Market Vectors ETFs has launched the Market Vectors Morningstar Wide Moat Research ETF (MOAT). This new exchange-traded fund seeks to leverage Morningstar research that aims to identify companies with potential to maintain a competitive advantage for 20+ years.
MOAT seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Morningstar Wide Moat Focus Index (MWMFTR).
Morningstar’s wide-moat analysis seeks to identify companies that possess one or more sustainable, long-term competitive advantages and are expected to have high returns on invested capital relative to their cost of capital. As part of this analysis, Morningstar’s equity research team looks for such sustainable competitive advantages, or wide economic moats, as: intangible assets (ie, strong brands, relevant patents, special licenses or other regulatory approvals); cost advantages (ie, the ability to produce goods or services at a low cost relative to competitors); switching costs (ie, high time-related or monetary costs associated with changing from one provider/producer to another); network effects (ie, where the addition of new customers adds value for all customers); and efficient scale (ie, operating within a limited market size that has little incentive for new entrants).
Currently, approximately 10% of the broad equity universe analysed by Morningstar receives a "wide" moat categorisation; 50% receives "narrow" and 40% receives "none." Of the US equities falling into this wide-moat category, the Morningstar Wide Moat Focus Index includes the 20 most attractively priced stocks according to Morningstar’s proprietary valuation methodology. For example, out of the approximately 1,200 US stocks analysed by Morningstar, it identified 112 as having wide moats as of 31 March, 2012; the 20 stocks that represented the most compelling value among this wide-moat universe were included in the Morningstar Wide Moat Focus Index.
From its inception in September of 2002 through 31 March, 2012, the Index has outperformed the S&P 500 Index, producing a 15.3% annualised total return (compared to 8.1% for the S&P 500). The Market Vectors ETFs website contains more detailed performance information. Please note that Index performance is not indicative of Fund performance; the Fund has no operating or performance history.
"Wide-moat company analysis is a cornerstone of Morningstar’s stock investment philosophy. It is incorporated into its equity research and fund analysis. This research methodology has been successful in identifying companies likely to generate excess returns over time compared to the overall market," says Allison Lovett, Vice President of Marketing at Market Vectors. "Because of this, we believe MOAT may offer investors a very attractive core holding for their equity portfolios."
"We are pleased that Van Eck Associates has licensed our index for an exchange-traded fund," says Sanjay Arya (pictured), Senior Vice President of Morningstar Indexes. "We are in a unique position to be able to draw on a wide range of proprietary research from across the company and bundle that in an index structure. The Morningstar Wide Moat Focus Index leverages Morningstar’s unique, long-term approach to stock analysis, and includes a collection of undervalued high-quality businesses that are expected to generate returns on capital above their cost of capital."
The Morningstar Wide Moat Focus Index is a rules-based, equal-weighted Index that is reconstituted and rebalanced quarterly. To be included in the Index, a company must trade on a US exchange, have a market cap of at least USD100 million, and meet certain liquidity requirements. Industry sector allocations vary, but as of 31 March, 2012, the top sector weightings were Information Technology, Financial Services, Health Care, Materials and Industrials. Among the 20 companies included in the Index at March 31 were Amazon.com, CME Group, Cisco Systems, Northern Trust and Google.
