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MOAT: An ETF Tailored for an Uncertain Market

tlydon@globaltrend.com (Tom Lydon)

Market Vectors Morningstar Wide Moat ETF (MOAT - News) is a basket of stocks that the research company selects as a top pick. The exchange traded fund is proving to be a good tool to help investors navigate this uncertain market.

“The Morningstar index comes closer to looking like an actively managed product than a passive benchmark. Morningstar analysts divide the universe of companies they cover into those with no moat (little to no competitive advantage), a narrow moat and a wide moat. The moat concept, as it pertains to stocks and companies, has been popularized by Warren Buffet,” Steven Goldberg for The Chicago Tribune wrote. [New Van Eck ETF Leverages Morningstar Research]

The Morningstar index, Morningstar Wide-Moat Focus, is the index the fund tracks. It has returned an annualized 14.4% since its September 30, 2002 launch through May 14, according to the report. To compare, the S&P 500 Index returned an annualized 7.4% over the same time period. [This ETF Targets Companies with a Competitive Advantage]

A company with a wide moat is one that Morningstar rates as having a sustainable competitive advantage over their rivals. Most wide-moat stocks are blue-chips. Furthermore, every three months, Paul Larson, the firm’s chief equity strategist, identifies the 20 cheapest stocks based on the percentage by which the current share price trades below fair value. Each is assigned a 5% weighting. There is not a goal of sector diversification with this strategy. [PIMCO Puts Actively Managed ETFs in the Spotlight]

“MOAT is an ETF that provides investors with exposure to 20 equally weighted, mostly large-cap domestic firms that have wide economic moats,” according to Morningstar analyst Robert Goldsborough. “The index uses Morningstar’s proprietary methodology to identify companies with long-term, distinct, and sustainable competitive advantages, or ‘economic moats,’ which allows the company to earn sustainable excess economic profits.”

The index re-balances frequently, with a stock remaining in the index an average of 3 months. Over time, the index and the ETF have proven to be about 20% more volatile than the S&P 500.

Market Vectors Morningstar Wide Moat ETF

Advisors or investors interested in a more in-depth analysis of the fund may want to listen in on the webcast “Why Moats Matter: Companies with Competitive Advantages.”

Registration is easy.

Tisha Guerrero contributed to this article.