The Vaneck Morningstar Wide Moat ETF (ASX: MOAT) is a leading exchange-traded fund (ETF) that, up until now, has produced impressive investment returns. In this article, I'm going to look at whether the fund is a good buy for the long term.
ETFs allow investors to invest in a group of businesses in a single transaction. The MOAT ETF tracks an index that contains at least 40 US companies that are attractively priced with sustainable competitive advantages according to Morningstar's equity research team.
Why a wide moat helps
An economic moat, or a competitive advantage, is what a business has to defend itself against competitors that want to take market share.
Competitive advantages can come in many different forms, including cost advantages, intangible assets (like patents, brands or regulatory licenses), switching costs, network effects and efficient scale.
For a company to earn a tag of "wide economic moat" from Morningstar, excess normalised profit must "with near certainty" be positive 10 years from now. On top of that, excess normalised returns must, "more likely than not, be positive 20 years from now".
The MOAT ETF will only consider businesses that Morningstar has decided have economic moats that are more likely than not to be making good profits in two decades. I think this investment strategy makes the fund a good long-term investment.
I'd suggest that if the current MOAT ETF stuck with its exact current portfolio for the next ten years, I think it would do quite well because of the underlying quality of the businesses.
Attractively priced stocks
There's more to the Vaneck Morningstar Wide Moat ETF than just owning great businesses. It also buys them at attractive prices.
The target companies must be trading at attractive prices relative to Morningstar's estimate of fair value to be purchased. This additional step ensures the portfolio is (seen as being) good value. It can help the fund deliver stronger returns if the ETF moves in and out of businesses when they are undervalued and become overvalued.
Since the MOAT ETF's inception in June 2015 to 31 March 2024, it produced an average return per annum of 16.4%, compared to 14.5% for the S&P 500 Index (SP: .INX).
Foolish takeaway
The Vaneck Morningstar Wide Moat ETF has proven to be an excellent performer over the long term and I think it can continue to beat the S&P/ASX 200 Index (ASX: XJO) over time with the high-quality holdings that are attractively priced.
The only downside I can pick out is the portfolio is entirely based on US-listed shares, which isn't that diversified, though the underlying holdings do generate earnings internationally.
I think the MOAT ETF can form a core part of the portfolio, in addition to other (ASX share) investments.
