Van Eck Global, the asset management firm behind the Market Vectors range of exchange-traded funds, has announced the launch on the London Stock Exchange of the Market Vectors Morningstar US Wide Moat UCITS ETF (MOAT LN). The fund tracks the Morningstar Wide Moat Focus Index, which also underlies its US counterpart, an ETF that has attracted over $770m in assets under management since its launch in April 2012.
The fund provides exposure to companies with so-called “wide economic moats” – namely those companies demonstrating a sustainable competitive advantage.
Lars Hamich, CEO of Van Eck Global (Europe), commented: “We are excited to bring this unique ETF to Europe. Van Eck has always been committed to introducing new products to the market that are the first of their kind and MOAT is just that.”
MOAT has not only enjoyed considerable success in attracting new assets from investors; the strategy has out-performed the broad US equity market since the index’s inception. “Since its inception in 2007, the index has outperformed the US equity market with a cumulative performance of 122% while that of the S&P 500 Index was 68%. We think that MOAT offers an attractive addition to those seeking to invest in US companies,” said Hamich.
The engine behind the fund is a proprietary model designed by Morningstar that selects firms considered to possess ‘wide moats’ – a significant structural competitive advantage that has the potential to provide long-term above-average returns. The term ‘economic moat’ was coined by Warren Buffett and can refer to brand loyalty, cost advantages, economies of scale, or regulatory protection, among others, as potential avenues whereby firms establish a strong market position.
The Morningstar Wide Moat methodology focuses on five key sources of competitive advantage. These include network effects, the increase to customer value as more customers use the service (eBay being a good example); intangible assets, including brand loyalty, patents, and regulatory licenses; cost advantages, allowing firms to undercut potential rivals; switching costs, the expense of money or time borne by customers who wish to switch providers; and efficient scale, whereby natural positioning or sunken infrastructure costs deter new firms from entering the market.
The Morningstar Wide Moat Focus Index selects the top 20 firms with the highest ranking economic moat scores according to the model, and assigns an equal weighting to each. The index rebalances on a quarterly basis, eliminating firms whose dominant positions have been eroded over time.
Some of the current constituents of the fund include Procter and Gamble, the multinational consumer goods firm whose strong presence in a wide range of emerging markets, as well as their dedication to constant product innovation, have allowed the Cincinnati-based company to maintain a competitive advantage; Union Pacific, the rail transportation provider operating in the western two-thirds of the US, whose broad coverage, efficiency, and diversification through freighting several commodity types help to provide reliable sales; and Walt Disney, whose world-class brands have continued to ensure the firm remains a leader in the entertainment industry.
As of 30 September 2015, the fund was primarily exposed to the consumer discretionary (25.0%), industrials (24.8%), information technology (19.9%), and financials (9.9%) sectors. There is a total expense ratio of 0.49%.
The fund is the third addition to the Van Eck European ETF platform which was launched in April of this year. It is currently registered for public distribution in Ireland, the United Kingdom, and Norway with further country registrations to follow.