By Brandon Rakszawski, Senior ETF Product Manager

The Morningstar Wide Moat Focus Index (the “Moat Index” or “Index”) underperformed the S&P 500® Index in June (1.15% vs. 2.33%, respectively). Despite the modest underperformance, the Index remains ahead of the S&P 500 Index by over 4.5% through this year’s halfway point (19.77% vs. 15.25%, respectively).

Biotech News Dominates Among June’s Leaders

We learned in early June that Biogen (BIIB) received FDA approval for their Alzheimer’s disease treatment, aducanumab. The news sent shares higher and Morningstar quickly raised its fair value estimate for BIIB shares from $350 to $401. This reflected an increased probability of FDA approval (from 40% to 100%) and an expected drug launch of 2024 to 2021, which in turn increased forecasted future cash flows for the biotech firm. It was not all sunshine and rainbows for Biogen in June as Morningstar subsequently lowered its fair value estimate from $401 to $391 per share following disappointing data in ophthalmology gene therapy and depression treatments. Nonetheless, the FDA approval further cemented Morningstar’s conviction around BIIB’s wide moat rating, owing in large part to Biogen’s leading position in Neurology. BIIB lead all Index components in June by a wide margin.

Several tech firms also posted strong returns in June. ServcieNow (NOW), Adobe (ADBE), Guidewire Software (GWRE), and Blackbaud (BLKB) were among the leaders from the sector.

Cyclicals Reset

Following a strong start to 2021, cyclical stocks generally pulled back in June. Financials were broadly represented in the list of companies posting negative returns within the Index in June. More on that in the Index review discussion below.

Beyond financials, two underperforming companies stood out in June: Compass Minerals (CMP) and John Wiley & Sons (JW/A).

Compass Minerals had enjoyed a slow but steady recovery from COVID-19 pandemic lows in early April 2020 to reach stock price levels in May 2021 not seen since late 2018. However, through June, CMP saw its share price sell off to a greater degree than other materials companies did. Despite this price action, Morningstar sees Compass’ wide moat rating as stable and has not adjusted its fair value estimate since a two dollar decrease from $80 to $78 per share in March of 2021. CMP’s cost-advantaged assets related to rock salt and sulfite of potash fertilizer continue to drive its advantage over competition, though Morningstar acknowledges the commodity-sensitive risks associated with investment in the company. At present, CMP trades at nearly a 25% discount to Morningstar’s fair value estimate.

John Wiley & Sons features an impressive portfolio of research and education assets and it has been a member of the Moat Index for the better part of the last three years. Following a stretch of impressive stock price performance, the company was scaled out of the Moat Index in March and June 2021. Despite its stock price pull back in June, which made it the second worst performing company in the Index, Wiley left at a notable premium to Morningstar’s fair value estimate.

June 2021 Morningstar® Wide Moat Focus IndexSM Review

In a reversal of the value rotation of 2020, the Moat Index saw its exposure to financials decrease and tech stocks increase as valuation opportunities began presenting themselves in some areas of the market where there hasn’t been much value to be had in recent years. Growth exposure increased and value decreased leaving growth, value and core style exposure nearly evenly distributed within the Index.

All told, outside of the decrease in financials exposure and increase in technology exposure there were no other dramatic shifts in the Index. View the full index review results here.

Index Additions & Increased Allocations
CompanyTickerPrice/Fair Value
Polaris Inc.PII0.73
ServiceNow Inc.NOW0.78
Facebook Inc.FB0.86
Tyler Technologies Inc.TYL0.87
Microsoft CorpMSFT0.91
Guidewire SoftwareGWRE0.91
Intercontinental ExchangeICE0.93
Thermo Fisher ScientificTMO0.94
Masco CorpMAS0.95

 

Index Deletions & Decreased Allocations
Failed Screen
CompanyTickerMoat RatingPrice/Fair ValueOther
Bank of America CorpBACx
Charles Schwab CorpSCHWx
John Wiley & Sons Inc.JW/Ax
Northrop Grumman CorpNOCx
Raytheon TechnologiesRTXx
The Bank of New YorkBKx
US BancorpUSBx
Yum! Brands Inc.YUMx

 

Source: Morningstar. Price/fair value data as of June 8, 2021. Past performance is no guarantee of future results. For illustrative purposes only.

VanEck Vectors Morningstar Wide ETF (MOAT) seeks to replicate as closely as possible, before fees and expenses the price and yield performance of the Morningstar Wide Moat Focus Index.

Originally published by VanEck, 7/9/21


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Price/Fair Value: ratio of a stock’s trading price to its fair value estimate.

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