Moats Are A Must; Get Them With This ETF

Many investors, including the legendary Warren Buffett, espouse the virtues of embracing wide moat companies, or those with deep competitive advantages. Thanks to the VanEck Vectors Morningstar Wide Moat ETF (Market Vectors ETF Trust MOAT), investors do not have to roll the dice on stock picking wide moat companies. This exchange-traded fund does the dirty work for investors.

Index, Debut And Assets

MOAT follows the Morningstar Wide Moat Focus Index (MWMFTR), “which is intended to track the overall performance of attractively priced companies with sustainable competitive advantages according to Morningstar's equity research team,” noted VanEck.

MOAT, which debuted in April 2012, is home to 44 stocks and nearly $741 million in assets under management. Although this is a passive ETF, several holdings move in and out of the fund as the momentum screen used by the ETF's underlying index turns up new opportunities. Valuation also plays a role in which companies make the coat for MOAT inclusion.

Equity Research Approach

“Another key component to Morningstar's moat-investing equity research approach is its valuation process. Morningstar equity analysts assign a fair value estimate to each company based on how much cash it believes the company may generate in the future,” said VanEck in a recent note. “The fair value represents a company's long-term intrinsic value. Of course, stocks may trade above or below the company's underlying fair value. The key is to identify those companies that are attractively priced at the time of investment.”

Healthcare and consumer discretionary stocks combine for over 59 percent of MOAT's weight, while financial services and industrial stocks combine for almost 29 percent of the ETF's lineup.

Equally-Weighted Holdings

MOAT's 44 holdings are equally-weighted so the ETF the top 10 holdings represent just over 27 percent of the fund's weight. That group includes well-known names such as Amazon.com, Inc. AMZN, Harley-Davidson Inc HOG and Microsoft Corporation MSFT.

MOAT's underlying index is about five year's older than the ETF itself and over the nine years the index has been around, it has topped the S&P 500 by an almost 2-to-1 margin, according to VanEck data.