The VanEck Vectors Morningstar Wide Moat ETF (MOAT ) is the most venerable name among exchange trade funds focusing on companies with deep competitive moats.
With that in mind, investors looking to marry wide moats with environmental, social, and governance (ESG) principles might want to look to VanEck for that combination, and the issuer is obliging, having launched the VanEck Morningstar ESG Moat ETF (MOTE ) last month.
MOTE holds 60 stocks and tracks the Morningstar U.S. Sustainability Moat Focus Index, which is “a rules-based index intended to offer exposure to attractively priced U.S. companies with long-term competitive advantages, according to Morningstar, that have been screened for ESG risks,” according to VanEck.
In plain English, MOTE is designed to offer investors a basket of quality stocks at attractive multiples that have wide moats and are credible ESG plays. MOTE’s lineup includes plenty of familiar names that credibly check those boxes, including Alphabet (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), ETF issuer BlackRock (NYSE:BLK), and American Express (NYSE:AXP).
MOTE arrives at a time of rapid growth in the ESG and sustainability-focused funds space, but its blending of ESG and moat concepts could help the rookie ETF stand out.
Funds that were “identified as a sustainable fund by Morningstar have seen assets increase by nearly 175% over the last three years. In that same time, the number of U.S. ETFs identified as sustainable have more than doubled from 91 ETFs three years ago to 174 as of September,” says Brandon Rakszawski, VanEck ETF senior product manager. “Though investment options are expected to continue to expand, we are likely in the early stages of how to incorporate sustainable investment considerations into portfolio construction as investor views of ESG issues and company behaviors will undoubtedly evolve.”
While MOTE is a new ETF, the moat methodology separates it from a pack of established ETFs that have similar methodologies — none of which include a focus on moats. Likewise, few ESG and sustainable funds emphasize quality or value, indicating that MOTE refreshes the ESG ETF proposition.
“Many of the most popular sustainable investment strategies seek to offer broad exposure to market indexes while applying some level of exclusionary or inclusionary ESG screens,” concludes Rakszawski. “This may reduce ESG risk in a portfolio, but does not address other performance drivers. The Morningstar US Sustainability Moat Focus Index’s unique combination of forward-looking equity research and ESG screening offers investors a U.S. equity strategy that seeks to provide investors with attractive risk-adjusted returns while mitigating ESG risks.”
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