On a standalone basis, wide moat investing can be rewarding over the long term. The same is true of environmental, social, and governance (ESG) investing. Thanks to the VanEck Morningstar ESG Moat ETF (CBOE: MOTE), market participants can combine those two concepts under the umbrella of a single exchange traded fund.
With plenty of wide moat stocks currently trading at attractive multiples and the same being true of some ESG names, MOTE could be a compelling consideration for patient investors.
Additionally, MOTE’s DNA is noteworthy. The ETF follows the Morningstar US Sustainability Moat Focus Index, which is the ESG answer to the storied Morningstar US Sustainability Moat Focus Index. How that benchmark goes about its business is relevant to investors considering MOTE.
“Morningstar® US Sustainability Moat Focus IndexSM combines Morningstar’s recognized equity research process of identifying companies with long-lasting competitive advantages and attractive valuations with Sustainalytics’ industry-leading ESG research. The Index focuses on three proprietary ESG criteria when selecting companies for inclusion: ESG Risk, Controversy, and Carbon Risk. Here we will explore the Sustainalytics Carbon Risk Score,” according to VanEck research.
MOTE’s 61 components are screened for ESG risks, and that can include a variety of factors. That is to say that ESG is more broad than carbon-focused investing, but decarbonization efforts are integral in the larger climate change conversation. That’s a sign MOTE has some environmental and sustainability credibility.
The Carbon Exposure Score and Carbon Risk Rating are used by Sustainalytics in assessing a company’s potential vulnerabilities and financial exposure to carbon-related issues. As VanEck notes, the Carbon Exposure Score is deep, including evaluation of a firm’s manageable carbon-related risk.
Not surprisingly, MOTE features low exposure to carbon-intensive sectors. The ETF allocates less than 5% of its combined weight to energy and materials stocks and has no exposure to the utilities sector. Technology and financial services stocks — groups that often score well in terms of carbon risk — combine for about 43.6% of the fund’s roster.
“As of September 30, 2022, VanEck Morningstar ESG Moat ETF (MOTE) Carbon Risk numerical score was 5.06, which equates to low risk. VanEck Morningstar ESG Moat ETF (MOTE) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Morningstar US Sustainability Moat Focus Index,” concluded VanEck. “With its unique combination of forward-looking equity research and ESG screening, the Morningstar US Sustainability Moat Focus Index offers investors a U.S. equity strategy that seeks to provide attractive risk-adjusted returns while mitigating ESG risks.”
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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.
