A “wide moat” smart beta ETF style has been an outperforming strategy, providing access to many quality global companies.
The wide moat strategy “offers global exposure to Morningstar’s best ideas, which are really rooted in their equity research process of identifying quality companies – those companies with economic moats as Warren Buffett coined that term, but also identifying their attractiveness in terms of valuations, so making sure you’re not overpaying for those quality companies,” Brandon Rakszawski, Product Manager at VanEck, said at the recent Morningstar ETF Conference.
Specifically, the VanEck Vectors Morningstar Wide Moat ETF (NYSEArca: MOAT), which implements Morningstar’s economic moat rating to identify strong companies with wide economic moats, and VanEck Vectors Morningstar International Moat ETF (NYSEArca: MOTI), which takes a similar moat rating methodology to select overseas component holdings, can help investors achieve improved long-term, risk-adjusted return by focusing on quality companies that help limit downside risk while still participating in potential gains.
The Morningstar Economic Moat Rating methodology assign an economic moat rating to companies, but it also focuses on those that show attractive valuations or are more attractively priced. Beyond factor effects, stock selection is also an important driver as the underlying indices combine both quality and valuation to help investors potentially generate improved returns.