China's fast food market driving US Moat performance


In April, Moat companies in the US were boosted in part by China as well as consumer discretionary, IT and industrials in its local market. 

For the Month Ending April 30, 2017

Performance Overview

The Morningstar Wide Moat Focus Index (MOAT Index) posted strong returns in April and outpaced the S&P 500 Index (3.96% vs. 0.91%). 

Attribution:  Yum!

Yum China Holdings (YUMC US, +25.44%) was a standout performer in the US Moat Index in April. The firm was spun out of another current Index constituent, Yum! Brands, Inc. (YUM US) in October 2016. YUMC US has since operated as a standalone business that licenses the Yum! Brands and is poised to benefit from the growing consumer base throughout China.

In April, Yum China announced strong results.  Net income climbed 21% and earnings per share jumped 12%, well above estimates.   In addition, the company reiterated its target of achieving double-digit percentage growth in operating profit for the year.  Yum China now has restaurants in more than 7,600 locations in China (as of the end of February) and the company is on track to meet its goal of opening a total of 550 to 600 new restaurants for all of 2017.

Other consumer discretionary firms such as L Brands, Inc. (LB US, +12.12%), which offers the Victoria's Secret brand, helped elevate the consumer discretionary sector to the top contributor to  MOAT Index returns for the month. Information Technology companies and Industrials firms were also strong contributors for the month. The primary detractors from  MOAT Index performance in April were healthcare companies, particularly pharmaceutical supply chain companies. Express Scripts Holding Co. (ESRX US, -6.93%) saw its fair value estimate lowered by Morningstar analysts due to the near term impact of expectations that Anthem, Inc. will not renew its contract with the firm following its expiration in 2017. McKesson Corp. (MCK US, -6.72%) and AmerisourceBergen Corp. (ABC US, -7.29%), other major pharmaceutical distributors, also struggled in April.

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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Published: 09 August 2018