Wide moat stocks, including the holdings in the VanEck Vectors Morningstar Wide Moat ETF (MOAT), often prove durable when market angst is high, as is the case to start 2022.
However, MOAT is in the red through the first two months of 2022, but some analysts believe that wide moat equities have the ingredients to get it together as the year moves along. Plus, it should not be overlooked that the VanEck exchange traded is outperforming the S&P 500 by more than 400 basis points on a year-to-date basis.
“From an operating standpoint, firms with an economic moat will typically perform better during times of economic turbulence. However, operating performance is really only one part of the investment decision, as valuation is really the other part,” says Morningstar analyst Dave Sekera.
Regarding valuation, MOAT follows the Morningstar Wide Moat Focus Index. That benchmark is designed to identify stocks with wide moat credentials trading at attractive multiples. That’s an enviable task because the wide moat designation can imply that a stock is pricey, underscoring the benefits of investors allowing MOAT and its index to do the legwork for them.
“In our valuation methodology, we do include our moat rating in determining what we think the fair value, or the intrinsic value, of a company is. A company that has an economic moat will have a higher valuation as compared to those companies that don’t have an economic moat,” adds Sekera.
The $6.9 billion MOAT is sector agnostic, and its 46 components hail from 10 of the 11 GICS sectors. However, some sectors have more wide moat names than others. One such example is technology, which represents 24% of MOAT’s roster, making it the ETF’s largest sector allocation.
As investors well know, tech stocks are struggling this year amid fears of rising interest rates, some disappointing outlooks for 2022, and geopolitical tensions, among other factors. However, some of those names with wide moat attributes are getting cheaper. Plus, MOAT’s non-tech holdings are holding up relatively well, indicating that the ETF has avenues for buffering against tech weakness.
“The wide-moat stocks in the nontechnology sectors really have generally held up better thus far this year. So, when I look at some of the larger contributors in the wide-moat-focused index, like Johnson & Johnson, Procter & Gamble, JPMorgan, they’ve all dropped much less than the market thus far this year. And, in fact, Berkshire Hathaway is actually up for this year,” concludes Sekera.
For more news, information, and strategy, visit the Beyond Basic Beta Channel.
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.
