Moat investing
Morningstar’s® forward-looking equity research turns this philosophy into an actionable investment strategy
Australian investors can leverage off Morningstar’s Economic Moat™ analysis by investing in a portfolio of Moat companies in a single trade on ASX through three ETFs:
- - VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT)
- - VanEck Vectors Morningstar World ex Australia Wide Moat ETF (ASX: GOAT)
- - VanEck Vectors Morningstar Australian Moat Income ETF (ASX: DVDY)
Identifying Moats
Five sources of Moat
| Source of Moats | Description | |
|---|---|---|
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Switching Costs | Switching costs give a company pricing power by locking customers into its unique ecosystem. Beyond the expense of moving, they can also be measured by the effort, time, and psychological toll of switching to a competitor. |
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Intangible Assets | Though not always easy to quantify, intangible assets may include brand recognition, patents, and regulatory licenses. They may prevent competitors from duplicating products or allow a company to charge premium pricing. |
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Network Effect | A network effect is present when the value of a product or service grows as its user base expands. Each additional customer increases the product’s or service’s value exponentially. |
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Cost Advantage | Companies that are able to produce products or services at lower costs than competitors are often able to sell at the same price as competition and gather excess profit, or have the option to undercut competition. |
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Efficient Scale | In a market limited in size, potential new competitors have little incentive to enter because doing so would lower the industry’s returns below the cost of capital. |
Evaluating Economic Moats a qualitative process. Morningstar classify Moats as either 'wide', 'narrow' or 'none'.
The hurdle is high for earning a Wide Moat rating. Despite scouring the developed market universe, Morningstar have only assigned Wide Moat ratings to approximately 200 companies. But Morningstar does not stop there.
Economic Moat Rating
Morningstar’s equity research team of more than 100 analysts covers over 1,500 companies globally. More than 200 asset managers and 75,000 financial advisors rely on Morningstar’s research. All of Morningstar’s equity analysts follow a single, consistent research methodology.
Fundamental analysis
Analyst conducts company and industry research, which may include financial statement analysis, trade show visits, industry reports, site visits and conference calls.
Economic Moat Rating
Analyst assesses the strength of the company’s competitive advantage, or Moat, assigning a rating of None, Narrow, or Wide.
Company valuation
Analyst considers past financial results, competitive position, and future prospects to forecast the company’s cash flows. Assumptions are entered into proprietary discounted cash flow model.
Fair Value Estimate
Using Morningstar’s proprietary discounted cash flow model, the analyst develops a fair value estimate, which represents the intrinsic value of that company.
Moat investing
Identify companies with sustainable competitive advantages.
Explore our ETFs
We offer two international equity ETFs that focus on:
- - Wide Moats utilising Morningstar’s approach; and
- - Value by utilising Morningstar's valuation methodology to identify Wide Moat companies trading at an attractive price/fair value ratio.
We also offer a Australian equity income ETF that focuses on:
- - Quality by utilising Morningstar’s Moat approach by only including Wide and Narrow Moats; and
- - Financial health utilising Morningstar’s Distance to Default score.
Australian Moat Equity Income
Resources
Key risks
An investment in the ETFs carries risks associated with: financial markets generally, individual company management, industry sectors, foreign currency, country or sector concentration, political, regulatory and tax risks, fund operations and tracking an index. See the PDS for details.
Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the ETFs and bears no liability with respect to the ETFs or any security. Morningstar® and Morningstar Economic Moat™ are trademarks of Morningstar, Inc. and have been licensed for use by VanEck.