Broad Market Gains Shape Moat Strategies for 2025
17 December 2024
Read Time 7 MIN
In November, U.S. equity markets surged to new record highs, marking one of the best monthly performances of the year. The conclusion of the U.S. presidential election brought a wave of optimism to the market, as investors responded positively to the prospective changes in policy directions. This led to broad market gains, with small caps outperforming large caps, suggesting a broadening of the rally. The market was further buoyed by strong consumer spending data and Fed commentary noting confidence in easing inflationary pressures and labor market strength, which together painted a picture of sustained economic growth. Despite the generally bullish sentiment, there was some volatility as investors adjusted their portfolios in anticipation of the new administration's policies.
The Morningstar Wide Moat Focus Index (the “Moat Index”) also had a strong showing in November, rising during the month, but trailing the broader S&P 500 Index. An overweight allocation to the health care sector, which was largely flat during the month, and the exclusion of a few soaring technology names, namely Tesla, were primary factors in the lagging performance. With just a few weeks of performance left in 2024, the Moat Index, and most other market segments, are unlikely to overtake the top-heavy S&P 500 on the year; but may be well-positioned heading into the new year as investors lock in 2024 gains and adjust their portfolios for potential broader market participation in 2025.
For the first time since July, smaller-cap stocks outperformed their large-cap peers and did so by a notable margin. Both small and mid cap benchmarks posted their best monthly performances of the year. The Morningstar US Small-Mid Cap Moat Focus Index (the “SMID Moat Index”) also participated in the small-cap rally but trailed the benchmarks in part due to some earnings-related volatility. The rally in small-caps this month marks a notable change in risk appetite, and given that valuations remain at decade lows relative to large-caps, this could be viewed as the beginning of a potentially longer trend.
Small-cap Stocks Lead in November Surge
Source: Morningstar. Data as of 30/11/2024. Past performance is no guarantee of future results. Index performance is not representative of fund performance. It is not possible to invest directly in an index.
Moat Index Highlights: Factory Floors to Fantasy Lands
Carrying over from last month, earnings-related volatility continued to be a notable driver of performance as markets adjusted to the latest quarterly updates. Strong performance within the industrial and technology sectors also stands out with several names from these segments landing in the top contributors table for the month.
Topping the list for contributors this month is the wide moat industrial automation company, Emerson Electric (EMR). With roots dating back to the late 1800s, Emerson has become a leading specialty industrial machinery company that sells a wide range of software and hardware aimed at helping customers automate their manufacturing processes to increase both productivity and safety. Emerson announced strong Q4 earnings results that sent the shares of the company soaring more than 20% during the month. Morningstar raised its fair value estimate for EMR and continues to view its industrial automation business favorably. However, with shares now trading at a premium to even the increased fair value estimate, EMR may be a candidate to rotate out of the index during the upcoming reconstitution.
Another top performer within the Moat Index was the iconic media and entertainment company, Walt Disney Co. (DIS). Like Emerson Electric, Disney also benefited from a strong earnings release that moved share prices up about 22% during the month. Morningstar senior equity analyst, Matthew Dolgin, raised his fair value estimate for Disney and commented the below in his analyst note.
Disney Earnings: Streaming Strength and Outlook Underpin Greater Enthusiasm – 14/11/2024
Disney reported an excellent end to fiscal 2024, with very encouraging results and commentary surrounding the streaming and experiences businesses, both of which are critical to a healthy future. The strong performance of sports content allowed the legacy television business to hold up better than we expected in 2024, and the impact of legacy television in Disney’s overall results is becoming less critical. We have growing confidence that Disney, with the help of a wide moat, has successfully evolved for the modern era, and we are raising our fair value estimate to $125 from $115.
October’s top contributor, electronic trading platform leader MarketAxess (MKTX), found itself among the top detractors in the Moat Index as it gave back some gains following earnings that fell short of expectations. Other top detractors for November include specialty ingredients producer International Flavors & Fragrances (IFF), medical diagnostics product developer Bio-Rad (BIO), drug manufacturer Pfizer (PFE) and independent military shipbuilder Brown-Foreman (BF.B).
Top Contributors and Detractors from Moat Index - November 2024
Leading Contributors
| Company | Ticker | Sector | Avg. Weight (%) | Contribution (%) |
| Emerson Electric Co. | EMR | Industrials | 2.46 | 0.57 |
| The Walt Disney Co. | DIS | Communication Services | 2.43 | 0.54 |
| Salesforce Inc. | CRM | Technology | 2.82 | 0.37 |
| Fortinet Inc. | FTNT | Technology | 1.47 | 0.31 |
| U.S. Bancorp | USB | Financials | 2.74 | 0.28 |
Leading Detractors
| Company | Ticker | Sector | Avg. Weight (%) | Contribution (%) |
| MarketAxess Holdings Inc. | MKTX | Financials | 3.05 | -0.32 |
| Intl. Flavors & Fragrances Inc. | IFF | Materials | 2.35 | -0.19 |
| Bio-Rad Laboratories Inc. | BIO | Health Care | 2.84 | -0.14 |
| Pfizer Inc. | PFE | Health Care | 2.34 | -0.14 |
| Brown-Forman Corp. | BF.B | Consumer Staples | 2.36 | -0.10 |
Source: Morningstar, November 2024. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein.
SMID Moat Index Highlights: Purses and Passengers
Like its larger-cap sister index, earnings releases also played a key role in determining the top performance contributors and detractors of the smaller-cap SMID Moat Index in November. From a sector perspective, strong performance within financials and technology stood out, while materials was a notable laggard with the four largest detractors all belonging to this sector.
The luxury fashion and accessory brands parent, Tapestry Inc. (TPR), topped the list of leading contributors after the company delivered revenue and earnings that exceeded expectations as well as raising their full-year outlook. Shares of Tapestry soared more than 30% during the month on the news and now trade more in line with Morningstar’s $59 estimate of fair value. Another name helping drive performance this month, also off the back of a positive earnings release that sent shares up 33%, was the ride-sharing service provider, Lyft (LYFT). Morningstar raised its fair value estimate from $15 to $20 and believes Lyft is well on its way to becoming a one-stop shop for on-demand transportation, citing its expansion into bike- and scooter-sharing markets and its pursuit of autonomous vehicles transportation.
Names that detracted most from SMID Moat Index performance during the month largely fell in the materials sector, including Celanese (CE) which is one of the world's largest producers of acetic acid directives and specialty polymers used in industrial and medical applications, home lawn and gardening products company Scotts Miracle Gro (SMG), the diversified global chemicals producer Dow Inc. (DOW), specialty ingredients producer International Flavors & Fragrances (IFF), and electronic trading platform leader MarketAxess (MKTX).
Top Contributors and Detractors from SMID Moat Index - November 2024
Leading Contributors
| Company | Ticker | Sector | Avg. Weight (%) | Contribution (%) |
| Tapestry Inc. | TPR | Consumer Discretionary | 1.36 | 0.43 |
| Lyft Inc. | LYFT | Technology | 1.17 | 0.39 |
| Discover Financial Services | DFS | Financials | 1.49 | 0.35 |
| Chart Industries Inc. | GTLS | Industrials | 0.55 | 0.33 |
| Block Inc. | SQ | Financials | 1.41 | 0.32 |
Leading Detractors
| Company | Ticker | Sector | Avg. Weight (%) | Contribution (%) |
| Celanese Corp. | CE | Materials | 0.65 | -0.27 |
| The Scotts Miracle Gro Co. | SMG | Materials | 1.64 | -0.17 |
| Dow Inc. | DOW | Materials | 1.16 | -0.11 |
| Intl. Flavors & Fragrances Inc. | IFF | Materials | 1.22 | -0.10 |
| MarketAxess Holdings Inc. | MKTX | Financials | 0.71 | -0.07 |
Source: Morningstar, November 2024. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein.
Choose Your Moat Strategy
VanEck’s suite of moat investing strategies is powered by Morningstar’s equity research team, which seeks quality companies trading at attractive valuations. The below ETFs offer access to the moat companies:
VanEck Morningstar US Wide Moat UCITS ETF (MOTU): companies with a wide moat rating, which means Morningstar believes the company is likely to sustain its competitive advantage for at least the next 20 years.
VanEck Morningstar US Sustainable Wide Moat UCITS ETF (MOAT): US wide moat rated companies that passed exclusion criteria according to the investment policy.
VanEck Morningstar US SMID Moat UCITS ETF (SMOT): small and mid-cap moat rated companies.
VanEck Morningstar Global Wide Moat UCITS ETF (GOAT): global wide moat rated companies.
Please be aware of risks, including the risk of investing in equities, US stocks, and the risk of investing in smaller companies. For full information on the risks, please refer to the prospectus and KID/KIID.
The value of the securities held by a Moat ETF may fall suddenly and unpredictably due to general market and economic conditions in markets in which issuers or securities held by the funds are active. Investors should read the prospectus and other relevant documents before making the decision to invest.
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IMPORTANT INFORMATION
This is a marketing communication for professional investors only. Please refer to the UCITS prospectus and to the Key Investor Information Document (KIID) before making any final investment decisions.
This information originates from VanEck Securities UK Limited (FRN: 1002854), an Appointed Representative of Sturgeon Ventures LLP (FRN: 452811) which is authorised and regulated by the Financial Conduct Authority in the UK. The information is intended only to provide general and preliminary information to FCA regulated firms such as Independent Financial Advisors (IFAs) and Wealth Managers. Retail clients should not rely on any of the information provided and should seek assistance from an IFA for all investment guidance and advice. VanEck Securities UK Limited and its associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results. Information provided by third party sources is believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. Brokerage or transaction fees may apply.
VanEck Asset Management B.V., the management company of VanEck Morningstar US Wide Moat UCITS ETF (the "ETF"), a sub-fund of VanEck UCITS ETFs plc, is a UCITS management company incorporated under Dutch law registered with the Dutch Authority for the Financial Markets (AFM). The ETF is registered with the Central Bank of Ireland, passively managed and tracks an equity index. Investing in the ETF should be interpreted as acquiring shares of the ETF and not the underlying assets.
VanEck Asset Management B.V., the management company of VanEck Morningstar US Sustainable Wide Moat UCITS ETF (the "ETF"), a sub-fund of VanEck UCITS ETFs plc, is a UCITS management company under Dutch law registered with the Dutch Authority for the Financial Markets (AFM). The ETF is registered with the Central Bank of Ireland, passively managed and tracks an equity index. Investing in the ETF should be interpreted as acquiring shares of the ETF and not the underlying assets.
VanEck Asset Management B.V., the management company of VanEck Morningstar US SMID Moat UCITS ETF (the "ETF"), a sub-fund of VanEck UCITS ETFs plc, is a UCITS management company incorporated under Dutch law registered with the Dutch Authority for the Financial Markets (AFM). The ETF is registered with the Central Bank of Ireland, passively managed and tracks an equity index. Investing in the ETF should be interpreted as acquiring shares of the ETF and not the underlying assets.
VanEck Asset Management B.V., the management company of VanEck Morningstar Global Wide Moat UCITS ETF (the "ETF"), a sub-fund of VanEck UCITS ETFs plc, is a UCITS management company incorporated under Dutch law and registered with the Dutch Authority for the Financial Markets (AFM). The ETF is registered with the Central Bank of Ireland, passively managed and tracks an equity index. Investing in the ETF should be interpreted as acquiring shares of the ETF and not the underlying assets.
The Morningstar® Wide Moat Focus IndexSM are service marks of Morningstar, Inc. and have been licensed for use for certain purposes by VanEck. VanEck Morningstar US Wide Moat UCITS ETF (the “ETF”) is not sponsored, endorsed, sold or promoted by Morningstar, and Morningstar makes no representation regarding the advisability of investing in the ETF.
Morningstar® US Small-Mid Cap Moat Focus IndexSM are service marks of Morningstar, Inc. and have been licensed for use for certain purposes by VanEck. VanEck Morningstar US SMID Moat UCITS ETF (the “ETF”) is not sponsored, endorsed, sold or promoted by Morningstar, and Morningstar makes no representation regarding the advisability of investing in the ETF.
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No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.
© VanEck Securities UK Limited
Important Disclosure
This is a marketing communication for professional investors only. Please refer to the UCITS prospectus and to the Key Investor Information Document (KIID) before making any final investment decisions.
This is a marketing communication for professional investors only. Please refer to the UCITS prospectus and to the Key Investor Information Document (KIID) before making any final investment decisions. This information originates from VanEck Securities UK Limited (FRN: 1002854), an Appointed Representative of Sturgeon Ventures LLP (FRN: 452811) which is authorised and regulated by the Financial Conduct Authority in the UK. The information is intended only to provide general and preliminary information to FCA regulated firms such as Independent Financial Advisors (IFAs) and Wealth Managers. Retail clients should not rely on any of the information provided and should seek assistance from an IFA for all investment guidance and advice. VanEck Securities UK Limited and its associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results. Information provided by third party sources is believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. Brokerage or transaction fees may apply.
VanEck Asset Management B.V., the management company of VanEck Morningstar US Sustainable Wide Moat UCITS ETF (the "ETF"), a sub-fund of VanEck UCITS ETFs plc, is a UCITS management company under Dutch law registered with the Dutch Authority for the Financial Markets (AFM). The ETF is registered with the Central Bank of Ireland, passively managed and tracks an equity index. Investing in the ETF should be interpreted as acquiring shares of the ETF and not the underlying assets. Investors must read the sales prospectus and key investor information before investing in a fund. These can be obtained free of charge at www.vaneck.com, from the local information agent Computershare Investor Services PLC or from the Management Company.
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.
It is not possible to invest directly in an index.
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.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.
© VanEck Securities UK Limited
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