We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
In the world of investing, "moat stocks" refer to companies that possess strong competitive advantages. The term was popularized by legendary investor Warren Buffett who said that he seeks "economic castles protected by unbreachable moats.”
In simple words, a moat is a unique competitive advantage that allows a company to maintain its market position and exert stronger pricing power, meaning it is better-positioned to pass on rising inflation-related costs directly to consumers. Moat stocks often provide investors with stable returns and lower volatility over the long term.
And wide- and narrow-moat stocks have outperformed the broader equity market over the past several years, per Morningstar. Over the past five years, VanEck Morningstar Wide Moat ETF (MOAT - Free Report) is up 76.3% versus 55.5% gains in the S&P 500 (as of Apr 18, 2023). So far this year, MOAT has added 13.6% versus 8.1% gains recorded by the S&P 500.
Red-hot global inflation, Fed rate hikes, hawkish global central banks, Russia-Ukraine war, surging energy prices, threat of de-dollarization and the banking crisis emanating in Mar 2023 have been leading the investors to bet big on stable investment options like moat ETFs and stocks in recent times.
Understanding Economic Moats
The wider the moat, the more difficult it is for competitors to threaten the company's market position. Economic moats can be created through various means, such as:
Brand recognition: Companies with strong brand recognition can charge premium prices for their products or services, resulting in higher profit margins. Examples include Apple and Coca-Cola.
Cost advantages: Companies with cost advantages can produce goods or services at a lower cost than competitors, allowing them to maintain or increase market share. Examples include Amazon and Walmart.
Network effects: Companies that benefit from network effects see an increase in the value of their products or services as more users join their platform. Examples include Facebook and Microsoft.
Intellectual property: Companies with extensive intellectual property, such as patents and proprietary technology, can maintain their competitive edge and protect their market share. Examples include Alphabet (Google) and Pfizer.
High switching costs: Companies that offer products or services with high switching costs can retain customers for longer periods, leading to recurring revenue streams. Examples include Adobe and Salesforce.
Against this backdrop, below we highlight a few moat ETFs & stocks that can be tapped now.
The underlying Morningstar Wide Moat Focus Index tracks the overall performance of the 20 most attractively priced companies with sustainable competitive advantages. No stock accounts for more than 2.92% of the Zacks Rank #2 (Buy) fund.
Kellogg (2.92%), Veeva Systems (2.88%) and Polaris (2.74%) are the top three holdings of the fund. The fund charges 46 bps in fees.
VanEck Morningstar International Moat ETF (MOTI - Free Report)
The underlying Morningstar Global ex-US Moat Focus Index tracks the overall performance of 50 attractively priced companies outside the U.S. with sustainable competitive advantages. The fund holds 70 stocks in the fund. The fund is up 10.5% this year.
No stock accounts for more than 2.50% of the fund. Brp Inc. (2.505), Nice Ltd (2.40%) and Sodexo (2.32%) are the top three holdings of the fund. China takes the top spot in the fund with about 30% weight while U.K. (14.62%), Germany (9.43%) and France (8.14%) round out the top four geographical spots.
Bottom Line
It is important to note that even wide-moat companies can face challenges, and their competitive advantages may erode over time. Therefore, it is crucial for investors to continually monitor the companies they invest in and ensure that the moats remain strong and intact.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Moat ETFs Are Beating S&P 500: Here's Why
In the world of investing, "moat stocks" refer to companies that possess strong competitive advantages. The term was popularized by legendary investor Warren Buffett who said that he seeks "economic castles protected by unbreachable moats.”
In simple words, a moat is a unique competitive advantage that allows a company to maintain its market position and exert stronger pricing power, meaning it is better-positioned to pass on rising inflation-related costs directly to consumers. Moat stocks often provide investors with stable returns and lower volatility over the long term.
And wide- and narrow-moat stocks have outperformed the broader equity market over the past several years, per Morningstar. Over the past five years, VanEck Morningstar Wide Moat ETF (MOAT - Free Report) is up 76.3% versus 55.5% gains in the S&P 500 (as of Apr 18, 2023). So far this year, MOAT has added 13.6% versus 8.1% gains recorded by the S&P 500.
Red-hot global inflation, Fed rate hikes, hawkish global central banks, Russia-Ukraine war, surging energy prices, threat of de-dollarization and the banking crisis emanating in Mar 2023 have been leading the investors to bet big on stable investment options like moat ETFs and stocks in recent times.
Understanding Economic Moats
The wider the moat, the more difficult it is for competitors to threaten the company's market position. Economic moats can be created through various means, such as:
Brand recognition: Companies with strong brand recognition can charge premium prices for their products or services, resulting in higher profit margins. Examples include Apple and Coca-Cola.
Cost advantages: Companies with cost advantages can produce goods or services at a lower cost than competitors, allowing them to maintain or increase market share. Examples include Amazon and Walmart.
Network effects: Companies that benefit from network effects see an increase in the value of their products or services as more users join their platform. Examples include Facebook and Microsoft.
Intellectual property: Companies with extensive intellectual property, such as patents and proprietary technology, can maintain their competitive edge and protect their market share. Examples include Alphabet (Google) and Pfizer.
High switching costs: Companies that offer products or services with high switching costs can retain customers for longer periods, leading to recurring revenue streams. Examples include Adobe and Salesforce.
Against this backdrop, below we highlight a few moat ETFs & stocks that can be tapped now.
ETFs in Focus
VanEck Morningstar Wide Moat ETF (MOAT - Free Report)
The underlying Morningstar Wide Moat Focus Index tracks the overall performance of the 20 most attractively priced companies with sustainable competitive advantages. No stock accounts for more than 2.92% of the Zacks Rank #2 (Buy) fund.
Kellogg (2.92%), Veeva Systems (2.88%) and Polaris (2.74%) are the top three holdings of the fund. The fund charges 46 bps in fees.
VanEck Morningstar International Moat ETF (MOTI - Free Report)
The underlying Morningstar Global ex-US Moat Focus Index tracks the overall performance of 50 attractively priced companies outside the U.S. with sustainable competitive advantages. The fund holds 70 stocks in the fund. The fund is up 10.5% this year.
No stock accounts for more than 2.50% of the fund. Brp Inc. (2.505), Nice Ltd (2.40%) and Sodexo (2.32%) are the top three holdings of the fund. China takes the top spot in the fund with about 30% weight while U.K. (14.62%), Germany (9.43%) and France (8.14%) round out the top four geographical spots.
Bottom Line
It is important to note that even wide-moat companies can face challenges, and their competitive advantages may erode over time. Therefore, it is crucial for investors to continually monitor the companies they invest in and ensure that the moats remain strong and intact.