16% per annum: What is the VanEck Wide Moat ETF's secret sauce?

This Buffett-inspired ETF has delivered mind-blowing performance.

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The VanEck Morningstar Wide Moat ETF (ASX: MOAT) has achieved some eye-watering returns for its investors over the past few years.

To illustrate, this exchange-traded fund (ETF)'s latest update informs us that, as of 31 May, investors have banked an average return of 16.16% per annum over the past five years. MOAT unitholders have also received an average of 15.34% per annum since this ETF's ASX inception back in 2015.

That beats the pants off what most ASX ETFs have returned over that time frame. For example, the Vanguard Australian Shares Index ETF (ASX: VAS), which is currently the most popular ETF on the ASX, has returned an average of 7.81% per annum over the five years to 31 May 2024.

So how has this high-flying ASX ETF pulled off such a consistently high return over so long? What is the secret sauce that enables these returns?

What's the VanEck Wide Moat ETF's secret ASX sauce?

To answer this question, let's dive into how this ETF works. Unlike most popular ETFs, MOAT is not an index fund. Rather, it is an actively managed ETF that contains a curated and concentrated portfolio of around 70 stocks.

These stocks are selected from the US markets based on an assessment of their possession of what's known as a 'wide economic moat'.

A 'moat' is a term coined by Warren Buffett that refers to an intrinsic competitive advantage that a company can possess over its competitors.

It might be a strong brand or providing a product that consumers find difficult not to use or switch away from. It could also be a company's cost advantage over competitors.

Learning from Warren Buffett

Buffett has made no secret about his love of a company with a strong moat. In fact, he usually only buys companies that have at least some form of moat. It clearly works for Buffett, given Berkshire Hathaway's incredible growth over the past 60 or so years.

This is the secret sauce that the VanEck Wide Moat ETF attempts to harvest within its portfolio.

As such, it's no surprise to see names like Alphabet, Adobe, Disney, Altria, Pfizer, Nike, Microsoft, Amazon and Starbucks in MOAT's current portfolio. All of these companies have a clear moat that they can use to keep competition at bay and profits growing.

Just think of Disney's intellectual property portfolio. Or Amazon's ability to provide products at rock-bottom prices and have them at your door within a day or two. Or the reach of Microsoft's Office and Windows software and the power of the Starbucks and Nike brands.

Buffett told us that the best companies in the world usually have some kind of MOAT. The VanEck Wide MOAT ETF has taken this concept and run with it, which explains why this ETF is able to bang out such compelling returns.

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 Adobe, Alphabet, Altria Group, Amazon, Berkshire Hathaway, Microsoft, Nike, Starbucks, 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 Adobe, Alphabet, Amazon, Berkshire Hathaway, Microsoft, Nike, Pfizer, Starbucks, 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, long January 2026 $395 calls on Microsoft, and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Adobe, Alphabet, Amazon, Berkshire Hathaway, Microsoft, Nike, Starbucks, 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.

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