Investing crystal balls and time machines don’t exist, but there are avenues through which market participants can position for the future and capitalize on trends that could prove durable for years. One such trend is artificial intelligence. On that note, the VanEck Morningstar Wide Moat ETF (MOAT ) doesn’t scream “AI exchange traded fund.” But it has AI leverage and a methodology that could benefit investors with futuristic inclinations.
Add to that, MOAT could be just what investors are looking for at a time when a small number of stocks are driving broader market returns and taking on hefty weights in once-diversified equity benchmarks. None of the ETF’s 55 holdings commands a weight of more than 3.48%, confirming that concentration risk is relatively benign in this fund.
MOAT Marvelous for Future Plans
As noted by VanEck Director of Product Management Brandon Rakszawski, MOAT’s 2024 performance has been hindered by not having exposure to Nvidia (NVDA). That stock has accounted for a third of the S&P 500’s 2024 returns, explaining why any ETF without exposure to it could be trailing the broader market. However, MOAT does have legitimate AI credentials.
For example, the technology and communication services sectors account for 22% of the ETF’s roster. And the fund is home to several other AI names, including Alphabet (GOOG), Amazon (AMZN) and Microsoft (MSFT). Importantly, MOAT provides AI exposure without subjecting investors to excessively rich valuations.
The ETF’s underlying 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,” observed Rakszawski.
For investors with an eye toward the future and long-term time horizons, MOAT’s history is worth considering. Said another way, the ETF has a knack for delivering strong upside following periods in which it trailed the broader market, as is the case today.
MOAT’s 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,” added Rakszawski.
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