By Brandon Rakszawski, Director of Product Management, and Kendall Duncan, Product Analyst
The Morningstar® US Small-Mid Cap Moat Focus IndexSM (the “SMID Moat Index”) underwent its quarterly review on September 15, 2023 in which it systematically targets attractively priced, high quality small- and mid-cap U.S. companies. Below are some key takeaways from the September review and how the SMID Moat Index is positioned as we enter the last quarter of the year. The full review results are available here: 3Q2023 Index Reconstitution
Key Takeaways:
- Technology Companies Lead in Removals
The Index removed a notable number of technology companies during this quarter’s review. In all, seven technology names were removed, including Crane NXT, Blackbaud, Guidewire Software, Monolithic Power Systems, Verisign, and WorkDay. Almost all of these removals were due to the Index’s valuation screen, signaling that this segment of the U.S. market may be overvalued.
- Value Exposure Decreased in Favor of Growth
Despite the SMID Moat Index’s removal of several technology companies, the style exposure within the Index still shifted slightly toward growth this quarter. The shift came primarily at the cost value which saw a reduction in exposure this quarter. Total growth exposure for the Index now stands at about 26%, but remains a minor underweight of about 3% relative to the broad SMID-cap universe1.
- Consumer Discretionary and Health Care Additions
Companies belonging to the consumer discretionary and health care sectors were notable additions this quarter with twelve names between the two sectors added to the Index. DoorDash, Harley-Davidson and Wynn Resorts, among others accounted for the consumer discretionary additions, while health care saw names added like Veeva Systems, DaVita, and Agilent Technologies cycle. Both sectors are overweights in the SMID Moat Index relative to the broad SMID-cap universe1.
Access Quality Companies and Attractive Valuations
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 27 September 2023.
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