Wide moat stocks soar through October Sky
October was anything but scary for the VanEck Vectors Morningstar Wide Moat ETF (MOAT). Its outperformance of the S&P 500 Index added to its strong 2019 relative performance and continued what has been an impressive several years for MOAT.
Outperformance across the board
Trailing Return (%) as of 31/10/2019
| 1 Mo (%) | YTD (%) | 1 Yr (%) | 3 Yr (% p.a.) | 5 Yr (% p.a.) | Since Inception (% p.a.) | |
|---|---|---|---|---|---|---|
| Moat Index | 1.92 | 29.63 | 24.15 | 21.79 | 17.92 | 21.17 |
| S&P 500 Index | 0.02 | 25.85 | 17.61 | 18.79 | 16.31 | 19.74 |
| Outperformance | +1.90 | +3.78 | +6.54 | +3.00 | +1.61 | +1.43 |
Inception date is 25 April 2012
Source: VanEck, Morningstar Direct as at 31 October 2019. Performance is in Australian dollars. Results are calculated to the last business day of the month and assume immediate reinvestment of all dividends. MOAT performance includes management fees and other costs incurred in the fund but excludes broker fees and buy/sell spreads associated with investing in MOAT. Past performance is not a reliable indicator of future performance of the index or MOAT.
Strong dose of health care keeps MOAT alive and well
The top three MOAT performers in October were health care companies. By far the strongest was Biogen (BIIB), its stock price popped following the surprise announcement of the biotech firm’s intention to proceed with FDA submission of the Alzheimer drug aducanumab. Discontinuation of trials of the same drug in March caused a sell-off in Biogen, and the news was welcomed by the market as Biogen posted a return of 28.3% for the month. On 22 October, 2019, Morningstar raised its fair value estimate by $30 to $383, signaling its belief that the stock remains attractively priced despite its recent performance.
Information technology wide moat stocks chipping in
The information technology sector was the second leading contributor to MOAT performance in October despite its underweight relative to the S&P 500 Index. Strong stock selection within the sector helped elevate its profile within the index during the month. Intel (INTC) led within the sector after issuing third quarter results that were well ahead of its guidance, raising the company’s stock to levels not seen since April of this year. Guidewire Software (GWRE) extended its strong performance into October after reporting strong fourth quarter results in September and despite weak guidance for the current quarter. GWRE has traded near or slightly above Morningstar’s fair value estimate throughout October.
MOAT: A few tricks to go with mostly treats
All told, over 70% of MOAT's holdings posted positive returns in October. There were, however, several detractors worth noting. Widely recognised consumer discretionary companies, Nike (NKE) and McDonald’s (MCD), both disappointed. Nike shares began to fall after its CEO transition announcement. Morningstar does not expect this transition to impact its wide moat rating or fair value estimate. McDonald’s fell following disappointing US sales figures reported with its quarterly earnings results. Morningstar maintained its fair value estimate despite the results. It has stood at $215 per share since July of this year.
Energy was the sole detracting sector in MOAT with both of its stocks posting negative returns. However, its low absolute weighting muted its impact for the month.
Important Disclosures
All returns in Australian dollars unless otherwise indicated.
This information is issued by VanEck Investments Limited ABN 22 146 596 116 AFSL 416755 (‘VanEck’) is the issuer of the VanEck Vectors Morningstar Wide Moat ETF (‘Fund’). Nothing in this content is a solicitation to buy or an offer to sell shares of any investment in any jurisdiction including where the offer or solicitation would be unlawful under the securities laws of such jurisdiction. This information contains general advice only about financial products and is not personal advice. It is intended for use by financial services professionals only It does not take into account any person’s individual objectives, financial situation or needs. Before making an investment decision in relation to the fund, you should read the applicable PDS available at www.vaneck.com.au or by calling 1300 68 38 37and with the assistance of a financial adviser consider if it is appropriate for your circumstances. The Fund is subject to investment risk, including possible loss of capital invested. Past performance is not a reliable indicator of future performance. No member of the VanEck group of companies gives any guarantee or assurance as to the repayment of capital, the payment of income, the performance, or any particular rate of return from the Fund.
The Fund invests in international markets. An investment in the Fund has specific and heightened risks that are in addition to the typical risks associated with investing in the Australian market. These include currency risks from foreign exchange fluctuations, ASX trading time differences and changes in foreign laws and regulations including taxation.
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.
Effective June 20, 2016, Morningstar implemented several changes to the Morningstar Wide Moat Focus Index construction rules. Among other changes, the index increased its constituent count from 20 stocks to at least 40 stocks and modified its rebalance and reconstitution methodology. These changes may result in more diversified exposure, lower turnover and longer holding periods for index constituents than under the rules in effect prior to this date.
Published: 07 November 2019
