Quality Companies at Attractive Prices>
Moat investing represents a simple concept: Invest in companies with sustainable competitive advantages trading at attractive valuations. Morningstar’s forward-looking equity research turns this philosophy into an actionable investment strategy by combining its Economic Moat Rating and its forward-looking Fair Value Estimate.
Finding Economic Moats
Economic moats are sustainable competitive advantages that are expected to allow companies to fend off competition and sustain profitability into the future. Morningstar has identified five sources of economic moats.
The Five Sources of Economic Moats
| Switching Costs | Intangible Assets | Network Effect | Cost Advantage | Efficient Scale |
| Switching costs give a company pricing power by locking customers into its unique ecosystem. Beyond the expense of moving, they can also be measured by the effort, time, and psychological toll of switching to a competitor. | Though not always easy to quantify, intangible assets may include brand recognition, patents, and regulatory licenses. They may prevent competitors from duplicating products or allow a company to charge premium pricing. | A network effect is present when the value of a product or service grows as its user base expands. Each additional customer increases the product’s or service’s value exponentially. | Companies that are able to produce products or services at lower costs than competitors are often able to sell at the same price as competition and gather excess profit, or have the option to undercut competition. | In a market limited in size, potential new competitors have little incentive to enter because doing so would lower the industry’s returns below the cost of capital. |
Learn more about what makes a moat in our whitepaper .
Assessing Valuations
Equally important to identifying companies with sustainable competitive advantages is ensuring you do not overpay for them. Morningstar’s forward-looking valuation research determines how much a company is worth today based on tomorrow’s expected cash flow. Each company covered by Morningstar receives this Fair Value Estimate.
Morningstar Equity Research
Morningstar’s equity research team of more than 100 analysts covers over 1,500 companies globally. More than 200 asset managers and 75,000 financial advisors rely on Morningstar’s research. All of Morningstar’s equity analysts follow a single, consistent research methodology.
Morningstar Repeatable Research Process
| Fundamental Analysis | Economic Moat Rating | Company Valuation | Fair Value Estimate | Moat Investing |
| Analyst conducts company and industry research, which may include financial statement analysis, trade show visits, industry reports, site visits and conference calls. | Analyst assesses the strength of the company’s competitive advantage, or moat, assigning a rating of None, Narrow, or Wide. | Analyst considers past financial results, competitive position, and future prospects to forecast the company’s cash flows. Assumptions are entered into proprietary discounted cash flow model. | Using Morningstar’s proprietary discounted cash flow model, the analyst develops a Fair Value Estimate, which represents the intrinsic value of that company. | Identify companies with sustainable competitive advantages and attractive valuations. |
Proven Long-Term U.S. Strategy
Applying Morningstar’s moat investing philosophy to U.S. companies has historically generated excess returns relative to the broad U.S. equity markets. This investment approach, represented by the Morningstar Wide Moat Focus Index, offers a systematic approach to targeting attractively priced wide moat companies each quarter. This forward-looking philosophy has resulted in excess returns since 2007 for this long-term, core investment strategy.
Source: Morningstar. Past performance is no guarantee of future results. Index performance is not representative of fund performance. For fund performance current to the most recent month-end, visit vaneck.com. Investors cannot invest directly in the Index.
Effective June 20, 2016, Morningstar implemented several changes to the Morningstar Wide Moat Focus Index construction rules. Among other changes, the index increased its constituent count from 20 stocks to at least 40 stocks and modified its rebalance and reconstitution methodology. These changes may result in more diversified exposure, lower turnover, and longer holding periods for index constituents than under the rules in effect prior to this date. Past performance is no guarantee of future results.
Explore VanEck’s Moat Funds
Leverage Morningstar’s forward-looking moat investment philosophy across global equity markets.
| US Moats | ESG-Screened US Moats | International Moats | Global Moats | ||||
| SMOT
VanEck Morningstar SMID Moat ETF |
MOAT
VanEck Morningstar Wide Moat ETF |
MGRO
VanEck Morningstar Wide Moat ETF |
MVAL
VanEck Morningstar Wide Moat ETF |
MWMZX
VanEck Morningstar Wide Moat Fund – Class Z |
MOTE
VanEck Morningstar ESG Moat ETF |
MOTI
VanEck Morningstar International Moat ETF |
MOTG
VanEck Morningstar Global Wide Moat ETF |
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