Amid fears that Monday, Aug. 5 was shaping up to be another version of “Black Monday” in October 1987, the S&P 500’s nearly 3% drop to start this week wasn’t nearly as bad as it could have been. Still, that index is almost in correction territory. The Nasdaq-100 Index (NDX) is already there.
With that in mind, defensive stocks and sectors could become points of emphasis for asset allocators. That scenario could be amplified because some experts suspect that recent weakness in previously beloved growth stocks could be a harbinger of extended weakness for stocks. Time will tell if that thesis is accurate. But investors can prepare and play defense with the VanEck Morningstar Wide Moat ETF (MOAT).
One day doesn’t make a trend, but on Monday, the VanEck fund performed noticeably less poorly than the broader market. That might not be surprising, because while MOAT doesn’t explicitly seek to tap into the low volatility factor, it has some defensive positioning. And it has been significantly less volatile the S&P 500 over the past several weeks.
MOAT Holds Sturdy Defensive Stocks
Knowing that MOAT offers investors some defensive properties is great. Knowing how that positioning is sourced is even better. Obviously, the source is the ETF’s roster, which includes an almost 21% allocation to the healthcare sector. One of the defensive stocks from that group with wide moat credentials is Zimmer Biomet (ZBH), which recently underwent a leadership change.
“CEO Ivan Tornos must continue progress on Rosa robot placements, related consumable product pull-through, and expansion of the firm’s digital portfolio. Additionally, we anticipate the firm will flex its advantage in key areas, including extremities, trauma, and collaborations that involve sensor and digital technologies to improve surgical workflow,” noted Morningstar analyst Debbie Wang.
Pfizer (PFE) is another example of a MOAT healthcare holding that could bolster the ETF’s defensive posture if market turbulence extends over the course of the second half of 2024. The company’s scale and pipeline can provide a buffer against the loss of patent protection on a single drug.
“Following the merger with Wyeth several years ago, Pfizer has a much stronger position in the vaccine industry with pneumococcal vaccine Prevnar. Vaccines tend to be more resistant to generic competition because of their manufacturing complexity and relatively lower prices,” observed Morningstar’s Damien Conover.
Consumer staples, MOAT’s fourth-largest sector exposure at 14.71%, are often the epitome of defensive stocks. MOAT member firm Kenvue (KVUE) also made Morningstar’s list of the top defensive stocks to buy.
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