With the right methodology, it’s possible for advisors and investors to efficiently locate baskets of stocks with the wide moat designation without the burden of paying up on valuation.
Enter the VanEck Morningstar Wide Moat ETF (MOAT ) and the VanEck Morningstar SMID Moat ETF (SMOT ). That duo of VanEck exchange traded funds focus on attractively valued wide moat equities. Alone, that’s attractive. Throw in the fact that both are outpacing traditional large-cap and smaller stock benchmarks this year, and the allure of wide moat investing increases.
Advisors looking for more education and insight into wide moat investing and the mechanics behind MOAT and SMOT can attend VanEck’s upcoming webcast on July 12. At the webinar, VanEck director of product management Brandon Rakszawski and Andrew Lane, Morningstar director of equity research — index strategies — will explore the long-term advantages of wide moat investing and how the VanEck ETFs harness the power of Morningstar indexes to unearth wide moat names trading at compelling valuations.
Moat Valuation Matters
Underscoring the importance of finding attractive multiples on wide moat stocks is the point that many stocks lacking the wide moat designation are cheap, but lack the downside buffer and upside potential found with many wide moat equities.
“Stocks for those companies that don’t have long-term durable competitive advantages have lagged and are trading at a significant discount to fair value. While the margin of safety here provides a cushion against downsides, we caution investors to choose carefully among no-moat stocks,” noted Morningstar analyst Dave Sekera.
Further highlighting the allure of a strategy such as MOAT is that with some corners of the large-cap universe now richly valued, it’s getting harder to find wide moat stocks trading at discounts.
“There’s a handful of high-quality companies whose stocks remain undervalued, but these opportunities are becoming increasingly hard to find,” added Sekera.
According to Morningstar analysis, MOAT member firms that are currently undervalued include medical device manufacturer Medtronic (MDT) and super regional bank US Bancorp (USB). Another example of a MOAT constituent that’s undervalued today is consumer staples giant Kellogg (K). Unheralded tech company Tyler Technologies (TYL), which is MOAT’s second-largest holding, is also trading at attractive multiples.
“So, even in a severe recession, I do think that this is one that would hold up pretty well to the downside. Just government entities, when you think about it, they’re still going to be able to continue to pay their bills, and we do see that there are good switching costs within their economic moat, which keeps their customers from moving to competitors,” concludes Sekera.
Advisors that would like to attend the July 12 wide moat webinar can register here.
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