Better to Stick With MOAT Than Cherry Pick Holdings

ETF Trends

The Market Vectors Wide Moat (MOAT) has risen to prominence this year for several reasons, all of which are positive.

MOAT, which debuted in April 2012, is up 26% year-to-date. Not only that, but the ETF has been framed, and somewhat accurately, as an easy way for investors to gain exposure to a basket of companies with deep competitive advantages, one of the virtues extolled by value investing legend Warren Buffett. [Wide Moat Stands Tall as Legitimate Buffett Play]

In addition to those high points, MOAT is growing. Rapidly. When we looked at the ETF on September 25, it had $192.6 million in assets under management. As of October 28, that number was up to $451.7 million, according to Market Vectors data.

As MOAT as has risen in popularity, some market observers have suggested using the ETF as more of a research tool than an actual holding. Said another way, MOAT is home to 21 stocks and the ETF rebalances several times year, adding and subtracting holdings as it did in September when nine stocks were dumped and eight were added. [Wide Moat ETF Dumps Facebook, but Adds Dividend Stocks]

In theory, investors can use MOAT’s rebalances to find stock ideas without actually buying the ETF, so the advice goes. Just thing and it is kind of important: The odds are not good that investors will choose MOAT’s best stocks. That is not a criticism of any investor.

It is merely simple math as 15, or 71.4%, of MOAT’s 21 current holdings have been outperformed by the ETF on a year-to-date basis. Seven of those 15 stocks are actually down this year.

Of course, past performance is not indicative of future returns. Of its 15 holdings that MOAT has outperformed this year, only six have outpaced the ETF since September 25.

As for cherry picking MOAT’s new additions, the ETF has outperformed four of its new holdings since the last rebalance and is tied with another. Perhaps it is best to just stick with the ETF.

Market Vectors Wide Moat ETF

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MOAT

Market Vectors Wide Moat ETF

 

Tom Lydon’s clients own shares of MOAT.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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