The stock market has had a solid start to the year as the narrative of an inevitable recession loosens its grip on investors. Mixed economic signals, from the mildly cooling inflation to a red-hot US jobs report, complicates the path forward for the Fed’s coming monetary policy adjustments. In this grey zone, the market could be poised to break out into a bull run or beat a hasty retreat into bear territory.
Against this backdrop, the S&P 500 has performed quite strongly; yet another diversified, multi-sector fund with a much smaller pool of holdings continues to deliver outsized gains. As of February 16, VanEck Morningstar Wide Moat ETF (“MOAT”) is up 13.7% Year-to-Date, easily outstripping the S&P 500’s return of 7.9%.
Yet MOAT’s winning streak stretches much further back. MOAT’s one-year, three-year, and five-year returns have outperformed S&P 500 tracking funds by 6.81%, 7.14%, and 17.31%, respectively, according to VettaFi data.
Well-Fortified Position?
Passive “buying the market” has become the default investment philosophy in the ETF space for decades. Capitalization-weighted indexes that give broad market exposure have been preferred by many investors who bet market efficiency will ultimately triumph over stock picking. ETF investors seeking alpha, on the other hand, typically buy up themed funds specializing in a specific commodity, sector, or overseas market. Yet there is another strategy on offer. MOAT and other funds like it, so-called “smart beta ETFs,” focus on just a fraction of companies (50 to the S&P’s 500), selecting for reliable profits that can be sustained over the long term.
Managed by Van Eck, MOAT seeks to track the Morningstar Wide Moat Focus Index. Morningstar rates companies’ moats (“wide,” “narrow,” or “none”) using five metrics to assess the durability of their competitive advantage.
Unlike especially volatile tech-focused funds like Cathie Wood’s ARK, MOAT’s trajectory has more or less stayed just north of broader averages in recent years, usually seeing slightly softer landings during downturns and substantial upside swings during bull runs.
The fund’s largest holdings are social media giant Meta, aero-defense firm Boeing, Argentinian e-commerce site MercadoLibre, software provider Salesforce, and automatic test equipment Teradyne.
Channelling Buffet?
Warren Buffet has said, on numerous occasions, advised novice investors to buy and hold the S&P 500 through “thick and thin.” Most investors do not do the footwork necessary to select undervalued stocks as Buffet does. Yet, besides buying Berkshire Hathaway (which also held around 50 total holdings recently), MOAT offers investors a credible alternative to get exposure to a Buffet-style value investment portfolio.
Yet the fund comes at a price with an expense ratio of 0.46%, which is roughly average for actively-managed ETFs like this. Those used to low-cost passive funds need to bear in mind how deep a dent in their profit margins. It’s also important to note that while MOAT has had an impressive run in recent years, past performance is no indication of future results.
MOAT offers a 12-month trailing dividend yield of 1.09% and is currently trading on the NYSE Arca at around $74.52.
This article was produced by and syndicated by Wealth of Geeks.
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