Tech and communication services rank as two of the best-performing sectors since the start of the year. So it’s reasonable to expect some advisors and investors to ponder frothy valuations in those high-flying sectors.
That doesn’t mean it’s impossible to find good deals on tech stocks. They’re out there and some exchange traded funds are homes to multiple attractively valued tech stocks. The venerable VanEck Morningstar Wide Moat ETF (MOAT) is a prime example of such an ETF.
MOAT holds 54 stocks and allocates 21.34% of its roster to tech names. While that’s underweight to that sector relative to broader benchmarks such as the S&P 500, tech is MOAT’s largest sector exposure. Being underweight tech isn’t hampering MOAT’s performance. As of August 14, the VanEck ETF is beating the S&P 500 by 540 basis points on a year-to-date basis.
MOAT Methodology Matters
MOAT, which turned 11 years old in April, follows the Morningstar® Wide Moat Focus Index. That’s relevant because one of the primary aims of that benchmark is to unearth companies with moat attributes that trade at an attractive multiple.
It appears that objective was accomplished with Tyler Technologies (NYSE: TYL). Tyler Technologies is an application software provider that counts government entities among its primary clients. That’s a positive trait considering those groups are reliable payers. And they’re not likely to be as cost-conscious as corporations during economic downturns.
“Tyler reported second-quarter results that were ahead of our estimates for both revenue and profitability despite the accelerating software as a service transition, which tends to mute both measures,” noted Morningstar analyst Dan Romanoff. “Management believes the demand environment remains at healthy levels, and we concur. We continue to see federal stimulus funds as supporting this healthy environment, and we predict consistent growth and margin expansion over time.”
Semiconductor testing provider Teradyne (NASDAQ: TER) is another example of an attractively valued tech name that’s part of the MOAT portfolio. That’s saying something when considering that due to the artificial intelligence (AI) boom, some chip stocks are currently stretched on valuation.
“Teradyne is a heavyweight supplier of automated test equipment for semiconductors, boasting market-leading capabilities that run the gamut of chips. It is one of two companies worldwide that can produce testers for the most cutting-edge semiconductors, thanks to robust engineering talent across hardware and software and a structural lead in organic investment,” observed Morningstar’s William Kerwin.
Tyler and Teradyne combine for 4.76% of MOAT’s lineup.
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