Get International ETF Exposure That Beats the S&P 500

It’s easy to have a home bias when it comes to investing in the capital markets. However, investors could be missing out on international opportunities that could be beating U.S. benchmarks like the S&P 500.

One ETF to consider for international exposure is the VanEck Vectors Morningstar International Moat ETF (MOTI). MOTI is an international spin-off of the VanEck Vectors Morningstar Wide Moat ETF (NYSEArca: MOAT).

“Investors who maintain a laser focus on the S&P 500, the Dow and other domestic equities are missing out on global stocks that could be performing better (and often are),” wrote Kate Stalter in Forbes. “As of October 7, the S&P 500 index notched a total year-to-date return of 5.54%.”

Of course, before diving into international assets, investors still have to exercise their due diligence. In particular, they have to know the risks and how they relate to the investors’ goals.

“The best way to allocate your portfolio is to make sure it’s aligned with your risk tolerance, time horizon and financial goals, and includes a diverse basket of securities,” the article added. “And remember: The top-performing investment, whether a regional index or a single stock, is often not domiciled in the U.S.”

The MOAT ETF uses the Morningstar Economic Moat Rating methodology, which assigns an economic moat rating to companies, but in addition, it focuses on companies exhibiting attractive valuations relative to its price. Furthermore, the indexing methodology uses five sources of economic moats:

  1. Intangible assets with brand recognition for premium pricing options
  2. Switching costs that make it too expensive to stop using a company’s products
  3. Network effect that occurs when the value of a company’s service increases as more use the service
  4. A cost advantage helps companies undercut competitors on pricing while earning similar margins
  5. Efficient scale associated with a competitive advantage in a niche market

MOAT Chart

MOTI seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Morningstar® Global ex-US Moat Focus Index (MGEUMFUN), which is intended to track the overall performance of attractively priced wide and narrow moat rated companies outside the U.S. with sustainable competitive advantages according to Morningstar’s equity research team.

MOTI Chart

MOTI offers investors:

  • Moat Companies: A focus on international companies Morningstar believes possess sustainable competitive advantages, or “moats”
  • Focus on Valuations: Index targets companies trading at attractive prices relative to Morningstar’s estimate of fair value
  • Morningstar’s Equity Research: Index fueled by Morningstar’s forward-looking, rigorous equity research process driven by over 100 analysts globally


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