Swimming in A Wide Moat 

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

One trait found among many successful companies is the quality of competitive advantage, or “moat.” 

This means that competing with these companies is difficult, whether due to significant barriers to entry in the industry or other factors such as important patents. VanEck Morningstar Wide Moat ETF (MOAT) is an exchange-traded fund (ETF) that invests in an equal-weighted basket of U.S. companies determined by stock rater Morningstar to be among the “wide moat” companies with the highest fair values and subjective economic rating.

The companies among MOAT’s holdings span a variety of industries, from tech and biotech firms to giants like Amazon (AMZN) and Wells Fargo (WFC). 

Year to date, this fund has struggled by dropping 20%. However, over a longer time frame, its performance follows a fundamentally upward trajectory, as its value doubled in a less than four-year span from mid-2018 to earlier this year. It has recently begun to recover from a precipitous October tumble, along with much of the market. But its strategy may be more useful for long-term performance than short-term variation.

Chart courtesy of www.StockCharts.com

The ETF’s expense ratio of 0.47% is ordinary and easily more than paid for by its 1.37% dividend yield. Nearly $6 billion in net assets makes MOAT a relatively heavy hitter.

Among the stocks owned by this fund are Biogen Inc. (BIIB), 3.47%; Etsy, Inc. (ETSY), 2.98%; MercadoLibre, Inc. (MELI), 2.92%; Gilead Sciences, Inc. (GILD); and Wells Fargo & Co. (WFC), 2.83%. Because the fund pursues an equal-weighting strategy, all 40 companies impact its performance roughly equally, though there can be some variation because the fund is rebalanced on a staggered quarterly basis.

For investors wo are interested in the strategy of investing in companies that are difficult to compete against, VanEck Morningstar Wide Moat ETF (MOAT) provides a diverse collection of 40 stocks based around that exact thesis.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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