The VanEck Morningstar Wide Moat ETF (ASX: MOAT) has had a bad year in 2024, at least compared to the Australian share market.
The S&P/ASX 200 Index (ASX: XJO) has managed a historically strong 7.63% rise over the year to date. That's been helped in large part by stunning returns from the big four ASX banks, such as Commonwealth Bank of Australia (ASX: CBA).
We can even add a few percentage points to account for returns from dividends and franking credits.
In contrast, the VanEck Wide Moat exchange-traded fund (ETF) has returned just 3.41% over the same period. To be fair, there was a monstrous $9.73 per unit dividend distribution that MOAT units paid out a few months ago. Even taking this into account, it would put the ASX 200 and the Wide Moat ETF on an even footing.
But an index-tracking ETF like the iShares Core S&P/ASX 200 ETF (ASX: IOZ) would still come out just ahead if we add up the capital gains and the franked dividend distributions.
However, I'm confident that the VanEck Wide Moat ETF will regain its ASX-beating crown in 2025. That's why I currently hold MOAT units and not an IOZ investment.
Two reasons why the VanEck Wide Moat ETF will beat the ASX 200 in 2025
My conviction in this thesis is built on two arguments.
The first is that I think the ASX 200 has had an unusually good year, but one that will not be repeated in 2025.
As we touched on earlier, most of the gains that the ASX 200 has seen in 2024 have been driven by the major ASX banks. These, of course, account for a huge chunk of the overall index.
All four major banks have enjoyed 20%-plus rises this year. Westpac Banking Corp (ASX: WBC) has been particularly strong, with a 45%-plus gain at current pricing.
However, ASX bank earnings have been fairly flat over the past 12-24 months. As such, I don't see these stocks rising by anything close to this level in 2025. In fact, I wouldn't be surprised to see them tread water for a while. Or even take a haircut.
That doesn't bode well for the ASX 200, in my view.
That brings me to my second argument. I think the WideMoat ETF will get back to what it does best, delivering market-beating performance by holding underlying companies with strong, wide moats.
The power of a moat
This ETF is a rather unique one on the ASX. It contains an actively managed portfolio of American shares, selected based on their perceived possession of a wide moat.
A 'moat' is the term coined by legendary investor Warren Buffett. It refers to traits that a company can have to help it protect itself from competitors.
These could include a powerful brand, a low-cost advantage, or selling a product that consumers find difficult to avoid buying.
Buffett has long preached that these 'wide moat' companies tend to make the best investments. And the Wide Moat ETF's concentrated portfolio is full of them.
Some current holdings include Campbell Soup Co (low-cost advantage), Starbucks (strong brand), Adobe (a product many people can't work without) and Disney (again, strong brand).
This ETF's past success has been based on this approach of holding high-quality companies. Yes, it has returned an uncharacteristically modest performance in 2024 so far. But MOAT units have still averaged a 15.52% per annum return over the five years to 31 August 2024.
Since the fund hasn't changed its underlying objectives and methods, I have full confidence that it will once again be a market-beater in 2025 and beyond.
