Building an ASX share portfolio can be a delicate process. You obviously want to pack your portfolio full of shares of the highest quality. But you also want to be sure that if a crisis hits the share market, your investments are financial sound and well insulated against any permanent capital loss. This can be a tricky balance. One of the ways I protect my own portfolio for this purpose is with an ASX exchange-traded fund (ETF).
The ETF in question is the VanEck Morningstar Wide Moat ETF (ASX: MOAT).This fund is a rather unique ETF on the ASX. Instead of tracking a simple index, as the Vanguard Australian Shares Index ETF (ASX: VAS) or the iShares S&P 500 ETF (ASX: IVV) do, MOAT invests in a concentrated portfolio of carefully-selected stocks.
These stocks hail from the Untied States, and have to check several boxes before gaining admission to the MOAT portfolio. One of those boxes is being available at a fair valuation. But the most important one is possessing a wide economic moat.
A 'moat' is an investing concept first coined by legendary investor Warren Buffett. It refers to an intrinsic competitive advantage that a company can possess, that helps the company ride out economic cycles, as well as fend off competition.
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How does this wide moat ETF protect an ASX share portfolio?
This moat could come in several forms. It could be a powerful brand that consumers trust, or a cost advantage that allows the company to consistently charge lower prices than competitors. it could be providing a product or service that consumers find difficult to avoid, or else possessing an intellectual property that the company solely owns.
Companies that possess strong moats are usually long-term winners. Warren Buffett himself has stated that he looks for these sorts of advantages in every investment he buys.
The VanEck Wide Moat ETF is full of them. We can see this in action by looking at this fund's holdings. As it currently stands, the MOAT portfolio counts stocks like Boeing, Airbnb, Clorox, Nike, Cadbury-owner Mondelez International, Adobe and Microsoft as current holdings.
These are all dominant, profitable companies that possess at least one form of a moat. It could be the enduring appeal of Mondelez's brands like Cadbury or Oreo, or the essential nature of the software products that Microsoft or Adobe provide. The resilient nature of these stocks provide a lot of stability for my portfolio, and help me sleep well at night. As such, I am very happy to have the VanEck Morningstar Wide Moat ETF in my ASX portfolio, especially in a week like the one we are having.
