Between purely active and passive ETFs there is a gray area of funds tracking quantitative indices that codify techniques used by active managers in a rules-based benchmark.
One example is Van Eck Global recently partnering with Morningstar to launch the Market Vectors Morningstar Wide Moat ETF (NYSEArca: MOAT). [New Van Eck ETF Leverages Morningstar Research]
The fund is designed to track a basket of companies with strong competitive advantages in the marketplace.
“MOAT is an ETF that provides investors with exposure to 20 equally weighted, mostly large-cap domestic firms that have wide economic moats,” according to Morningstar analyst Robert Goldsborough. “The index uses Morningstar’s proprietary methodology to identify companies with long-term, distinct, and sustainable competitive advantages, or ‘economic moats,’ which allows the company to earn sustainable excess economic profits.”
The companies hold competitive advantages like high switching costs, cost advantage, intangible assets, and/or network effects.
“The index contains the 20 most discounted companies that Morningstar’s equity analysts deem to have wide moats, which means that it generally contains firms that have been beaten down,” Goldsborough added.
According to Morningstar data, the underlying Morningstar Wide Moat Focus Index, which is a rules-based equal-weighted index that tracks 20 of the most attractively priced companies with sustainable advantages, has historically outperformed the S&P 500, generating 15.3% from September 2002 through March 31, 2012, compared to 8.1% in the S&P 500.
Advisors or investors interested in a more in-depth analysis of the fund may want to listen in on the webcast “Why Moats Matter: Companies with Competitive Advantages.”
For more information on new product launches, visit our new ETFs category.
Max Chen contributed to this article.