Moats react to continued global volatility
The global market sell-off that began in February gained renewed momentum by mid-March, pushing wide moat companies and US market indices lower by month-end.
For the month ending 31 March, 2018
Performance overview
The volatility and sell-off experienced across markets in February continued to some degree in March, with varying impact on wide moat companies. The Morningstar® Wide Moat Focus IndexTM (Moat Index) lagged the broad U.S. market as represented by the S&P 500® Index (-1.95% vs. -0.99%, respectively).
Attribution: Two Is a Crowd
Healthcare was once again the culprit driving the Moat Index’s weak performance. The sector has been overweight in the index since early 2016 and has experienced multiple swings in performance as several headline-worthy events unfolded. Remarks by President Trump, innovative private healthcare announcements, and the attempted repeal of the Affordable Care Act have all impacted the sector since early 2016. Patterson Companies Inc. (PDCO US, -29.61%) inflicted its last bit of damage on the Moat Index prior to exiting the index at the March review as a result of its moat rating downgrade.
L Brands (LB US, -22.54%), another volatile index constituent in recent months, continues to face near-term headwinds, resulting in a fair value estimate reduction in mid-April by Morningstar analysts. Morningstar does still believe in L Brands’ long-term moat rating but is continuing to monitor its store’s growth plans, namely Victoria’s Secret.
Excluding the two aforementioned worst performers, the index performed more in-line with the broad US market.
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.
Important Disclosures
This commentary is not intended as a recommendation to buy or sell any of the named securities. Holdings will vary for MOAT and MOAT Index.
Issued by VanEck Investments Limited ABN 22 146 596 116 AFSL 416755 (‘VanEck’). VanEck is a wholly owned subsidiary of Van Eck Associates Corporation based in New York, United States. VanEck Vectors ETF Trust ARBN 604 339 808 (the ‘Trust’) is the issuer of shares in the VanEck Vectors Morningstar Wide Moat ETF (‘US Fund’). The Trust and the US Fund are regulated by US laws which differ from Australian laws. Trading in the US Fund’s shares on ASX will be settled by CHESS Depositary Interests (‘CDIs’) which are also issued by the Trust. The Trust is organised in the State of Delaware, US. Liability of investors is limited. VanEck Associates serves as the investment adviser to the US Fund. VanEck, on behalf of the Trust, is the authorised intermediary for the offering of CDIs over the US Fund’s shares and issuer in respect of the CDIs and corresponding Fund’s shares traded on ASX.
This information is general in nature and not financial advice. It does not take into account any person’s individual objectives, financial situation or needs. Before making an investment decision investors should read the product disclosure statement and with the assistance of a financial adviser consider if it is appropriate for their circumstances. A copy of the PDS is available atwww.vaneck.com.au or by calling 1300 68 38 37.
Investment in the US Fund may be subject to risks that include, among others, fluctuations in value due to market and economic conditions or factors relating to specific issuers. Medium capitalisation companies may be subject to elevated risks. The US Fund’s assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors. The Morningstar® Wide Moat Focus Index™ was created and is maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the US Fund and bears no liability with respect to the US Fund or any security. Morningstar®, Morningstar Wide Moat Focus Index™ and Economic Moat™ are trademarks of Morningstar, Inc. and have been licensed for use by VanEck.
Published: 09 August 2018
