Market Vectors, the exchange-traded fund division of asset manager Van Eck Global, has announced the listing of the Market Vectors Morningstar US Wide Moat UCITS ETF on Deutsche Borse’s Xetra exchange. The move follows the fund’s primary European listing on the London Stock Exchange which took place on 16 October 2015.
The Morningstar Wide Moat Focus Index equally weights the 20 US firms exhibiting the strongest indication of sustainable competitive advantages within their industry.
“The launch and cross-listing of this UCITS ETF reinforces Van Eck’s commitment to offer innovative products to investors,” commented Lars Hamich, CEO of Van Eck Global (Europe). “Van Eck is known for being a pioneer in global markets and we are proud to continue this tradition in Europe with the only ETF based on Morningstar’s economic moat analysis.”
The fund offers exposure to US firms that are identified through Morningstar’s proprietary equity research model as exhibiting ‘wide moats’ – a structural competitive advantage that enables the company to generate long-term above average returns on invested capital.
The methodology focuses on five key industry dynamics; the possession of any of these qualities indicating the presence of a strategic advantage. These include the network effect, an 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 drive competitors out of the market by lowering costs; high 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. Some economists support the theory that economic moats cannot be sustained over an indefinite time horizon; the strong returns on capital enjoyed by the firm attract new participants to the industry, slowly eroding the competitive advantage and returning the market to equilibrium. To counter this the fund employs a quarterly rebalancing schedule, thereby ensuring the advantageous quality of the fund is maintained.
“Including only such wide moat companies, specifically those that are most attractively priced, the Market Vectors Morningstar US Wide Moat ETF has historically outperformed the US equity market,” said Hamich.
Some of the current constituents of the fund include 20th Century Fox, whose distribution and sales networks, high barriers to entry, experienced business units, and strong presence in their domestic market all provide a strategic advantage to the American film studio distributor; and Polaris Industries, the manufacturer of snowmobiles and neighborhood electric vehicles has established a considerable moat through strong brand loyalty which commands pricing power and a robust distribution channel.
As of 31 October 2015, the fund had significant holdings in the consumer discretionary (25.2%), industrials (24.1%), information technology (21.0%), financials (9.8%) and consumer staples (5.3%) sectors. Unlike the London listing, which trades in US dollars, the listing on the Deutsche Borse will trade in euros. The fund is now available for distribution in Germany, Finland, Ireland, the Netherlands, Norway, Spain, Sweden, and the United Kingdom. There is a total expense ratio of 0.49%.