Is the Vaneck Morningstar Wide Moat ETF (MOAT) a good long-term investment?

Is this ASX ETF a top pick to hold for years to come?

| 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

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.

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. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended VanEck Morningstar Wide Moat ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ETFs

Modern accountant woman in a light business suit in modern green office with documents and laptop.

Could buying the Vanguard Australian Shares Index ETF (VAS) at under $100 help me retire early?

Can the Aussie stock market help us build wealth?

Read more »

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.

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

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.

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.

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.

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.

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.

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 »