According to Morningstar’s indexing methodology, there are five sources of economic moats: Intangible assets that include brand recognition to charge premium prices. Switching costs that make it too expensive to stop using a company’s products. Network effect that occurs when the value of a company’s service increases as more use the service. A cost advantage helps companies undercut competitors on pricing while earning similar margins. Lastly, efficient scale associated with a competitive advantage in a niche market.

By focusing on companies with wide economic moats, MOAT incorporates firms that stay profitable for a long time through competitive advantages that protect profits.

Morningstar raised railroad operator CSX Corp (NYSE: CSX) fair value estimate in late January to equally reflect better pricing, according to VanEck. CSX enjoyed a 29.1% surge in January on the heels of improved coal market conditions and outlook, along with a boost from speculation that industry veteran Hunter Harrison might take over CSX management duties.

MOAT was also supported by outperformance in consumer discretionary and information technology companies, led by Twenty-First Century Fox (NasdaqGS: FOXA) and (NYSE: CRM). The ETF includes a 21.4% tilt toward consumer discretionary and 10.0% to information tech.

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