VanEck goes global with latest Wide Moat ETF

Nov 1st, 2018 | By | Category: Equities

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VanEck has launched the VanEck Vectors Morningstar Global Wide Moat ETF (GOAT US), the third instalment in its range of US-listed ‘Wide Moat’ ETFs.

VanEck goes global in latest Wide Moat ETF

Morningstar’s Moat analysis seeks to identify firms with long-term structural competitive advantages, whether through cost advantages, regulatory protection, natural positioning, or brand loyalty.

The fund, which tracks the Morningstar Global Wide Moat Focus Index, provides exposure to global companies with sustainable competitive advantages (or wide economic moats) that are attractively priced according to Morningstar’s estimate of fair value.

Stocks are drawn from both developed and emerging markets.

The term ‘economic moat’ was coined by Warren Buffett and refers to the ability of a firm to maintain significant market share and protect their long-term profits. This could be through brand loyalty, cost advantages, economies of scale, or regulatory protection, for example.

In economic theory, the competitive advantages attributable to moats are generally eroded over time. A firm with a competitive advantage often earns significant profits, encouraging new firms to enter the market and reducing the firm’s dominant position.

To combat this, Morningstar evaluates the competitive advantages of firms within their index universes over time. The regular rebalancing of the indices helps to eliminate firms whose dominant position is deteriorating, thereby maintaining the advantageous qualities offered by economic moat firms.

The index consists of 50 securities with wide-moat ratings that have the lowest current price to fair value ratios as of the semi-annual reconstitution and rebalance. Wide-moat ratings and fair value estimates are provided by Morningstar’s equity analysts.

“Morningstar’s equity research team consists of over 100 analysts globally and applies one consistent, forward-looking methodology to their stock analysis,” said Ed Lopez, Head of ETF Product with VanEck.

Each constituent is equally weighted although reconstitution and rebalancing occurs on a staggered schedule at quarterly intervals, meaning the fund is likely to always hold stocks with varying weights.

Interestingly, US-listed stocks currently account for nearly two-thirds (64.6%) of the total index weight, compared to around 55% for the MSCI ACWI Index, highlighting the strength of many US companies on the global stage. The next largest country exposures are Switzerland (8.1%), the UK (6.1%), Japan (5.7%), and France (4.9%).

Over a fifth (21.7%) of the index weight is allocated to firms operating in the health care sector with most of the remaining exposure split roughly equally between the financials (14.9%), industrials (14.8%), information technology (12.5%), consumer services (11.0%) and consumer staples (10.1%) sectors.

The fund comes with an expense ratio of 0.52% and is listed on NYSE Arca.

It joins the VanEck Vectors Morningstar Wide Moat ETF (MOAT US) and VanEck Vectors Morningstar International Moat ETF (MOTI US) which apply the methodology to universes of US and global ex-US stocks. MOAT has over $1.5 billion in assets under management and has an expense ratio of 0.48%, while MOTI houses around $70 million and costs 0.56%.

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