Investing in companies with a sustainable competitive advantage and trading at attractive prices can be one way to manage market turbulence.
In the upcoming webcast, Morningstar’s Guide to Moat Investing, Andrew Lane, Economic Moat Committee, Morningstar Indexes; and Brandon Rakszawski, Director, ETF Product Development, VanEck, will outline how a timeless investment philosophy, driven by Morningstar’s forward-looking equity research, focusing on companies with a wide economic moat.
VanEck offers a line of ETF strategies that try to capture companies that exhibit wide economic moats. The VanEck Vectors Morningstar Wide Moat ETF (NYSEArca: MOAT) implements Morningstar’s economic moat rating to identify strong companies with wide economic moats. The VanEck Vectors Morningstar International Moat ETF (NYSEArca: MOTI) takes a similar moat rating methodology to select overseas component holdings. Additionally, the VanEck Vectors Morningstar Global Wide Moat ETF (GOAT) implements its economic moat indexing methodology with an all-encompassing global exposure.
The economic moat investment strategy can help investors achieve improved long-term, risk-adjusted return by focusing on quality companies that help limit downside risk while still participating in potential gains.
The Morningstar Economic Moat Rating methodology assigns an economic moat rating to companies, but it also focuses on those that show attractive valuations or are more attractively priced. Beyond factor effects, stock selection is also an important driver as the underlying indices combine both quality and valuation to help investors potentially generate improved returns.
According to Morningstar’s indexing methodology, there are five sources of economic moats: Intangible assets that include brand recognition to charge premium prices. Second, switching costs that make it too expensive to stop using a company’s products. Third, network effects that occur when the value of a company’s service increases as more use the service. Fourth, a cost advantage that helps companies undercut competitors on pricing while earning similar margins. Finally, an efficient scale associated with a competitive advantage in a niche market.
An investor would end up with the most attractively priced stocks among the companies that have garnered the “wide moat” rating.
Financial advisors who are interested in learning more about economic moats can register for the Tuesday, September 15 webcast here.