I have long considered the VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT) one of the best ‘managed’ investments you can buy on the ASX, but is this still the case? After all, the ‘true’ passive investor will tell you that the only ETFs (exchange traded funds) you should buy are ultra-cheap market tracking index funds like the iShares S&P 500 ETF (ASX: IVV).
An ETF like IVV tracks an index on a completely passive basis – that is, the fund will blindly buy and sell the biggest 500 companies on the US market, and nothing else. No downside protection, no stock selection based on quality, just numbers.
Of course, there’s nothing wrong with this approach – the S&P 500 has returned 17.56% per annum over the last 5 years to Aussie investors – for only a management fee of 0.04%.
But I still prefer MOAT. Here’s why.
MOAT only holds around 40–55 companies at a time, but these stocks are chosen because they possess a long-term competitive advantage or ‘wide moat’ over others. This edge gives a company power to dominate its market and competition as well as protect its profitability during tough times.
Take some of MOAT’s current top holdings.
Facebook Inc. has a virtual monopoly on social media around the world– combining Facebook, Instagram, Messenger and WhatsApp in one dominant company. Sure, there’s other players like Twitter and Snapchat, but Facebook has time and time again run rings around the smaller players and makes the lion’s share of profits in this space.
The Kellogg Company is one of the most recognisable brands in the world – and I would say has the most trusted brands of cereal on the market. Just think about the appeal of Coco-Pops, Rice Bubbles, Nutri-Grain and of course Corn Flakes. Even though there are myriad alternatives out there, no one can beat Kellogg’s for originality, brand reputation and loyalty.
These 2 companies are just some of MOAT’s holdings, but are emblematic of the quality you will get in this ETF. Although MOAT has a higher management fee than IVV – 0.49% p.a., I think its ability to outperform IVV over the last 5 years with a return of 17.9% p.a. shows its worth in spades.
So yes, I think MOAT is still the best ETF on the ASX and one that I am glad to hold. Its recent conversion to ASX domiciliation is a big plus as well.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Sebastian Bowen owns shares of Facebook and VanEck Vectors Morningstar Wide Moat ETF. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Facebook. The Motley Fool Australia has recommended Facebook and VanEck Vectors Morningstar Wide Moat ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.