How does the VanEck Wide Moat ETF return 17% per annum?

How does this ETF consistently deliver such high returns?

| More on:
Businessman at the beach building a wall around his sandcastle, signifying protecting his business.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Enjoying a return of around 17% per annum over a number of years is something that most ASX investors aren't used to. But that's what investors of the VanEck Morningstar Wide Moat ETF (ASX: MOAT) have been served up for many years.

Conventional wisdom would dictate that one would have to be a pretty savvy stock picker to consistently bang out a 17% per annum return. Anyone who sticks to ASX index funds, like the Vanguard Australian Shares Index ETF (ASX: VAS), certainly wouldn't be used to getting 17% on their money every year.

And yet this is the norm for MOAT investors.

If you look at the latest figures from VanEck, it's evident that this is no pipedream. As of 31 March, MOAT units have returned an average of 17.16% per annum over the last five years. That's inclusive of this exchange-traded fund (ETF)'s dividend distribution returns.

Those investors have also enjoyed a 15.9% per annum return over the past three years. And a whopping 25.78% over just the past 12 months.

The VanEck Wide Moat ETF hasn't been on the ASX for an entire decade just yet, with an ASX inception date of June 2015. However, the index that it tracks has returned an average of 17.74% per annum over the ten years to 31 March.

In contrast, the Vanguard Australian Shares ETF has returned an average of 8.2% per annum over the ten years to 31 March.

So how does the VanEck Wide Moat ETF do it? How can it generate such lucrative returns for investors? After all, a 17.12% return over 10 years is enough to turn every $1,000 invested into roughly $5,000 over a ten-year span.

How can the VanEck Wide Moat ETF consistently return 17% per annum to ASX investors?

Well, I think this ETF's stellar returns can be broken down into two parts for investors to understand.

Firstly, the quality of the underlying shares in this ETF's portfolio undoubtedly helped it achieve these stunning numbers. The Wide Moat ETF isn't really an index fund in the traditional sense. It functions more like an actively managed fund.

MOAT's portfolio is constructed by analysing large companies in the US markets and only selecting those that demonstrate the possession of what's known as a wide economic moat. This is a concept first coined by legendary investor Warren Buffett. It refers to an inherent competitive advantage that a company can possess. This helps it keep customers in the face of attacks from competitors.

There are many kinds of moats a company can have. But the most common include a strong brand (perhaps Apple or Toyota), offering products or services at the lowest prices (Amazon or Coles Group Ltd (ASX: COL), or possessing an asset that customers find difficult to avoid (maybe one of Transurban Group (ASX: TCL)'s toll roads).

Buffett loves these kinds of companies because they tend to be amongst the highest-returning investments on the market.

These are the only companies that the VanEck Wide Moat ETF houses in its portfolio.

Right now, you'll find names like Campbell Soup Co, Alphabet, Altria, Pfizer, Nike and Disney in the Wide Moat ETF. Most of those names are famous around the world, and for good reason.

This Buffett-like investing methodology clearly pays off for the Wide Moat ETF and its investors.

Dollars and dollars

The second reason is the current currency environment. Over the past decade, the Australian dollar has weakened considerably against the US dollar. Back in April 2014, one Aussie dollar was buying around 92 US cents. Today, that same dollar will get you just 65 US cents.

This might be bad news for motorists and any other consumers of imported goods or services. But it's great news for anyone who owns assets that are priced in US dollars. As it happens, MOAT's entire portfolio is US dollar-denominated.

So it's a combination of these two factors that seem to have turbo-charged the returns of the VanEck Wide Moat ETF over the past ten years. Let's see if investors will continue to enjoy a 17% per annum return over the next ten years.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Sebastian Bowen has positions in Alphabet, Altria Group, Amazon, Apple, Nike, VanEck Morningstar Wide Moat ETF, Vanguard Australian Shares Index ETF, and Walt Disney. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Apple, Nike, Pfizer, Transurban Group, and Walt Disney. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2025 $47.50 calls on Nike. The Motley Fool Australia has positions in and has recommended Coles Group. The Motley Fool Australia has recommended Alphabet, Amazon, Apple, Nike, VanEck Morningstar Wide Moat ETF, and Walt Disney. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ETFs

A group of young people lined up on a wall are happy looking at their laptops and devices as they invest in the latest trendy stock.
ETFs

3 excellent ASX ETFs for beginner investors to buy

If you're just starting your investment journey it could be worth checking out these ETFs.

Read more »

ETF spelt out
ETFs

Buy these 4 ASX ETFs for income, growth, or mining exposure

Whether it is growth, income, or mining, one of these ETFs may appeal to you.

Read more »

ETF written in gold with dollar signs on coin.
ETFs

These were the 2 best ASX ETFs for price growth in April

These 2 ASX ETFs give investors exposure to one of the great megatrends of the moment.

Read more »

Exchange-traded fund spelt out with ETF in red and a person pointing their finger at it.
ETFs

Macquarie ups the ante on fees with new ASX ETFs

These new ETFs from Macquarie are going to turn some heads.

Read more »

a man with a wide, eager smile on his face holds up three fingers.
ETFs

3 reasons the Betashares Nasdaq 100 ETF (NDQ) is a great ASX ETF pick

Here’s what makes the NDQ ETF so compelling.

Read more »

ETF written on cubes sitting on piles of coins.
ETFs

3 excellent ASX ETFs I think are a buy right now

I think these ASX ETFs all have excellent growth potential.

Read more »

The letters ETF with a man pointing at it.
ETFs

Why these ASX ETFs could be fantastic buy and hold options

These ETFs could be quality long-term options for investors. But why?

Read more »

Businessman at the beach building a wall around his sandcastle, signifying protecting his business.
ETFs

Both of these excellent ASX ETFs are on my buy list

I love the look of these ASX ETFs, I’m expecting to buy at least one.

Read more »