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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
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.
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.
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.
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.
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.

The philosophy behind the strategy

The Moat investing philosophy, powered by Morningstar’s equity research, brings together its Economic Moat Rating and its forward-looking Fair Value Estimate.

Valuations

Morningstar’s forward-looking valuation approach allows long-term investors to look beyond a company’s current price and potential noise in the market. Each company is assigned a current fair value based on projected future cash flows, which is assessed against its current price.

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.

US Wide Moats

Global Wide Moats

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.