Industry veteran Van Eck is adding the Market Vectors Wide Moat Research ETF (MOAT) to its global lineup of over 50 offerings. The new Van Eck ETF, which began trading this morning on the NYSE Arca, will offer exposure to equity markets with a twist; MOAT is based on the concept of ” wide moats” popularized by Wall Street legend Warren Buffett. This economic terms refers to a business’ ability to maintain a competitive advantage over the long-haul [see also Greedy When Others Are Fearful ETFdb Portfolio].
Coined and popularized by Buffett, the concept of a wide moat is geared towards long-term, buy-and-hold investors who are looking to identify companies with sustainable advantages over their competitors. Wide moat simply refers to identifying companies with more significant advantages, thus, the wider the moat, the more favorably a business is positioned to thrive over the long term [see also Channeling Your Inner Buffett With ETFs].
MOAT charges 0.49% in expense fees and is linked to the Morningstar Wide Moat Focus Index; the underlying index is equal weighted and offers exposure to a basket of 20 companies deemed to have sustainable competitive advantages over the long-haul. According to Morningstar, there are several potential sources of wide moats, including: high switching costs for moving to a competitor, cost advantages over competing firms, superior intangible assets, and the so-called “network effect” which is when a firm’s services become more valuable as the customer base grows [see also Free Report: How To Pick The Right ETF Every Time].
Among the 20 components of the underlying index are Amazon, CME Group, Cisco Systems, Google, Pfizer, General Electric, Oracle, and Schlumberger. The index to which MOAT is linked has the largest sector allocations to technology (25%), financial services (20%), health care (15%), and materials (15%). Relative to the S&P 500, the “moat index” is overweight in technology, financials, health care, materials, and utilities. The index is significantly underweight in consumer staples and telecom (neither receives any allocation), as well as industrials, energy, and consumer discretionary [see complete holdings on the MOAT fact sheet].Meet The Competition: WMW
Utilizing a “wide moat” investment approach is nothing new in the ETP universe. Issued by ELEMENTS, the Morning Wide Moat Focus ETN (WMW) offers virtually identical exposure as MOAT, differing only by the product wrapper. As such, WMW allows investors to tap into the “wide moat” strategy while avoiding tracking error; on the other hand, investors do have to deal with the credit risk from the issuing institution given the inherent nature of exchange-traded notes. It’s also worth noting that WMW has faced limited success in terms of attracting assets; this ETN has accumulated under $7 million in assets under management since launching in late 2007.
MOAT will look to outdo its competitor by offering identical exposure in an ETF wrapper for a fraction of the cost; its ETN counterpart charges a steep 0.75% in expense fees.
Disclosure: No positions at time of writing.
- Warren Buffett