The ASX-listed exchange-traded fund (ETF) VanEck Morningstar Wide Moat ETF (ASX: MOAT) is one of my favourites available for Aussies. I think it's a top fund to own.
There are plenty of great index-based funds with low costs that can provide good diversification. However, there are a few funds that are actively chosen by analysts, are industry-based, or have quality characteristics that are very attractive, in my view.
The MOAT ETF has so many positive factors that I think it's right up there as one of the very best Aussies can buy. There are three things that really stand out to me.
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Strong economic moats
This fund is focused on quality US companies that Morningstar believes possess sustainable competitive advantages, or a wide economic moat.
Economic moats are expected to allow the companies to fend off competition and maintain profitability into the future.
Companies assigned a wide moat rating are those that Morningstar has "a very high confidence that excess returns will remain for 10 years, with excess returns more likely than not to remain for at least 20 years."
There are a few sources for economic moats, such as cost advantages, intangible assets (patents, brands, regulatory licenses), switching, network effects, and efficient scale.
Intangible assets, cost advantages, and switching costs (in that order) are the most common moat sources by a significant amount.
In other words, the businesses in this portfolio have some of the best advantages compared to competitors, which is likely to endure for at least 20 years.
Attractive valuations
The Morningstar analysts only consider businesses with a wide economic moat, but they're only added to the portfolio when target companies are trading at attractive prices compared to Morningstar's estimate of fair value.
So, in my view, the ASX ETF is a portfolio full of high-quality businesses that are trading at good value. That combination can lead to market outperformance.
Currently, its four biggest holdings include Boeing, Huntington Ingalls Industries, Corteva, and Monolithic Power Systems.
I think this strategy is why the fund has been able to deliver an average return per year of 14.7% since it started in June 2015. But we shouldn't expect returns to be that good every single year.
Diversification
The fund currently holds around 52 positions, which I think is a good level of diversification. It doesn't have loads of positions, but there are only so many competitively advantageous businesses trading at a good price. More holdings would theoretically reduce returns.
I like the sector diversification of this fund, with four sectors having a double-digit weighting. Those four being healthcare (24.7%), IT (23%), industrials (18.7%), and consumer staples (14.1%).
The only thing it lacks in terms of diversification is the listing location. All of these businesses are listed in the US, though that doesn't mean the underlying earnings aren't diversified. Many of these businesses generate revenue from numerous countries, so the fund is satisfactorily diversified, in my opinion.
Overall, I think this is one of the very best ASX ETFs, along with a couple of others.
