A 'moat', like that surrounding an old-time castle, is a term used to describe competitive advantages that modern companies might have today. Although moats come in varying strengths and can be vulnerable to disruption, companies with a moat are often able to earn above-average profits compared to competitors that lack moats.
Here are 3 ways to invest in companies with a wide moat:
Sydney Airport Ltd (ASX: SYD)
A valuable facility you own which cannot be replicated or replaced is a viable way to earn market-beating returns for investors – as Sydney Airport has shown over the past decade. If you're visiting Australia's capital and economic beating heart, you have no choice but to use Sydney Airport.
Well you could land in Brisbane and drive down – but why would you? With growing inbound tourist traffic from Asia and only one airport in the city, Sydney Airport has a very strong competitive advantage. A second airport has been planned (Sydney Airport may well own that one too) but even so, Sydney Airport will retain a sizeable competitive edge, probably forever.
CSL Limited (ASX: CSL)
Intellectual property – something you can make that nobody else can – is a straightforward way to earn attractive returns in the market. CSL has this in spades with its many proprietary products and more under development. Continued high spending on research & development has also seen CSL disrupt its own products with better versions, which should prevent the company resting on its laurels and being edged out by competitors.
The one drawback is that CSL shares look expensive to me right now, even with its many great attributes considered.
VanEck Vectors Morningstar Wide Moat (ASX: MOAT)
This Exchange Traded Fund (ETF) aims to replicate Morningstar's USA 'Wide Moat' index, which is full of companies like Visa, Kraft, Disney, Yum! Brands (think KFC), Berkshire Hathaway (think Warren Buffett), and more. With a 0.49% management fee per annum and a 1% dividend, the MOAT ETF is a straightforward way to gain exposure to a bunch of US and global companies with strong competitive advantages.
