Market Vectors Wide Moat ETF (NYSEArca: MOAT) has done a decent job of gathering assets during its first year but lagged the S&P 500 by a slight margin. The ETF’s tracking benchmark incorporates investing principles popularized by Warren Buffett.
The fund has attracted $184 million to place fourth on the list of most-successful U.S. ETFs launched over the past 12 months. The ETF marked its one-year anniversary this week.
MOAT is managed by Van Eck’s Market Vectors unit and tracks a benchmark designed by investment researcher Morningstar.
The fund is a good example of index-based ETFs that attempt to incorporate active-manager strategies in rules-based benchmarks. MOAT charges an expense ratio of 0.49%. [ETF Targets Companies with Competitive Advantage]
The ETF has posted a total return of 15.8% for the trailing year, versus 17.7% for the S&P 500. It is classified as a large-blend fund.
Morningstar says the index uses the firm’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, as measured by the return on invested capital relative to the company’s cost of capital.
Next page: Buffett’s approach and MOAT
“The result of Morningstar’s analysis is an index comprised of high-quality stocks with the potential for long-term success,” said Brandon Rakszawski, product manager at Market Vectors ETFs.
“It’s a simple idea – take part in the growth of attractively priced companies with the potential to outperform due to structural competitive advantages – but the true value comes in the quality of the underlying research,” Rakszawski added. “With MOAT, a liquid, transparent ETF, investors gain access to the companies that Morningstar’s equity analyst team believes to be best-positioned based on the moat criteria.”
Warren Buffett is known for his philosophy of investing in companies with wide economic moats.
MOAT’s index selects 20 stocks and gives each one an equal weighting at 5% of the portfolio.
“Examples of competitive advantage include high switching costs, cost advantage, intangible assets, and/or network effects,” according to Morningstar. “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.”
The index has been more volatile than the S&P 500 in recent years due in part to its concentration and value tilt.
From September 2002 until March 31, 2012, the index strongly outperformed the S&P 500, returning 15.3% compared with the broader benchmark’s 8.1%, according to Morningstar.
ELEMENTS Morningstar Wide Moat Focus ETN (NYSEArca: WMW) is an exchange traded note that follows the same index. It is smaller than MOAT, with assets of $21.3 million.
Market Vectors Wide Moat ETF
