The last few months have been rough on equity investors. Bonds haven’t offered much refuge. It was surging 10-year Treasury yields that plagued risk assets in September and October. When rates will materially move lower is anyone’s guess. What isn’t up for debate is the long-term utility of owning quality stocks and the best companies. There are often differences between the best firms and the best stocks. But there are avenues for enhancing the odds of accessing that intersection. Those include the VanEck Morningstar Wide Moat ETF (MOAT).
Year to date, the wide moat exchange traded fund is performing nearly in line with the S&P 500. But that statistic belies MOAT’s impressive long-term performance, which includes an advantage of 650 basis points over the S&P 500 over the past three years. Importantly, MOAT’s 50 holdings include some stocks that some market observers believe have “best to own now” status. This potentially implies the ETF can rally into year-end and beyond.
MOAT Lineup Looks Compelling
Morningstar’s Margaret Giles recently screened for quality stocks with impressive competitive advantages trading at attractive multiples. Essentially, that’s the methodology employed by MOAT. As such, it’s not surprising that multiple MOAT holdings are on Morningstar’s list of the 10 best stocks to own in November.
The list is diverse as is MOAT. The VanEck features double-digit allocations to four sectors and none of its holdings exceed an allocation of 2.85%. One of the ETF’s healthcare components, medical device maker Zimmer Biomet (NYSE: ZBH), could be a driver of MOAT upside.
“Zimmer Biomet stock is trading 41% below our fair value estimate. Zimmer manufactures orthopedic reconstructive implants. We award the company a wide moat rating thanks in part to the high switching costs that orthopedic surgeons would face if they transitioned to another company’s instrumentation,” wrote Giles.
Following carnage in the regional bank space earlier this year and high interest rates crimping loan growth, it’s understandable some investors may be pensive about the financial services sector, MOAT’s second-largest sector exposure. Fortunately, MOAT financial holdings such as undervalued U.S. Bancorp (NYSE: USB) could be catalysts for the ETF.
“While some of its domestic competitors have started to catch up, few can match the U.S. Bancorp’s operating efficiency,” added Giles. “The bank offers a solid mix of banking and nonbanking services and continues to expand its presence through new acquisitions and partnerships. Any uncertainty we have toward U.S. Bancorp comes from the macroeconomic backdrop of interest-rate, credit, and debit cycles, but the bank has a proven track record of making sound capital-allocation decisions.”
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