The ASX-listed exchange-traded fund (ETF) VanEck Morningstar Wide Moat ETF (ASX: MOAT) has been a great investment to own for the long-term and there are still plenty of reasons to believe it can deliver good returns from here.
For starters, I should mention that the fund is invested in US-listed businesses. So, for Australian investors who have little exposure to overseas share markets, I think this is a good option to consider for international diversification purposes.
Its portfolio – which is regularly shifting its holdings – has delivered an average return per year of 14.7% over the last decade.
I reckon many Aussie investors would be happy if their portfolio delivered an average return per year of more than 14% over the prior decade.
There are a couple of aspects that help this ASX ETF deliver such strong returns.
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Strong economic moats
The fund says it focuses on quality US companies that Morningstar (an investment research outfit) believes possess sustainable competitive advantages, or wide economic moats.
Competitive advantages can come in a variety of different forms such as cost advantages, intangible assets (patents, brands or regulatory licenses) that keep competitors at bay, switching costs, network effects, efficient scale and so on.
It's good to have a competitive advantage because that may be what wins a customer.
But, the ASX ETF wants to find businesses that have sustainable competitive advantages. In other words, it wants to see that these advantages will endure for a long time rather than having an economic moat they may not last that long.
VanEck and Morningstar explain how a business can claim to have a wide economic moat:
For a company to earn a wide economic moat, excess normalised returns must, with near certainty, be positive 10 years from now. In addition, excess normalised returns must, more likely than not, be positive 20 years from now.
In other words, these businesses could generate good profits and margins for many years to come.
Great value
The MOAT ETF only invests in these great businesses when they're at a good price.
It targets companies that are trading at attractive prices compared to what Morningstar's estimate of fair value.
At the moment, the ASX ETF's biggest positions currently include Constellation Brands, Brown-Forman, Airbnb, Nvidia and Bristol-Myers Squibb.
That combination of buying great businesses at good prices is a winning formula and it has clearly generated good returns over the long-term as it picks great ideas from a variety of sectors.
