Warren Buffett is one of the world's greatest investors, producing excellent long-term investment returns through his company, Berkshire Hathaway. In some ways, his investment style is similar to the strategy utilised by VanEck Morningstar Wide Moat ETF (ASX: MOAT).
Buffett has talked for decades about the importance of companies having an economic moat that helps them defend against competitors. The stronger the moat or competitive advantage, the better a company can perform for the foreseeable future. And make better profits.
As Buffet once said:
What we're trying to do is we're trying to find a business with a wide and long-lasting moat around it, surround — protecting a terrific economic castle with an honest lord in charge of the castle.
What economic moats are there?
There are several different types of competitive advantages in the eyes of the Morningstar analyst team in charge of picking investments for the MOAT ETF portfolio.
Those economic moats include cost advantages, intangible assets (patents, brands and regulatory licenses), switching costs, network effects and efficient scale.
Think how challenging/expensive it would be to dislodge a business like Telstra Group Ltd (ASX: TLS), Walt Disney, Alphabet (Google), Microsoft, Woolworths Group Ltd (ASX: WOW), McDonald's or Xero Ltd (ASX: XRO). I believe these companies have strong economic moats.
Both Warren Buffett and the MOAT ETF look for business investments with economic moats they expect to endure for a long time.
According to the Morningstar analyst team, a company's moat must be positive 10 years from now (with near certainty) to make it into the portfolio. Furthermore, the team expects the economic moat will be positive 20 years from now.
Good valuation and strong returns for the MOAT ETF
The MOAT ETF doesn't just invest in great businesses; it only invests in stocks at "attractive valuations".
What that means is target companies must trade at attractive prices in line with what Morningstar analysts think is a fair price.
This combination of great businesses at good prices has enabled the MOAT ETF to deliver an average return per annum of 15.5% over the past five years. That's roughly double the return of the S&P/ASX 200 Index (ASX: XJO) over the same time period.
Would Warren Buffett invest in VanEck Morningstar Wide Moat ETF?
I don't think Buffett is looking to outsource his investing to Morningstar. But I do think he'd be impressed by the investment strategy and process involved.
If the MOAT ETF was the only share investment Buffett was allowed to make, I think he'd be happy to buy units for the long term.
