How did the VanEck Morningstar Wide Moat ETF (ASX:MOAT) more than double the ASX 200’s returns in 2021?

The MOAT ETF strongly outperformed the ASX 200 last year.

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Key Points

  • The VanEck Morningstar Wide Moat ETF produced capital growth of more than double the ASX 200
  • A focus on economic moats and attractive valuations has helped the performance
  • The MOAT ETF has achieved a high level of performance over an extended period of time

The VanEck Morningstar Wide Moat ETF (ASX: MOAT) managed to strongly outperform the S&P/ASX 200 Index (ASX: XJO) in 2021.

In 2021, the exchange-traded fund (ETF) produced a price return of 30.25% and a total net return of 31.5%. That compares to the ASX 200 price return of 13% in 2021 and 17% including the dividends.

What is the VanEck Morningstar Wide Moat ETF?

VenEck says that the MOAT ETF gives investors exposure to a diversified portfolio of attractively priced US companies with sustainable competitive advantages according to Morningstar’s equity research team.

Compared to the ASX 200 and the ETFs that track it, there are a few differences.

Holdings

The performance of indices and ETFs is dictated by the returns of the underlying businesses.

The ASX 200 is mainly influenced by a few major businesses: BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), CSL Limited (ASX: CSL), National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANZ), Westpac Banking Corp (ASX: WBC), Macquarie Group Ltd (ASX: MQG), Telstra Corporation Ltd (ASX: TLS) and Rio Tinto Limited (ASX: RIO).

However, the MOAT ETF positions change over time because the Morningstar analysts are regularly adjusting which US shares with strong economic moats they think are the best opportunities.

On 12 January 2022, VanEck Morningstar Wide Moat ETF had the following as its biggest holdings: Cheniere Energy, Wells Fargo, Berkshire Hathaway, Merck & Co and Constellation Brands.

The main two sectors represented in the ASX 200 are financials and resources. Whereas, at the moment, there are four sectors have at least a mid-teen representation in the MOAT ETF: IT (25.5%), healthcare (16.5%), industrials (15.2%) and consumer staples (14.1%).

How does the MOAT ETF choose the investments?

Morningstar analysts look for quality US businesses which are believed to possess sustainable competitive advantages, or “wide economic moats”. It’s not necessarily the size of the competitive advantage that is being looked at, it’s how long that economic moat can be maintained.

A business needs to be likely to possess its wide economic moat “with near certainty” at least 10 years from now. Also, excess normalised returns must, more likely than not, be positive 20 years from now according to Morningstar.

It’s only these wide economic moat businesses that can end up on the MOAT ETF watchlist.

VanEck says those businesses only make it into the VanEck Morningstar Wide Moat ETF portfolio if they’re trading at attractive prices relative to Morningstar’s estimate of fair value.

This active investment style has an annual cost of 0.49%.

Longer-term performance

Past performance is no guarantee of future performance.

However, the VanEck Morningstar Wide Moat ETF has achieved a high level of return over the longer-term. In the past five years, the MOAT ETF’s net return has been an average of 18.3% per annum. That was bigger return than the S&P 500’s net return per annum of 17.8%.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended CSL Ltd. The Motley Fool Australia owns and has recommended Telstra Corporation Limited. The Motley Fool Australia has recommended Macquarie Group Limited, VanEck Vectors Morningstar Wide Moat ETF, and Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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