Sector Tilts Help This Smart Beta ETF Outperform

MOAT includes a hefty 33.2% tilt toward the health care segment, followed by consumer discretionary 22.4%, industrials 12.3%, information technology 10.7%, financials 10.4%, materials 5.0%, consumer staples 3.6% and real estate 2.7%. Compared to other major indices, the portfolio has not been weighed down by energy, which have largely been underperforming due to the oil weakness.

“This was driven by the benefits of the index’s overweight position in the healthcare sector and underweight position in the energy sector. However, healthcare stock selection actually weighed on portfolio returns, although no single healthcare holding stands out as a major detractor. This was largely offset by strong stock selection from the technology sector, as Guidewire Software (GWRE) and Cerner (CERN) have delivered excellent results,” Morningstar added.

MOAT includes a 2.9% position in Guidewire Software and 1.5% in Cerner Corp.

Furthermore, the MOAT methodology currently leans toward growth names rather than value stocks, which may also have helped contribute to recent gains in a growth-oriented bull rally this year.

For more information on alternative index-based strategies, visit our smart beta category.