A smart beta exchange traded fund that focuses on quality companies with a competitive advantage may serve as a stable long-term play, and its weighting methodology also helped provide some short-term surprises as well.
For example, the VanEck Vectors Morningstar Wide Moat ETF (NYSEArca: MOAT), which implements Morningstar’s economic moat rating to identify strong companies with wide economic moats, and can help investors achieve improved long-term, risk-adjusted return. From late 2002 through the end of the second quarter, the strategy has delivered an average 4.7 percentage points of annual outperformance relative to the benchmark Morningstar U.S. Market Index.
However, this wide moat narrative was largely pushed to the side over the second quarter as the specific sector tilts and targeted company plays helped the funds outperform.
“Through the end of the second quarter, the index outpaced its benchmark by nearly 5 percentage points. Although stock selection has historically driven the lion’s share of excess returns, the narrative was different in the second quarter. Instead, sector allocation positioning accounted for 71% of excess returns,” according to a Morningstar report.