the high momentum tech underweight. As tech firms continue to grapple with sector concerns, the U.S. Wide Moat Index may be well positioned to navigate potential turmoil ahead.

Related: Barrick-Randgold Sets Bar for Future Gold Mergers

Related: Kings of the Castles: Why Moat, Price, and Process Matter for Stock Selection

Resilience Was More than a Tech Story

The strength displayed by the U.S. Moat Index in October was not only a result of its underweighting to tech stocks. Strong stock selection within the communication services and consumer discretionary sectors provided a significant boost for the U.S. Moat Index, along with an advantageous overweight to consumer staples stocks and underweight to energy and industrials stocks.

Morningstar’s focus on attractive valuations is intended to result in underexposure to many of the high flying stocks that often come back to earth when markets as a whole sell off. The moat investing mantra remains: Invest in companies with sustainable competitive advantages at attractive valuations.

Now Offering Global Exposure to Morningstar’s Moat Investing Philosophy

With the recent launch of the VanEck Vectors Morningstar Global Wide Moat ETF (GOAT), VanEck now offers investors four ways to access Morningstar’s forward-looking equity research.

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