Moat Investing Proving Its Mettle | ETF Trends

A variety of equity strategies are disappointing investors this year, prompting market participants to evaluate “less bad” as potential leadership groups when the market eventually rebounds.

One way to go on that front is wide moat stocks. Just look at the VanEck Morningstar Wide Moat ETF (MOAT), which is beating the S&P 500 by 420 basis points year-to-date, as of December 7. That puts the fund in position to snap a two-year losing streak against the S&P 500, but prior to that, it was on a four-year winning streak against the broader market gauge.

MOAT follows the Morningstar® Wide Moat Focus Index, which is designed to identify stocks with the alluring combination of wide moats and attractive valuations. The fund is perking up, as highlighted by a strong November showing for its benchmark.

“The Morningstar® Wide Moat Focus IndexSM (the ‘Moat Index’ or ‘Index’) returned 8.77% in November, leading the S&P 500 index by a little more than 300 basis points during the month (8.77% versus 5.59%, respectively). For the year, the Moat Index remains ahead of the S&P 500 by over 500 basis points year-to-date (-8.05% vs. -13.10%, respectively) as of 11/30/2022,” noted Coulter Regal, VanEck associate product manager.

Stock selection and sector attribution are among the reasons MOAT is outperforming the broader market this year. That’s saying something because the $6.5 billion fund allocates 31% of its weight to tech stocks — a sector that’s been a dud this year.

That underscores the fund’s stock selection advantages. Another interesting point is that MOAT is outperforming the broader market with no exposure to energy equities — this year’s best-performing sector.

“Outperformance for the Moat Index throughout 2022 is attributable to both strong stock selection and favorable sector allocations relative to the S&P 500. However, in November, it was almost entirely stock selection driving the positive alpha, with overweight’s in Etsy Inc. (ETSY), Boeing Co. (BA), and Lam Research Co. (LRCX) as top contributors to performance for the month,” added Regal.

That’s testament to MOAT’s depth, although it holds just 48 stocks, because those three names hail from three different sectors — consumer discretionary, industrial, and technology. Speaking of MOAT’s sector exposures, the ETF devotes more than 45% of its weight to the industrial, healthcare, and financial services sectors — each of which can be credibly described as value destinations.

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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.