VanEck has introduced a new ‘Wide Moat’ strategy to Europe with the launch of the VanEck Vectors Morningstar Global Wide Moat UCITS ETF on the London Stock Exchange and Xetra.
Martijn Rozemuller, Head of Europe at VanEck.
The fund provides exposure to a global portfolio of companies with sustainable competitive advantages (or wide economic moats) that are attractively priced according to index provider Morningstar’s estimate of fair value.
The term ‘economic moat’ was coined by Warren Buffett and refers to the ability of a firm to maintain significant market share and protect their long-term profits.
This could be through brand loyalty, cost advantages, intangible assets, economies of scale, or regulatory protection, for example.
The fund is available in US dollar (GOAT LN) and pound sterling (GOGB LN) share classes on the LSE and in euros (VVGM GR) on Xetra. It comes with an expense ratio of 0.52%. Income is accumulated in the portfolio.
Methodology
The fund uses full physical replication to track the Morningstar Global Wide Moat Focus Index which draws its constituents from a universe of large- and mid-cap stocks listed in developed or emerging markets.
The index consists of 50 securities with wide-moat ratings that have the lowest current price to fair value ratios, as of the semi-annual reconstitution and rebalance. Wide-moat ratings and fair value estimates are provided by Morningstar’s equity analysts.
Each constituent is equally weighted in the index, although reconstitution and rebalancing occur on a staggered schedule at quarterly intervals, meaning the fund is likely to always hold stocks with varying weights.
In economic theory, the competitive advantages attributable to moats are generally eroded over time. A firm with a competitive advantage often earns significant profits, encouraging new firms to enter the market and reducing the firm’s dominant position.
The index’s regular rebalancing, however, helps to eliminate firms whose dominant position is deteriorating, thereby maintaining the advantageous qualities offered by economic moat firms.
Martijn Rozemuller, Head of Europe at VanEck, commented, “With its smart beta strategy, our new Global Wide Moat ETF offers an attractive alternative to the global equity benchmark, the MSCI World. The Morningstar Global Wide Moat Focus Index has outperformed the MSCI World Index by 3.97 percentage points since its launch on 23 April 2018. Investors get access to an intelligent investment strategy in a cost-effective and transparent ETF solution.”
US-listed stocks currently account for nearly two-thirds (63.7%) of the total index allocation, although this is broadly in line with the MSCI World which has 65.5% of its weight in US companies. The next largest country exposures are China (7.5%), the UK (6.4%), and Japan (5.1%).
Over a fifth (22.4) of the index weight is allocated to firms operating in the health care sector with most of the remaining exposure split roughly equally between information technology (15.7%), industrials (15.2%), consumer staples (13.3%), and consumer discretionary (11.2%) sectors.
While firms with economic moats are likely to be able to better withstand the effects of severe exogenous shocks, it is probably too soon to determine how these allocations might be affected by the ongoing Covid-19 pandemic.
The ETF joins the Europe-listed VanEck Vectors Morningstar US Wide Moat ETF (MOAT LN) which applies the same methodology but focuses on a universe of US stocks. MOAT houses $230 million in assets under management and comes with an expense ratio of 0.49%.