2016: A strong year for moats

The US equity Morningstar^® Wide Moat Focus Index^TM  “MOAT Index” finished the year well ahead of the S&P 500^® Index (22.95% vs. 12.49%). Several companies in the Moat Index stood out in 2016 to boost performance.

Sources of 2016 Outperformance

Strong stock selection and sector allocation benefited the Moat Index in 2016 and led to its strongest calendar year of outperformance compared to the S&P 500 Index since 2009.

Strong performance was driven primarily by the information technology, consumer discretionary, industrials, and financials sectors. By contrast, no single sector detracted from performance in 2016.

Merger and acquisition (M&A) activity played a major role in the performance of several constituents. The acquisition of LinkedIn Corp. (LNKD US, +73.26) by Microsoft Corp. (MSFT US) provided a catalyst which made LinkedIn the strongest performing constituent stock during its inclusion in the Index. Furthering the M&A theme, St. Jude Medical, Inc. (STJ US, 41.05%) was also a standout while in the Index due to an acquisition announced by Abbott Laboratories (ABT US). Additionally, Time Warner, Inc. (TWX US, +52.24%) benefited while in the Index from the announced AT&T (T US) merger.

Several firms performed well on their own merits while in the Moat Index in 2016. Spectra Energy Corp (SE US, +31.94%) was a standout early in the year before exiting in the index as the only energy sector constituent for 2016.

Although positives outweighed negatives, the Moat Index did not end the year unscathed. Despite a strong rebound following the US elections, several biotech firms were unable to erase losses from earlier in the year and ended the period in the red while in the Index: Biogen, Inc. (BIIB US), Gilead Sciences, Inc. (GILD US), and Allergan plc (AGN US).

^{Source: VanEck, Morningstar.  Stock returns in US dollars all other returns in Australian dollars. Index returns are calculated to the last business day of the month and assume immediate reinvestment of all dividends and exclude costs associated with investing in MOAT. You cannot invest directly in an index. Past performance is not a reliable indicator of future performance of the indices or MOAT.
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