After three straight negative months, U.S. equity markets snapped back in November with blockbuster gains that offset the overall declines from August through October. The S&P 500 gained 9% in November, which marks its best month in nearly a year and a half, and its sixth-best monthly return in the last 20 years. Positive remarks by Federal Reserve members, inflation that continues to cool, and an economy that remains stronger than expected all supported the rally which moved the S&P 500 within about 5% of its January 2022 all-time high.
The Morningstar Wide Moat Focus Index (the “Moat Index”) gained 9.92% in November, outpacing the benchmark S&P 500 Index by about 80 basis points during the month. The outperformance was the result of strong stock selection with several previously beaten-down names from the industrial and financial sectors as leading contributors. More on these names later. Year to date, the Moat Index continues to lead the S&P 500 by nearly 200 basis points as of the end of the month.
Smaller-cap companies breathed signs of life this month after having underperformed relative to their large-cap peers for much of the year. The Morningstar US Small-Mid Cap Moat Focus Index (the “SMID Moat Index”) returned 10.01% in November, outpacing both the broad small- and mid-cap benchmarks by about 150 basis points each. Notably, the SMID Moat Index also outperformed the S&P 500 as well as its larger-cap sister Moat Index during the month. However, year to date, small- and mid-caps still remain significant laggards versus large-caps which have been the dominate players in equity markets this year.
U.S. Equities Rebound in End of Year Rally
As of 11/30/2023
Source: Morningstar. As of 11/30/2023. Past performance is no guarantee of future results. Index performance is not representative of fund performance. It is not possible to invest directly in an index. Fund performance current to the most recent month end is available by visiting vaneck.com or by calling 800.826.2333.
Moat Investing: A Disciplined Long-Term Approach
November’s banner rally, which offset losses from the previous three months and propelled equites back toward a 2023 high, underscores the importance of remaining disciplined as an investor. Maintaining commitment to a well-defined and proven strategy can help reduce temptation to react emotionally during short-term market fluctuations. Morningstar’s moat investing philosophy, centering on high-quality companies with attractive prices, has demonstrated its mettle across numerous market environments. The Moat Index, which has a more than 15-year track record, may not beat the market every month, but its history of outperformance over longer holding periods is clear.
One of the key ingredients to finding success as it relates to moat investing, is time. It’s important to recognize that the moat philosophy is best viewed as a long-term approach. The full potential of the valuation opportunities identified by the strategy may not materialize in just one month. Patience is crucial for investors, as it allows time for the market to recognize the intrinsic value of these high-quality companies with fortified business models.
Percent of Time the Moat Index Outperforms the S&P 500 Index
March 2007 – November 2023
| Total Periods | 201 | 190 | 166 | 142 | 82 |
| Total Outperformed | 101 | 124 | 141 | 135 | 82 |
| Batting Average | 50% | 65% | 85% | 95% | 100% |
Source: Morningstar. As of 11/30/2023. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein. Batting Average is measured by dividing the number of periods a portfolio or investment strategy outperforms a benchmark by the total number of periods.
Moat Index Top Contributors and Detractors
The outperformance of the Moat Index was once again driven largely by stock selection as opposed to an overweight (or underweight) to any particular sector. Several previously beaten-down names, which were detractors to performance in preceding months, rebounded in November to lead as top contributors to performance for the month.
TransUnion (TRU)
TransUnion, highlighted in last month’s blog as the leading detractor, saw its share price punished in October following disappointing third-quarter earnings and outlook. At the time, Morningstar equity analyst Rajiv Bhatia believed the sharp decline was an overreaction by the market and viewed TRU an attractive valuation opportunity. That view quickly proved correct with shares of TRU rebounding 34% in November as market participants came to the same realization. Today shares of TRU are trading around $60, representing about a 30% discount to Morningstar’s current $91 fair value estimate.
U.S. Bancorp (USB)
U.S. Bancorp is another beaten-down name that finds itself as a top performer in November. Early in the year, the banking crisis that saw the collapse of Silicon Valley Bank, and others, led to indiscriminate selling pressure on share prices of all regional banks. Wide moat U.S. Bancorp did not escape the negative sentiment, seeing its share price decline over 20% in March of this year. USB saw its position in the Moat Index increase to a full weight that quarter due to attractive valuation. This month shares of the company rallied over 19% making it a top contributor to performance in November. USB shares are currently trading at about a 25% discount to Morningstar’s $52 fair value estimate.
Top Contributors and Detractors from Moat Index – November 2023
| Leading Contributors | ||||
| Company | Ticker | Sector | Avg. Weight (%) | Contribution (%) |
| Salesforce Inc. | CRM | Information Technology | 2.55 | 0.65 |
| Equifax Inc. | EFX | Industrials | 2.17 | 0.62 |
| Agilent Technologies Inc. | A | Health Care | 2.40 | 0.57 |
| TransUnion | TRU | Industrials | 1.53 | 0.52 |
| U.S. Bancorp | USB | Financials | 2.55 | 0.50 |
| Leading Detractors | ||||
| Company | Ticker | Sector | Avg. Weight (%) | Contribution (%) |
| Veeva Systems Inc | VEEV | Health Care | 2.51 | -0.24 |
| Corteva Inc | CTVA | Materials | 2.49 | -0.14 |
| Fortinet Inc | FTNT | Information Technology | 1.28 | -0.10 |
| Gilead Sciences Inc | GILD | Health Care | 2.86 | -0.07 |
| Polaris Inc | PII | Consumer Discretionary | 1.00 | -0.04 |
Source: Morningstar, November 2023. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein.
SMID Moat Index Top Contributors and Detractors
The smaller-cap SMID Moat Index also saw much of its outperformance this month come from stock selection rather than sector allocation effect. Notably though, two sectors do stand out in terms of representation within top contributors for the month. From consumer discretionary, both Williams-Sonoma (WSM) and DoorDash (DASH) find themselves as top performers with shares of each company increasing roughly 25% in November. Healthcare was also well represented with DaVita (DVA) and Agilent Technologies (A) both posting impressive 20%+ returns during the month.
Names detracting from the SMID Moat Index performance during the month include payroll and human capital management software company Paycom Software (PAYC), life sciences cloud-based software solutions company Veeva Systems (VEEV), and auto-parts supplier BorgWarner (BWA).
Top Contributors and Detractors from SMID Moat Index – November 2023
| Leading Contributors | ||||
| Company | Ticker | Sector | Avg. Weight (%) | Contribution (%) |
| Williams-Sonoma Inc | WSM | Consumer Discretionary | 1.74 | 0.43 |
| DoorDash Inc | DASH | Consumer Discretionary | 1.47 | 0.37 |
| DaVita Inc | DVA | Health Care | 1.17 | 0.37 |
| Equifax Inc | EFX | Industrials | 1.18 | 0.34 |
| Agilent Technologies Inc | A | Health Care | 1.31 | 0.31 |
| Leading Detractors | ||||
| Company | Ticker | Sector | Avg. Weight (%) | Contribution (%) |
| Paycom Software Inc | PAYC | Industrials | 0.58 | -0.15 |
| Veeva Systems Inc | VEEV | Health Care | 1.37 | -0.13 |
| BorgWarner Inc | BWA | Consumer Discretionary | 1.26 | -0.11 |
| HF Sinclair Corp | DINO | Energy | 1.64 | -0.07 |
| Aptiv PLC | APTV | Consumer Discretionary | 1.30 | -0.06 |
Source: Morningstar, November 2023. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein.
Accessing Moat Stocks
VanEck Morningstar Wide ETF (MOAT) seeks to replicate as closely as possible, before fees and expenses the price and yield performance of the Morningstar Wide Moat Focus Index.
VanEck Morningstar SMID Moat ETF (SMOT) seeks to track as closely as possible, before fees and expenses, the price and yield performance of the Morningstar US Small-Mid Cap Moat Focus Index.
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Originally published 11 December 2023.
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Important Disclosures
Source for all data unless otherwise noted: Morningstar.
Fair value estimate: the Morningstar analyst’s estimate of what a stock is worth. Price/Fair Value: ratio of a stock’s trading price to its fair value estimate.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
Holdings will vary for the MOAT ETF and its corresponding Index. For a complete list of holdings in the ETF, please click here: https://www.vaneck.com/etf/equity/moat/holdings/.
Holdings will vary for the SMOT ETF and its corresponding Index. For a complete list of holdings in the ETF, please click here: https://www.vaneck.com/etf/equity/smot/holdings/.
An investor cannot invest directly in an index. Returns reflect past performance and do not guarantee future results. Results reflect the reinvestment of dividends and capital gains, if any. Certain indices may take into account withholding taxes. Index returns do not represent Fund returns. The Index does not charge management fees or brokerage expenses, nor does the Index lend securities, and no revenues from securities lending were added to the performance shown.
The Morningstar® Wide Moat Focus IndexSM and Morningstar® US Small-Mid Cap Moat Focus IndexSM were created and are maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Morningstar Wide Moat ETF or the VanEck Morningstar SMID Moat ETF and bears no liability with respect to the ETFs or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar® Wide Moat Focus IndexSM and Morningstar® US Small-Mid Cap Moat Focus IndexSM are service marks of Morningstar, Inc.
Effective June 20, 2016, Morningstar implemented several changes to the Morningstar Wide Moat Focus Index construction rules. Among other changes, the index increased its constituent count from 20 stocks to at least 40 stocks and modified its rebalance and reconstitution methodology. These changes may result in more diversified exposure, lower turnover, and longer holding periods for index constituents than under the rules in effect prior to this date. Past performance is no guarantee of future results.
The Morningstar moat-driven indexes represent various regional exposures and consist of companies identified as having sustainable, competitive advantages and whose stocks are attractively priced, according to Morningstar.
The Morningstar® Wide Moat Focus IndexSM Intended to track the overall performance of attractively priced companies with sustainable competitive advantages according to Morningstar’s equity research team.
The Morningstar® US Small-Mid Cap Moat Focus IndexSM is intended to track the overall performance of small- and mid-cap companies with sustainable competitive advantages and attractive valuations according to Morningstar’s equity research team.
The Morningstar® US Small-Mid Cap IndexSM is a broad based index intended to track the overall performance of U.S. small- and mid-cap companies according to Morningstar.
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An investment in the VanEck Morningstar Wide Moat ETF (MOAT®) may be subject to risks which include, among others, risks related to investing in equity securities, consumer discretionary sector, health care sector, industrials sector, information technology sector, financials sector, medium-capitalization companies, market, operational, high portfolio turnover, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversification and index-related concentration risks, all of which may adversely affect the Fund. Medium-capitalization companies may be subject to elevated risks.
An investment in the VanEck Morningstar SMID Moat ETF (SMOT®) may be subject to risks which include, among others, risks related to investing in equity securities, small- and medium-capitalization companies, consumer discretionary sector, financials sector, health care sector, industrials sector, information technology sector, market, operational, high portfolio turnover, index tracking, authorized participant concentration, new fund, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, and index-related concentration risks, all of which may adversely affect the Fund. Small- and medium-capitalization companies may be subject to elevated risks.
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