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Any asset whose name includes “Wide Moat” in its name is likely to attract attention in a market correction, and one such exchange traded fund is now among the best ETFs.
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VanEck Vectors Morningstar Wide Moat (MOAT) made this month’s ETF Leaders screen, as shares work on a new base. The ETF is trading below its 50-day moving average, suggesting that it could take weeks for it to reach a buy point at 47.45.
A move above the 50-day moving average would give investors an alternative and earlier entry. The ETF’s relative strength line is already at new highs, a bullish sign. It’s also a reflection of the fund’s role as somewhat of a defensive play.
The ETF tracks the Morningstar Wide Moat Focus Index. It’s a portfolio of “attractively priced companies with sustainable competitive advantages according to Morningstar’s equity research team,” as VanEck puts it.
Mainly In Health Care, Staples
Nearly half the fund was invested in health care and consumer staples stocks, as of Oct. 31. Technology made up about 14% and other sectors had less than 10% of assets.
The $1.7 billion ETF owns more than 50 stocks, nearly all of them large companies (market caps above $5 billion) with market dominance.
Holdings include Starbucks (SBUX), which raced to new highs after a strong earnings report Nov. 1. The stock is part of IBD Leaderboard.
Others are Procter & Gamble (PG), Pfizer (PFE), PepsiCo (PEP), Comcast (CMCSA) and Philip Morris (MO).
The ETF invests in at least 80% of the underlying index, so there can be a gap between the ETF’s performance and the index. The market correction has hit technology stocks harder, which has helped the ETF’s returns.
“The U.S. Moat Index has managed to outpace U.S. large-cap stocks thus far in 2018 despite a significant underweight to the information technology sector,” Brandon Rakszawski, senior ETF product manager at VanEck, noted in a Nov. 16 report. “The index has made up for this missing portion of total return with a variety of exposures in the portfolio. As the largest weighting, health care has naturally been the top contributor to index returns this year, but strong returns from communications services and consumer staples companies and modest exposure to energy has made up for the high-momentum tech underweight.”
The ETF may not look like a standout right now, but it does have a good long-term record of beating the S&P 500. The underlying index has beaten the S&P 500 benchmark at least half the time over one-year, three-year and five-year rolling periods.
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