Wide moat stocks aren’t often inexpensive, and some argue the same is true of companies that score well on the basis of environmental, social, and governance (ESG) standards.
However, there are avenues for accessing attractively wide moat names with ESG credibility. Enter the VanEck Morningstar ESG Moat ETF (CBOE:MOTE). MOTE, the ESG answer to the VanEck Vectors Morningstar Wide Moat ETF (MOAT), debuted last October.
Home to 58 stocks, MOTE follows the Morningstar US Sustainability Moat Focus Index. That benchmark aims to provide exposure to attractively valued wide moat companies that screen favorably when it comes to ESG risks.
Following the recent bloodletting among mega-cap growth stocks, several MOTE components are offering investors compelling valuations — a rare trait for some of these names. That group includes Google parent Alphabet (NASDAQ:GOOG).
“Alphabet dominates the online search market with Google’s global share above 80%, via which it generates strong revenue growth and cash flow,” says Morningstar analyst Ali Mogharabi. “We expect continuing growth in the firm’s cash flow, as we remain confident that Google will maintain its leadership in the search market. We foresee YouTube contributing more to the firm’s top and bottom lines, and we view investments of some of that cash in moonshots as attractive. Whether they will generate positive returns remains to be seen, but they do present significant upside.”
In addition to Alphabet, other MOTE components appearing on Morningstar’s list of mega-cap growth names that are now attractively valued are Microsoft (NASDAQ:MSFT), Adobe Systems (NASDAQ:ADBE), Salesforce.com (NYSE:CRM), Intel (NASDAQ:INTC), and Walt Disney (NYSE:DIS).
“From an ESG perspective, labor relations remain one of the company’s largest risks. Disney and its subsidiaries have been subject to a number of lawsuits alleging racial and gender discrimination, sexual assault/harassment, and wage gap/discrimination. That said, we estimate the potential financial impact of these individual cases is relatively immaterial, a view that’s supported by its ESG Risk Rating of Low,” according to Morningstar.
The stocks mentioned here combine for nearly 12% of MOTE’s roster, according to issuer data. MOTE devotes 31.7% of its weight to tech stocks, while the financial services and consumer discretionary sectors combine for 26% of the fund’s weight. The ETF currently has no exposure to real estate and utilities stocks.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
