In the face of ongoing market turbulence, sound companies with a sustainable competitive advantage and attractive valuations can provide investors with core stability.
In the upcoming webcast, How to Stabilize Your Core Portfolio, Brandon Rakszawski, product manager at VanEck, and Andrew Lane, strategist at Morningstar Indexes, will explain how a focus on companies with a wide economic moat, driven by Morningstar’s forward-looking equity research, could help financial advisors bolster their clients’ core portfolio.
VanEck offers a line of ETF strategies that try to capture companies that exhibit wide economic moats. The VanEck Morningstar Wide Moat ETF (NYSEArca: MOAT) implements Morningstar’s economic moat rating to identify strong companies with wide economic moats. The VanEck Morningstar International Moat ETF (NYSEArca: MOTI) takes a similar moat rating methodology to select overseas component holdings. Additionally, the VanEck Morningstar Global Wide Moat ETF (MOTG) implements its economic moat indexing methodology with an all-encompassing global exposure.
In addition, the VanEck Morningstar SMID Moat ETF (SMOT) is slated to launch on October 6.
The economic moat investment strategy can help investors achieve improved long-term, risk-adjusted returns by focusing on quality companies that help limit downside risk while still participating in potential gains.
“Moat investing is based on a simple concept: invest in companies with sustainable competitive advantages. Morningstar builds on this philosophy by seeking out moat stocks trading at attractive valuations relative to their equity research team’s forward-looking estimate of fair value. This approach has stood the test of time,” according to VanEck.
The Morningstar Economic Moat Rating methodology assigns an economic moat rating to companies, but it also focuses on those that show attractive valuations or are more attractively priced. Beyond factor effects, stock selection is also an important driver as the underlying indices combine both quality and valuation to help investors potentially generate improved returns.
According to Morningstar’s indexing methodology, there are five sources of economic moats:
- Intangible assets that include brand recognition to charge premium prices
- Switching costs that make it too expensive to stop using a company’s products
- Network effects that occur when the value of a company’s service increases as more use the service
- A cost advantage that helps companies undercut competitors on pricing while earning similar margins
- An efficient scale associated with a competitive advantage in a niche market
An investor would end up with the most attractively priced stocks among the companies that have garnered the “wide moat” rating.
Financial advisors who are interested in learning more about the wide economic moat strategy can register for the Thursday, September 29 webcast here.