Delegate the Work of Valuation
17 May 2021
The part of Morningstar’s economic moat research process that I like the most is that Morningstar ascribes a “fair value” to each of the stocks that it covers. Based on this fair value, at each quarterly review of the Morningstar® Wide Moat Focus IndexSM, over-valued wide moat stocks leave the index and under-valued stocks enter the index.
There are not many ETFs that provide this benefit.
While the Morningstar Wide Moat Focus Index is anything but a value strategy, it is interesting to note that the index has recently shifted towards a “value” bias.
Valuation Opportunities Drive Style Exposure
Size of circles increase from start date to end date. 31 March 2021, represented by white outline.
Source: Morningstar. Morningstar style box represents the holdings-based exposure to market capitalization (Micro through Giant capitalization) and style (Deep Value through High Growth).
Some of those changes may surprise you. In March 2021, the index added Google and sold Bank of America.
Attractive Price/Fair Value Brings Alphabet (GOOGL) into the Moat Index
Source: Morningstar. Data as of 31/3/2021. Past performance is no guarantee of future results. For illustrative purposes only.
Bank of America (BAC) Exits the Moat Index After Becoming Over-valued
Source: Morningstar. Data as of 31/3/2021. Past performance is no guarantee of future results. For illustrative purposes only.
Moat Index Q1 Review: Buys and Sells
| Added Index Constituents | |
| Company | Ticker |
| Alphabet Inc A | GOOGL |
| Facebook Inc A | FB |
| Cerner Corp | CERN |
| ServiceNow, Inc. | NOW |
| Tyler Technologies Inc | TYL |
| Roper Technologies Inc | ROP |
| Adobe Inc | ADBE |
| Northrop Grumman Corp | NOC |
| Dominion Energy Inc | D |
| Removed Index Constituents | |
| Company | Ticker |
| US Bancorp | USB |
| Microchip Tech | MCHP |
| Lam Research Corp | LRCX |
| Applied Materials Inc | AMAT |
| Polaris Inc | PII |
| Bank of America Corp | BAC |
| John Wiley & Sons Inc. A | JW.A |
| Charles Schwab Corp | SCHW |
| American Express Co | AXP |
Source: Morningstar.
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