For the past few years, the VanEck Morningstar Wide Moat ETF (MOAT) has felt like a forgotten relic of a bygone investing era. Once upon a time, it was my favorite ETF, period. It stems from Warren Buffett’s preference for companies with wide moats – insulation from competition due to one of several factors, such as high switching costs, deep customer loyalty, etc.
However, while mega-cap tech hyperscalers were busy staging a vertical, historic melt-up, MOAT’s strategy — which explicitly hunts for undervalued companies with those sustainable competitive advantages — languished. At least in terms of relative performance to the SPDR S&P 500 ETF Trust (SPY) and especially to the Invesco QQQ Trust (QQQ).
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The market might actually finally be shifting.
With index concentration at an all-time high, the stage is perfectly set for MOAT to make a solid comeback. That’s driven by the way this unique ETF is constructed.
Why Is MOAT a Good Buy Now?
To understand why MOAT is poised for a massive leadership cycle, you have to look at how it differs from the standard, top-heavy S&P 500 Index ($SPX). This ETF doesn’t care about market capitalization. It tracks the Morningstar Direct US Wide Moat Focus Index, which uses a strict, two-step quantitative framework:
The Economic Moat: It identifies companies that possess structural competitive advantages such as high switching costs, powerful brand network effects, or massive cost advantages that will allow them to fend off competitors for at least 20 years. The Systematic Discount: From that elite pool, it selects only the 40 most undervalued stocks relative to their intrinsic fair value estimates.
www.barchart.com Crucially, the index is equal-weighted and undergoes a rigorous, staggered rebalancing every quarter. This means that MOAT is legally mandated to do what retail investors find emotionally impossible: it systematically takes profits from high-flying, overvalued momentum stocks and automatically rotates that capital into high-quality, deeply discounted cyclical and defensive names.
www.barchart.com MOAT’s strategy acts as a coiled spring that releases strong, often market-trouncing outperformance during specific market conditions. I think we are entering that exact regime right now. Why?
First, a standard index fund is no longer a diversified safety net. It’s a concentrated bet on a handful of chipmakers and cloud giants. When institutional money managers finally decide to de-risk and trim their exposure to these top-heavy names, they won’t go to cash. They will seek out high-quality large caps trading at a steep discount. That’s MOAT’s swim lane.
And, with the 10-year Treasury rate elevated and inflation proving sticky, capital-starved firms with weak balance sheets are hitting a wall. Companies inside MOAT have strong pricing power. That’s one of those sustainable competitive advantages.
In addition, while the rest of the market has spent the last year chasing multiple expansions, MOAT’s underlying holdings have already undergone a heavy fundamental reset. The fund is packed with cash-flow-heavy names trading at remarkably compressed trailing price-earnings ratios. There’s a major margin of safety there. It simply needs to be recognized.
The strategy has spent its time in the penalty box. But I think MOAT is positioned to reclaim its past glory. And I am looking at its component stocks as part of my expanding watch list.
Rob Isbitts created the ROAR Score, based on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and create their own portfolios. For Rob’s written research, check out ETFYourself.com.
On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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