Van Eck Global, the asset manager behind the Market Vectors range of exchange-traded funds, has cross-listed the Market Vectors Morningstar US Wide Moat UCITS ETF (MOAT) on the SIX Swiss Exchange. The fund tracks the Morningstar Wide Moat Focus Index, an equally-weighted reference for the top 20 most attractively priced US firms that are deemed to have sustainable long-term competitive advantages within their industries, according to Morningstar’s proprietary methodology.
Morningstar’s Moat analysis seeks to identify firms with long-term structural competitive advantages, whether through cost advantages, regulatory protection, natural positioning, or brand loyalty.
“MOAT is a unique addition to the European ETF market which is in need of innovation and product differentiation. With MOAT, we wanted to give investors interested in exposure to US equity a true alternative to mainstream benchmark index strategies,” commented Lars Hamich, CEO of Van Eck Global (Europe). “MOAT seeks to leverage Morningstar’s proprietary economic moat rating and valuation research. It is this combination that we believe makes the index strategy successful. Since its inception in 2007, the ETF benchmark has outperformed the US equity market with a cumulative performance of 130% while that of the S&P 500 Index was 72%.”
The term ‘economic moat’ was coined by Warren Buffett to classify firms which have established competitive advantages (through possible avenues such as brand loyalty, high switching costs, network effects, regulatory protection or economies of scale).
Despite a focus on ‘long-term’ structural advantages, some economists have posited that any competitive advantage a firm may wield will eventually be eroded given a sufficient period of time. They suggest that the above-average returns earned due to the advantage will attract new entrants to the industry, bringing the market into equilibrium; this being an example of Adam Smith’s ‘invisible hand’ theory. To combat this effect, Van Eck Global have established quarterly reviews of the fund’s methodology to maintain the advantageous quality of the ETF.
As of 30 November 2015, the fund is invested primarily in the industrials (24.7%), consumer discretionary (24.3%) and information technology (21.1%) sectors. The top three holdings are Autodesk (6.4%), a digital modelling software provider whose advanced technology, wide range of applications, and ongoing support promise has established the firm as the premier supplier to a host of industries from architecture to animation; Applied Materials (5.7%), a materials engineer operating in the semiconductor, flat panel display and solar PV industries; and Norfolk Southern (5.6%), a leading railway transportation provider whose infrastructure investments has ensured a diversified reach across 22 US states including access to every major Eastern seaport, 10 river ports, and nine lake ports.
The methodology of the fund, which has been the engine behind its $790m US counterpart, was first brought to Europe in UCITS ETF format in October of this year with its listing on the London Stock Exchange. The ETF was subsequently cross-listed on Deutsche Borse before today’s launch on the Six Swiss Exchange. Between the three exchanges, the ETF offers different share classes trading in US dollars, euros and Swiss francs respectively. The fund carries a total expense ratio of 0.49%.
For US investors, Van Eck Global also offers the Market Vectors Morningstar International Moat ETF (MOTI). The fund uses the same methodology driving the MOAT ETF to identify companies with sustainable competitive advantages, but applies the process on a global scale excluding the US, and selects a total of 50 firms to constitute the fund. The ETF carries a total expense ratio of 0.56%.