By Brandon Rakszawki, Senior ETF Product Manager at VanEck Global
September was a strong month for the Morningstar® Wide Moat Focus IndexSM (“Moat Index”). It outperformed the S&P 500 Index by nearly two percent (3.79% vs. 1.87%, respectively), driven almost entirely by impressive stock selection.
Much of the positive return can be attributed to companies in the financial and information technology sectors. In particular, State Street Corp (STT) was the second best performing stock for the month and contributed to the strong performance of financials. Morningstar believes STT benefits from cost advantages in an industry where scale matters, as well as from high switching costs for clients that may wish to move custody to another bank. Information technology had several holdings with impressive returns, including Guidewire Software (GWRE) and Intel Corp. (INTC), which helped counterbalance Salesforce.com (CRM), September’s second worst-performing stock. GWRE provides software to the property and casualty insurance industry and has been trading close to Morningstar’s fair value estimate in recent weeks, up markedly from its deep discount to fair value earlier this year.
Semiconductor companies such as INTC, Microchip Technology (MCHP), KLA-Tencor Corp. (KLAC) and Applied Materials (AMAT) have seen a large amount of price fluctuation over the past few months amidst the U.S.-China trade war, but they appear to be trending upward amid positive sentiment around the negotiations. Morningstar raised its fair value estimate for KLAC from $128 per share to $140 due to its leading position in the industry and high anticipated revenue.
The materials and energy sector exposure in the Moat Index posted notable performance, but did not contribute significantly to index return due to their low relative weightings. The sole materials company, Compass Minerals (CMP), and oil services company Core Laboratories (CLB) both posted double-digit returns in September. CLB’s performance was particularly welcome in a month that saw its fair value downgraded from $67 per share to $59 by Morningstar.
Communication services was the only detracting sector, and its underperformance was modest. The sector’s performance was influenced most significantly by Facebook’s (FB) weak returns for the month.
Moat Index Outperformance Across Multiple Periods
As of 9/30/2019
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.
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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