Wide moat investing is a style featuring a variety of long-term advantages, but with the right wrapper, investors don’t have to pay a valuation tax to embrace wide moat’s perks.
Take the case of the VanEck Morningstar Wide Moat ETF (MOAT ). The original exchange traded fund dedicated to wide moat equities, MOAT explicitly attempts to identify wide moat stocks trading at favorable multiples.
The ETF’s methodology, long-term track record, and more will be discussed on VanEck’s upcoming webcast with VanEck director of product management Brandon Rakszawski and Andrew Lane, Morningstar director of equity research — index strategies.
For registered investment advisors that want to peer into MOAT’s benefits prior to the July 12 webcast, it’s worth noting that as of June 30, the ETF is beating both the S&P 500 and the S&P 500 Value Index by substantial margins. Add to that, MOAT remains home to some stocks that fit the bill as undervalued.
MOAT’s Inexpensive Cyclical Holdings
No sector has a monopoly on wide moat names, which is to say that this style of investing should be sector-agnostic. That said, MOAT has significant exposure to cyclical, or economically sensitive sectors, several of which are lagging the broader market this year.
Not only does that underscore the advantages of MOAT’s methodology, it points to some compelling valuation opportunities among the ETF’s holdings. Take the case of specialty ingredients maker International Flavors & Fragrances Inc. (IFF).
“We assign a wide moat rating to International Flavors & Fragrances. Moaty businesses that operate in this space tend to benefit from switching costs, intangible assets, or cost advantage. For IFF, we cite only intangible assets and switching costs,” noted Morningstar strategist Seth Goldstein. “The company’s highly valuable intangible assets (in the form of proprietary formulations) provide significant pricing power, while switching costs help ensure durable economic profit generation.”
Likely due in part to the collapses of several regional banks earlier this year, super-regional bank US Bancorp (USB) is another example of a MOAT holding that is undervalued today.
“The bank has moved into several new population centers over the last several years, has partnered with State Farm, and is investing in its payments ecosystem. It wants to win more software-centric merchant acquiring business while also cross-selling more payments-related services to its corporate banking clients and vice-versa,” added Morningstar’s Eric Compton.
Notably, US Bancorp is far more fundamentally sound than many of the smaller regional banks that ran into trouble earlier this year, and it is less exposed to Wall Street activities than its larger counterparts.
Advisors that would like to attend the July 12 wide moat webinar can register here.
For more news, information, and analysis, visit the Beyond Basic Beta Channel.