Here’s why the VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT) is my favourite ASX exchange-traded fund (ETF).
ETFs come in all shapes and sizes. The cheapest and most popular tend to be plain Jane index funds like the Vanguard Australian Shares Index ETF (ASX: VAS). Most investors would be fine just sticking to these kinds of funds for simple and cheap passive investing.
But I like to think outside this box when it comes to ETF investing. And VanEck’s MOAT delivers a unique combination of active and passive investing that I think will continue to deliver for investors.
Why MOAT is my favourite ASX ETF
MOAT is slightly different from your average ETF in that it tracks an ‘actively managed’ index rather than a market-weighted passive index like the S&P/ASX 200 Index (ASX: XJO). This index is managed by Morningstar, which chooses a basket of US-listed shares that display characteristics of a ‘wide moat’.
A moat is a term first coined by Warren Buffett and refers to the concept of an intrinsic competitive advantage that a company can have that protects it from the competition (much like a moat protects a castle).
Think about how Apple’s brand enables the company to charge more than its competitors for its iPhones. Or how Coca-Cola is the most popular cola drink, as well as the most expensive. Or how some people will only fly on Qantas Airways Limited (ASX: QAN) planes.
MOAT aims to only hold companies with this kind of pricing power. On its most recent update, this ASX ETF names Amazon.com, Nike, Facebook, Pfizer and American Express as among its top holdings. When we look at these companies, they all have some unique advantage over any potential competition – whether it be branding, monopolistic market share or exclusive drug patents.
Having these unique advantages increases the chances of a company outperforming other shares in the market over time in my view.
How does MOAT measure up?
Talking the talk is all well and good, but does MOAT walk the walk?
Well, over the past 5 years, MOAT has delivered an average annual return of 15.69% per annum. By comparison, the ASX 200 has delivered just 4.2% per annum over the past 5 years. Even the US S&P 500 Index has returned 12.91% per year.
I like those numbers, and it gives me confidence that MOAT will continue to bring home the bacon. This fund has a winning, market-beating strategy and will continue to sit in its well-deserved place in my portfolio as long as it keeps it up. That’s why MOAT is my favourite ASX ETF and one that I think merits consideration for any ASX investor.
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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 American Express, Coca-Cola, Facebook, Nike, Pfizer and VanEck Vectors Morningstar Wide Moat ETF. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Facebook and Nike. The Motley Fool Australia has recommended Facebook, Nike, 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.
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