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Takeover Talk A Help To Wide-Moat ETFs

June 9, 2016 9:21 am
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Mergers and acquisitions frequently benefits an array of exchange-traded funds, or at least, that is investors' expectation. The VanEck Vectors Morningstar Wide Moat ETF (Market Vectors ETF Trust (NYSE: MOAT)) is an example of that trend.

The $686.4 million MOAT follows the Morningstar Wide Moat Focus Index, “which is intended to track the overall performance of the 20 most attractively priced companies with sustainable competitive advantages according to Morningstar's equity research team,” according to VanEck.

Wide Moats And Dignified Holdings

Due to its wide-moat emphasis, MOAT is sector agnostic, but that does not mean this isyour run-of-the-mill broad market ETF. There is some prestige associated with Morningstar's wide-moat designation, which is to say it is not a label lavished upon a lot of stocks. To that end, MOAT currently holds just 21 stocks on an equal-weight basis.

Related Link: Wide Moat ETF Is On A Tear

Since MOAT is not home to hundreds or thousands of stocks, the ETF can get a lift when some of its holdings are takeover targets. Just look at St. Jude Medical, Inc. (NYSE: STJ) and Monsanto Company (NYSE: MON), which combine for 12 percent of MOAT's weight.

M&A Activity’s Influence

“M&A in general has been a prevalent theme in MWMFTR this spring. In April, Abbott Laboratories (NYSE: ABT) announced its intent to acquire St. Jude Medical, Inc. for $25 million, positioning the two to capture a larger market share position within the cardiovascular device market. The deal is expected to close in the coming fourth quarter. St. Jude was first added to MWMFTR on March 21, 2016. It was the big winner among domestic moat-rated companies for the month of April. (Read more on April's results in A Star Spangled April for Moats.),” according to VanEck.

Germany's Bayer AG (Bayer AG (ADR) (OTC: BAYRY) is trying to acquire Missouri-based Monsanto. Outside of healthcare and materials ETFs, MOAT has some of the biggest exposure to St. Jude and Monsanto.

The impact of mergers and acquisitions activity, combined with other factors, is palpable for MOAT. The ETF is up about 15.4 percent year-to-date compared to a 3.7 percent gain for the S&P 500. MOAT currently resides just pennies below its recently set all-time high.

“M&A doesn't always end in fist bumps and high fives, however. In April, U.S. drug maker Pfizer Inc. (NYSE: PFE) terminated its agreement to acquire Botox maker Allergan plc Ordinary Shares(NYSE: AGN) on the heels of a new tax ruling by the U.S. Department of Treasury targeting its anticipated tax benefits. The announcement sent AGN US' price falling,” added VanEck.

Allergan is nearly 4 percent of MOAT's lineup.

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