Marketing Communication

Moat Stock Selection Drowns Out Factors

03 May 2021

The Morningstar^®Wide Moat Focus Index^SM (the “Index”) has outperformed the Morningstar US Market Index by more than 300 basis points annually through March 2021 since its inception on 14 February 2007 (13.30% vs. 9.86%, respectfully). While the Index focuses on wide moat companies with sustainable competitive advantages (i.e., “quality” companies) that are also trading at attractive valuations relative to Morningstar’s assessment of fair value (i.e., value), the Index is certainly not a multi-factor strategy.

Two prevalent style risk factors throughout the Index’s history—low exposure to momentum and (somewhat counterintuitively) a low exposure to quality—have actually proven a headwind to Index performance over time. The overwhelming majority of the Index’s excess returns since inception cannot be explained by traditional factor risks. Instead, the risk factors contributing to excess returns are attributable to stock selection over value, momentum, quality, size, etc.

Risk Factor Attribution: It’s All about Stock Selection

Morningstar Wide Moat Focus Index Cumulative Excess Returns vs. Morningstar US Market Index 01/2008 – 12/2020

Risk Factor Attribution: It is All about Stock Selection

Source: Morningstar. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. For fund performance current to the most recent month-end, visit vaneck.com.

You can read more on this topic in Morningstar Strategist Andrew Lane’s recent paper: Morningstar Wide Moat Focus Index Through a Factor Lens.

VanEck Morningstar US Wide Moat UCITS ETF (MOAT) seeks to replicate as closely as possible, before fees and expenses the price and yield performance of the Morningstar Wide Moat Focus Index.

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Morningstar® US Sustainability Moat Focus Index is a trade mark of Morningstar Inc. and has been licensed for use for certain purposes by VanEck. VanEck Morningstar US Sustainable Wide Moat UCITS ETF is not sponsored, endorsed, sold or promoted by Morningstar and Morningstar makes no representation regarding the advisability in VanEck Morningstar US Sustainable Wide Moat UCITS ETF.
Effective December 17, 2021 the Morningstar® Wide Moat Focus IndexTM has been replaced with the Morningstar® US Sustainability Moat Focus Index.
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.
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All performance information is based on historical data and does not predict future returns. Investing is subject to risk, including the possible loss of principal.

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