Value stocks are captivating investors’ attention and assets this year, but some passive strategies are working better than others.
With the VanEck Vectors Morningstar Wide Moat ETF (MOAT), investors access a strategy that, while passive, refreshes the value proposition by emphasizing stock selection. MOAT follows the Morningstar Wide Moat Focus Index, which since inception in 2008, has beaten strategies focusing on individual factors, style combinations, sectors, and more.
MOAT’s benchmark “has outperformed the Morningstar US Market Index by more than 300 basis points annually through March 2021 since its inception on February 14, 2007 (13.30% vs. 9.86%, respectfully),” says Brandon Rakszawski, VanEck senior ETF product manager.
Living up to its performance reputation, MOAT is slightly outpacing the S&P 500 Value Index this year while beating the S&P 500 by 560 basis points, as of June 1.
The MOAT ETF’s Recipe
As Rakszawski points out, MOAT’s underlying index isn’t a multi-factor strategy, but it does feature companies with attractive valuations and deep competitive advantages. That combination underscores the point that MOAT is sector agnostic.
For example, MOAT has a 12.9% weight to financial services stocks, well below the 21.53% allocation to that sector in the S&P 500 Value Index. Conversely, MOAT has a combined 37.4% weight to healthcare and technology stocks, compared to 25.2% in the value index.
One way of looking at these sector divergences is that MOAT’s impressive long-term track record (the fund debuted in 2012) is more attributable to prescient stock selection than factor dependence.
“The overwhelming majority of the Index’s excess returns since inception cannot be explained by traditional factor risks. Instead, the risk factors contributing to excess returns are attributable to stock selection over value, momentum, quality, size, etc.,” adds Rakszawski.
MOAT as an alternative to traditional value strategies is also a case study in the importance of how stocks are weighted in ETFs. The VanEck ETF shares 34 holdings with the S&P 500 Value Index, but the overlap by weight between the two instruments is a tolerable 20%, according to ETF Research Center data.
MOAT’s stock selection plays in favor of long-term investors. Over the past three years, the fund is up 80.5%, as compared to 48.2% for the S&P 500 Value Index. MOAT’s annualized volatility for that period is also slightly less than that of the value benchmark.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
