MOAT’s Future Focus: Beyond AI and Short-Term Setbacks
June 11, 2024
Read Time 4 MIN
The Morningstar Wide Moat Focus Index (“Moat Index”) ended May trailing the S&P 500 Index by nearly 9% thus far in 2024. Several headwinds have influenced this short-term underperformance, not least of which was the momentum behind the generative AI trade. Here we will touch on these headwinds and put them into longer-term context.
Year to Date Return | as of May 31, 2024
| YTD Return (%) | |
| Moat Index | 2.34 |
| S&P 500 Index | 11.30 |
| Morningstar US Market Index | 10.48 |
Source: Morningstar. 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. Fund performance current to the most recent month end is available by visiting vaneck.com or by calling 800.826.2333.
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Key Moat Index Performance Drivers
- Nvidia & Generative AI Hype: Through May, Nvidia has accounted for approximately one third of the S&P 500 Index’s return. That is worth repeating: one company out of 500 accounts for 33% of the S&P 500’s return. With no exposure to Nvidia in 2024—due to Morningstar’s assessment that the stock has generally been priced at a premium to fair value—approximately 36% of the Moat Index’s underperformance has come from its lack of Nvidia.
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Equal Weighting: The Moat Index’s equal weighting methodology has proven a headwind relative to market cap weighted approaches because of very low market breadth (i.e., a small number of companies are accounting for much of the market’s returns). While we’ve seen brief periods in 2024 when market breadth has increased, by and large a select few companies have accounted for most of the market’s returns. The Magnificent 7 stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) accounted for more than 50% of the S&P 500 Index’s YTD returns—and that includes disappointing starts to the year from Tesla and Apple. Excluding these two laggards, nearly 60% of the S&P 500 YTD returns are explained by the remaining Magnificent 5 companies.
The S&P 500 Equal Weighted Index is now trading at levels relative to the market cap-weighted S&P 500 Index that haven’t been seen since the Global Financial Crisis.
Lack of Breadth: S&P 500 Equal Weighted Index Price vs. S&P 500 Index Price | 20 Years as of 5/31/2024
Source: BofA Global Investment Strategy; Morningstar; Represents share price of RSP vs. SPY.
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Stock Selections: several stocks in the Moat Index have posted disappointing returns in 2024 in the face of both idiosyncratic headwinds and macro-driven concerns. That is not to say that others have not performed well.
Bottom 5 Performing Moat Index Overweight Stock Picks vs. S&P 500 Index
| Company | Ticker | Moat Index Weight Relative to S&P 500 (%) |
Return in Moat Index (%) | Contribution to YTD Moat Index Return (%) |
| MarketAxess | MKTX | 2.21 | -31.61 | -0.90 |
| Etsy | ETSY | 2.23 | -21.69 | -0.56 |
| Gilead Sciences | GILD | 2.02 | -19.84 | -0.50 |
| Estee Lauder | EL | 2.25 | -14.84 | -0.36 |
| Biogen | BIIB | 2.16 | -13.07 | -0.31 |
Top 5 Performing Moat Index Overweight Stock Picks vs. S&P 500 Index
| Company | Ticker | Moat Index Weight Relative to S&P 500 (%) |
Return in Moat Index (%) | Contribution to YTD Moat Index Return (%) |
| Teradyne | TER | 2.63 | 30.14 | 0.78 |
| RTX Corp | RTX | 2.38 | 29.76 | 0.71 |
| Walt Disney Co | DIS | 1.60 | 15.08 | 0.50 |
| International Flavors & Fragrances | IFF | 2.59 | 19.35 | 0.50 |
| Wells Fargo | WFC | 1.66 | 23.31 | 0.52 |
Source: Morningstar. YTD data as of 5/31/2024. 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. Fund performance current to the most recent month end is available by visiting vaneck.com or by calling 800.826.2333.
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Momentum: the Moat Index allocates to those wide moat stocks with attractive valuations. Often, attractive valuations correspond with preceding price declines and, as such, the Moat Index tends to have a negative relationship to the momentum factor. This has been challenging in 2024 as momentum has been the top performing traditional factor this year.
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Performance in Context
The Moat Index offers investors differentiated, core US equity exposure that has historically provided impressive long-term upside and downside characteristics. However, because it is differentiated, it can be susceptible to periods of underperformance.
While the discomfort of 2024 underperformance is palpable, this is not necessarily out of the ordinary. There have been several similar periods in recent history, all with notable outcomes.
MOAT Index Performance Relative to the Morningstar US Market Index
| Time Period | Relative Performance (%) |
Length | Date Range | Subsequent 1 Yr Excess Return (%) |
Subsequent 3 Yr Excess Return (%) |
| YTD 2024 | -8.14 | 5.0 Months | 1/1/2024 – 5/31/2024 | TBD | TBD |
| Late 2020 | -10.46 | 5.0 Months | 6/8/2020 – 11/6/2020 | 5.02 | 14.26 |
| Late 2021 | -8.81 | 5.8 Months | 6/10/2021 – 11/29/2021 | 6.15 | 6.31 |
| Late 2017 | -5.31 | 4.2 Months | 7/3/2017 – 11/6/2017 | 5.31 | 4.10 |
Source: Morningstar. As of 5/31/2024. 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. Fund performance current to the most recent month end is available by visiting vaneck.com or by calling 800.826.2333.
Taking this concept one step further, the Moat Index has a long-term history of posting impressive relative returns following periods of underperformance. This is a testament to the long-term nature of the strategy and illustrates that it can take time for the market to realize the true value of undervalued stocks. In the example below, the Moat Index has posted impressive excess returns, on average, in the one and three-year periods following six month stretches of notable underperformance.
MOAT’s Index Has Outperformed, on Average, Following Periods of Underperformance
Source: Morningstar. 2/28/2007 – 3/31/2024. 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. Fund performance current to the most recent month end is available by visiting vaneck.com or by calling 800.826.2333.
Morningstar’s Director of Equity Research, Index Strategies, Andrew Lane published a detailed analysis of year-to-date performance of the Morningstar Wide Moat Focus Index:To receive more Moat Investing insights, sign up in our subscription center.
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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 are 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.
Holdings will vary for the MOAT ETF and its corresponding Index. For a complete list of holdings in the ETF, please click here: MOAT - VanEck Morningstar Wide Moat ETF - Holdings.
An investor cannot invest directly in an index. Returns reflect past performance and do not guarantee future results. Results reflect the reinvestment of dividends and capital gains, if any. Certain indices may take into account withholding taxes. Index returns do not represent Fund returns. The Index does not charge management fees or brokerage expenses, nor does the Index lend securities, and no revenues from securities lending were added to the performance shown.
The Morningstar® Wide Moat Focus IndexSM Intended to track the overall performance of attractively priced companies with sustainable competitive advantages according to Morningstar's equity research team.
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. Past performance is no guarantee of future results.
The S&P 500 Index consists of 500 widely held common stocks covering industrial, utility, financial and transportation sector. The S&P 500 Equal Weighted Index which is an equally weighted version of the market-cap weighted S&P 500 Index.
The Morningstar US Market Index represents 97% of the investable US stock market.
The S&P 500® Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2024 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spglobal.com/spdji/en/. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.
An investment in the VanEck Morningstar Wide Moat ETF (MOAT®) may be subject to risks which include, among others, risks related to investing in equity securities, 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 are 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.
Holdings will vary for the MOAT ETF and its corresponding Index. For a complete list of holdings in the ETF, please click here: MOAT - VanEck Morningstar Wide Moat ETF - Holdings.
An investor cannot invest directly in an index. Returns reflect past performance and do not guarantee future results. Results reflect the reinvestment of dividends and capital gains, if any. Certain indices may take into account withholding taxes. Index returns do not represent Fund returns. The Index does not charge management fees or brokerage expenses, nor does the Index lend securities, and no revenues from securities lending were added to the performance shown.
The Morningstar® Wide Moat Focus IndexSM Intended to track the overall performance of attractively priced companies with sustainable competitive advantages according to Morningstar's equity research team.
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. Past performance is no guarantee of future results.
The S&P 500 Index consists of 500 widely held common stocks covering industrial, utility, financial and transportation sector. The S&P 500 Equal Weighted Index which is an equally weighted version of the market-cap weighted S&P 500 Index.
The Morningstar US Market Index represents 97% of the investable US stock market.
The S&P 500® Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2024 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spglobal.com/spdji/en/. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.
An investment in the VanEck Morningstar Wide Moat ETF (MOAT®) may be subject to risks which include, among others, risks related to investing in equity securities, 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.