For the Month Ending April 30, 2019
The Morningstar® Wide Moat Focus IndexSM (“U.S. Moat Index”) finished the month of April ahead of the broad U.S. equity markets as represented by the S&P 500 Index (4.65% vs. 4.05%, respectively). This followed a disappointing March in which the U.S. Moat Index lagged the S&P 500 Index by nearly 2%, due in large part to its exposure to biotech company Biogen Inc. (BIIB), whose share price dropped after announcing the discontinuation of its aducanumab Alzheimer drug trials.
Strong performance from information technology and communication services companies fueled the April rebound, placing the U.S. Moat Index ahead of the S&P 500 Index on a year-to-date basis (18.69% vs. 18.25%, respectively) at month’s end. The Walt Disney Co. (DIS), Microchip Technology, Inc. (MCHP), and Facebook Inc. (FB) were among the top U.S. Moat Index performers in April. In fact, 37 of the 46 index constituents finished the month in the black while the majority of the negative performing constituents were from the struggling health care sector.
Facebook: Friending and Unfriending
Facebook offers a fascinating case study of the efficacy of allocating to wide moat companies at attractive valuations. The social network has found itself in the U.S. Moat Index three times since its initial public offering in 2012, when it was immediately awarded a wide economic moat rating by Morningstar equity research. Although the company has traded closer to $200 per share in recent months than the $38.23 per share closing price on its May 18, 2012 IPO day, its trading history has not been entirely smooth.
Each instance Facebook was included in the U.S. Moat Index, it was trading at an attractive price relative to Morningstar’s forward-looking fair value estimate. For much of the rest of Facebook’s trading history, it has traded at or above Morningstar’s fair value estimate, which meant its exclusion from the index. There was a full five-year stint when Facebook was not included in the index. Then a selloff in the summer of 2018 presented a compelling allocation opportunity. Facebook was added to the index in September 2018 and its weighting increased in December 2018.
| Date Included | Date Removed | Facebook Inc. Total Return (%) |
S&P 500 Index Total Return (%) |
| 9/24/2012 | 12/21/2012 | 14.87 | -1.44 |
| 6/24/2013 | 9/20/2013 | 93.60 | 7.95 |
| 9/24/2018 | N/A* | 18.70 | 1.75 |
| 12/24/2018 | N/A* | 54.78 | 22.72 |
*Facebook was added to the U.S. Moat Index in September 2018 and its position was subsequently increased at the December 2018 review. It remains in the index and returns are for these positions are displayed though April 30, 2018.
Source: Morningstar. Past performance is no guarantee of future results. For illustrative purposes only. Not a recommendation to buy or sell any security. Visit vaneck.com to view daily ETF and index holdings.
To be fair, not all allocations play out as well or as quickly as Facebook. Some companies take longer to right wrongs, or in some cases, Morningstar simply misses the mark on their economic moat or valuation research. A key to investing is getting it right more often than getting it wrong, and looking at long-term performance, we think it is fair to say there is something to Morningstar’s moat investing philosophy.
Important Disclosures
The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
This commentary is not intended as a recommendation to buy or to sell any of the sectors or securities mentioned herein. Holdings will vary for the MOAT ETF and its corresponding Index. For a complete list of holdings in the ETF, please click here https://www.vaneck.com/etf/equity/moat/holdings/.
An investor cannot invest directly in an index. Returns reflect past performance and do not guarantee future results. Results reflect the reinvestment of dividends and capital gains, if any. Certain indices may take into account withholding taxes. Index returns do not represent Fund returns. The Index does not charge management fees or brokerage expenses, nor does the Index lend securities, and no revenues from securities lending were added to the performance shown.
Fair value estimate: the Morningstar analyst’s estimate of what a stock is worth..
Price/Fair Value: ratio of a stock’s trading price to its fair value estimate.
The Morningstar® Wide Moat Focus IndexSM was created and is maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Vectors Morningstar Wide Moat ETF and bears no liability with respect to that ETF or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar Wide Moat Focus Index is a service mark of Morningstar, Inc.
The Morningstar Wide Moat Focus Index consists of U.S. companies identified as having sustainable, competitive advantages and whose stocks are attractively priced, according to Morningstar.
S&P 500® Index: consists of 500 widely held common stocks covering the leading industries of the U.S. economy.
Effective June 20, 2016, Morningstar implemented several changes to the Morningstar Wide Moat Focus Index construction rules. Among other changes, the index increased its constituent count from 20 stocks to at least 40 stocks and modified its rebalance and reconstitution methodology. These changes may result in more diversified exposure, lower turnover, and longer holding periods for index constituents than under the rules in effect prior to this date.
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An investment in the VanEck Vectors Morningstar Wide Moat ETF (MOAT®) may be subject to risks which include, among others, investing in the health care, consumer discretionary, industrials, financial services sectors, medium-capitalization companies, equity securities, market, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified, and concentration risks, which may make these investments volatile in price or difficult to trade. Medium-capitalization companies may be subject to elevated risks.
Fund shares are not individually redeemable and will be issued and redeemed at their net asset value (NAV) only through certain authorized broker-dealers in large, specified blocks of shares called “creation units” and otherwise can be bought and sold only through exchange trading. Shares may trade at a premium or discount to their NAV in the secondary market. You will incur brokerage expenses when trading Fund shares in the secondary market. Past performance is no guarantee of future results.
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