Bloated Index Returns No Match for MOAT
January 31, 2024
Read Time 2 MIN
Strong 2023 Results Enhanced Long-Term Outperformance
For equity markets, 2023 was the year of the “Magnificent 7.” As of December 31, 2023, these 7 mega-cap stocks accounted for 22.52% of the broad-based Morningstar US Market Index. And in 2023, they were responsible for more than 50% of the index’s total calendar year return.
| Weight % | Contribution % | ||||||
| Company | Index | Benchmark | +/- | Total Return % | Index | Benchmark | Active Return % |
| Apple Inc | 6.22 | -6.22 | 49.00 | 2.58 | -1.21 | ||
| Microsoft Corp | 1.98 | 5.65 | -3.67 | 58.19 | 1.23 | 2.83 | -0.88 |
| Alphabet Inc | 2.59 | 3.17 | -0.58 | 58.58 | 1.36 | 1.58 | -0.14 |
| Amazon.com Inc | 1.94 | 2.60 | -0.66 | 80.88 | 1.50 | 1.67 | -0.08 |
| NVIDIA Corp | 0.40 | 2.12 | -1.71 | 239.02 | 1.21 | 2.36 | -0.85 |
| Tesla Inc | 1.42 | -1.42 | 101.72 | 0.92 | -0.67 | ||
| Meta Platforms Inc | 2.04 | 1.36 | 0.68 | 194.13 | 3.25 | 1.43 | -1.89 |
| Total | 8.95 | 22.52 | -13.57 | 8.55 | 13.37 | -1.95 | |
| 2023 Total Return %: | 32.41 | 26.43 | |||||
| % of 2023 Total Return From "Magnificent 7": | 26.38 | 50.59 | |||||
Source: Morningstar, as of December 2023. Data Time Period: 1/1/2023 to 12/31/2023. Index performance is not illustrative of fund performance. It is not possible to invest directly in an index.
However, these 7 mega-cap stocks only represent an 8.95% weighting in the Morningstar Wide Moat Focus Index (as of December 31, 2023). Yet, despite the performance headwind of nearly 2% from this 13.57% underweight to the Magnificent 7, the Morningstar Wide Moat Focus Index (the Moat Index) posted strong absolute returns in 2023 and handily outperformed the Morningstar US Market Index by 5.97% in 2023.
The Moat Index employs an equally-weighted index methodology which makes it’s 2023 success even more impressive. In a year dominated by mega cap stocks, equal-weighted indexes generally lagged their market capitalization-weighted equivalent. Despite this second headwind, the Moat Index’s process shined.
| Index Name | Trailing 1-Year | Trailing 3-Year | Trailing 5-Year | Trailing 10-Year | Live Inception |
| Morningstar Wide Moat Focus Index | 32.41 | 12.84 | 17.53 | 13.48 | 12.68 |
| Morningstar US Market Index | 26.43 | 8.62 | 15.25 | 11.60 | 9.41 |
| +/- | 5.97 | 4.22 | 2.28 | 1.88 | 3.27 |
| Index Name | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
| Morningstar Wide Moat Focus Index | -5.39 | -19.58 | 46.93 | 8.57 | 6.61 | 24.50 | 31.46 | 9.68 | -4.28 | 22.37 | 23.79 | -0.74 | 35.65 | 15.09 | 24.81 | -13.08 | 32.41 |
| Morningstar US Market Index | 2.47 | -37.03 | 28.45 | 16.80 | 1.58 | 16.27 | 33.13 | 12.85 | 0.69 | 12.44 | 21.47 | -5.05 | 31.22 | 20.90 | 25.78 | -19.43 | 26.43 |
| +/- | -7.85 | 17.46 | 18.48 | -8.23 | 5.03 | 8.24 | -1.68 | -3.17 | -4.97 | 9.93 | 2.32 | 4.31 | 4.43 | -5.81 | -0.98 | 6.35 | 5.97 |
Source: Morningstar, December 2023. Data Time Period: 2/14/2007 – 12/31/2023. Index performance is not illustrative of fund performance. It is not possible to invest directly in an index.
Longer term, the Moat Index’s focus on identifying companies with wide economic moat ratings has paid off. The Morningstar Wide Moat Focus Index has now outperformed the Morningstar US Market Indexover six of the last eight years. Equally as impressive, the Moat Index has outperformed the Morningstar US Market Index in 66% of the 12-month rolling periods since it’s 2007 inception.
The Morningstar equity research team recently conducted a detailed analysis of the Wide Moat Focus Index’s 2023 performance and positioning. In addition to the performance breakdown outlined above, highlights of this analysis include:
- Attribution analysis: Both sector positioning and stock selection proved favorable in 2023.
- Valuation analysis: Despite recent outperformance, the index continues to offer an attractive discount to fair value.
- Sector positioning: Sector weightings drifted toward a more defensive posture in 2023.
- Style & market cap analysis: The index migrated toward a value style bias and smaller on the market cap spectrum.
- Holdings highlights: Meta Platforms, Salesforce and MarketAxess stood out as strong performers in 2023.
Click here to read the full report from Morningstar and visit the VanEck Morningstar Wide Moat ETF overview page to learn more about MOAT.
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IMPORTANT DISCLOSURES
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned is unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
Morningstar® Wide Moat Focus IndexSM (MWMFTR) tracks the overall performance of attractively priced companies with sustainable competitive advantages according to Morningstar's equity research team.
Index returns are not illustrative of fund returns. It is not possible to invest directly in an index.
An investment in the Fund may be subject to risks which include, among others, risks related to investing in equity securities, consumer discretionary sector, health care sector, industrials sector, information technology sector, financials sector, medium-capitalization companies, market, operational, high portfolio turnover, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversification and index-related concentration risks, all of which may adversely affect the Fund. Medium-capitalization companies may be subject to elevated risks.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© Van Eck Securities Corporation, Distributor, a wholly-owned subsidiary of Van Eck Associates Corporation.
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IMPORTANT DISCLOSURES
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned is unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
Morningstar® Wide Moat Focus IndexSM (MWMFTR) tracks the overall performance of attractively priced companies with sustainable competitive advantages according to Morningstar's equity research team.
Index returns are not illustrative of fund returns. It is not possible to invest directly in an index.
An investment in the Fund may be subject to risks which include, among others, risks related to investing in equity securities, consumer discretionary sector, health care sector, industrials sector, information technology sector, financials sector, medium-capitalization companies, market, operational, high portfolio turnover, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversification and index-related concentration risks, all of which may adversely affect the Fund. Medium-capitalization companies may be subject to elevated risks.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© Van Eck Securities Corporation, Distributor, a wholly-owned subsidiary of Van Eck Associates Corporation.