By Brandon Rakszawski, Senior ETF Product Manager for VanEck Global
October was anything but scary for the Morningstar® Wide Moat Focus IndexSM (“Moat Index”). Its outperformance of the S&P 500 Index added to its strong 2019 relative performance and continued what has been an impressive several years for the Moat Index.
Outperformance Across the Board
Trailing Return (%) as of 10/31/2019
| 1 Mo | YTD | 1 Yr | 3 Yr | 5 Yr | |
|---|---|---|---|---|---|
| Moat Index | 4.17 | 27.41 | 21.34 | 18.41 | 12.90 |
| S&P 500 Index | 2.17 | 23.16 | 14.33 | 14.91 | 10.78 |
| Morningstar US Fund Large Blend Category Average | 1.79 | 21.07 | 12.43 | 13.12 | 8.66 |
Source: Morningstar. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. For fund performance current to the most recent month-end, visit vaneck.com.
Strong Dose of Health Care Keeps Moat Index Alive and Well
The top three Moat Index performers in October were health care companies. By far the strongest of the bunch was Biogen (BIIB), whose stock price popped following the surprise announcement of the biotech firm’s intention to proceed with FDA submission of the Alzheimer drug aducanumab. Discontinuation of trials of the same drug in March caused a sell-off in Biogen, and it’s safe to say the news was welcomed by the market as Biogen posted a return of 28.3% for the month. On October 22, 2019, Morningstar raised its fair value estimate by $30 to $383, signaling its belief that the stock remains attractively priced despite its recent performance.
Information Technology Moat Stocks Chipping In
The information technology sector was the second leading contributor to Moat Index performance in October despite its underweight relative to the S&P 500 Index. Strong stock selection within the sector helped elevate its profile within the index during the month. Intel (INTC) led within the sector after issuing third quarter results that were well ahead of its guidance, raising the company’s stock to levels not seen since April of this year. Guidewire Software (GWRE) extended its strong performance into October after reporting strong fourth quarter results in September and despite weak guidance for the current quarter. GWRE has traded near or slightly above Morningstar’s fair value estimate throughout October.
Moat Index: A Few Tricks to Go with Mostly Treats
All told, over 70% of Moat Index constituents posted positive returns in October. There were, however, several detractors worth noting. Widely recognized consumer discretionary companies, Nike (NKE) and McDonald’s (MCD), both disappointed. Nike shares began to fall after its CEO transition announcement. Morningstar does not expect this transition to impact its wide moat rating or fair value estimate. McDonald’s fell following disappointing U.S. sales figures reported with its quarterly earnings results. Morningstar maintained its fair value estimate despite the results. It has stood at $215 per share since July of this year.
Energy was the sole detracting sector in the Moat Index with both of its stocks posting negative returns. However, its low absolute weighting muted its impact for the month.
Important Disclosures
The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. 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. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
This commentary is not intended as a recommendation to buy or to sell any of the sectors or securities mentioned herein. 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/
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.
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.
The Morningstar® Wide Moat Focus IndexSM was created and is maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Vectors Morningstar Wide Moat ETF and bears no liability with respect to that ETF or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar® Wide Moat Focus IndexSM is a service mark of Morningstar, Inc
The Morningstar® Wide Moat Focus IndexSM consists of U.S. companies identified as having sustainable, competitive advantages and whose stocks are attractively priced, according to Morningstar.
S&P 500® Index: consists of 500 widely held common stocks covering the leading industries of the U.S. economy.
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.
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An investment in the VanEck Vectors Morningstar Wide Moat ETF (MOAT®) may be subject to risks which include, among others, investing in the health care, consumer discretionary, industrials, financial services sectors, medium-capitalization companies, equity securities, market, operational, 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-diversified, and concentration risks, which may make these investments volatile in price or difficult to trade. Medium-capitalization companies may be subject to elevated risks.
Fund shares are not individually redeemable and will be issued and redeemed at their net asset value (NAV) only through certain authorized broker-dealers in large, specified blocks of shares called “creation units” and otherwise can be bought and sold only through exchange trading. Shares may trade at a premium or discount to their NAV in the secondary market. You will incur brokerage expenses when trading Fund shares in the secondary market. Past performance is no guarantee of future results.
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