A Heightened Value Tilt Is All Well and Good for This MOAT ETF

Shape-shifting to the ebbs and flows of the market can help ETFs investors snag the best from today’s investing factors. One such fund is the VanEck Vectors Morningstar Wide Moat ETF (MOAT).

MOAT seeks to replicate as closely as possible the price and yield performance of the Morningstar® Wide Moat Focus Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index.

The index is comprised of securities issued by companies that Morningstar, Inc. determines to have sustainable competitive advantages based on a proprietary methodology that considers quantitative and qualitative factors (wide moat companies). Overall, MOAT investors get access to:

  1. Wide Moat Companies: A focus on U.S. companies Morningstar believes possess sustainable competitive advantages, or “moats.”
  2. A Focus on Valuations: The index targets companies trading at attractive prices relative to Morningstar’s estimate of fair value.
  3. Morningstar’s Equity Research: An index fueled by Morningstar’s forward-looking, rigorous equity research process driven by over 100 analysts globally.

“This ETF tracks an index of companies that have ‘wide moats’ or sustainable competitive advantages that are very difficult for competitors to breach,” an ETF Database analysis suggested. “These firms could make for great long term investments as they generally rely on either brand name power, have high switching costs, or use the ‘network effect’ to prevent new entrants. Not surprisingly, the fund has a heavy focus on giant and large cap firms, in other words, those that have exploited their advantages to the utmost.”

MOAT Chart

Finally, the Shift from Growth to Value

2021 has seen a marked shift from the growth-fueled investments that powered the last decade-long bull run and even after the pandemic sell-offs in March 2020. The performance disparity is evident when looking at the S&P 500 indexes for growth versus value.

“There’s been a turn in the bias toward value stocks, and that’s been playing into the recent performance of MOAT,” said Ed Lopez, Managing Director, Head of ETF Product at VanEck.

^IVX Chart

The pandemic actually gave the MOAT methodology plenty of opportunities to suss out equities that fell below their real market value. As such, the MOAT portfolio made a shift toward value-oriented equities.

“Without targeting value or targeting growth, finding the opportunities within each dictates the exposure, and it just so happens to be a little tilted toward value now,” added Lopez.

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