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Wide Moat Research Vs. S&P 500
A new exchange-traded fund (ETF) that tracks the Morningstar Wide Moat Focus Index is looking to attract investors that want a broad-based approach to the market with a new approach. The strategy seeks to find companies that are able to build a moat to keep a competitive advantage over their peers. It also looks for companies that have above average return on capital and earnings.
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The ETF is the Market Vectors Morningstar Wide Moat Research ETF (ARCA:MOAT). According to the ETF's website the underlying index has outperformed the S&P 500 since its inception in February 2007, and the index has gained around 51% versus 9% for the S&P 500 through Mar. 31, 2012.
Based on its performance, the ETF deserves a second look and analysis. It currently only has about $11 million in assets under management and it charges an expense ratio of 0.49%. There are a total of roughly 20 stocks in the allocation with the largest holding making up around 6.2% and the smallest at 4.5%. Not one stock has an above average weighting, helping it be more diversified even with only 20 stocks.
SEE: Advantages And Disadvantages Of ETFs
Top Holdings
The current top holdings are Amazon.com (Nasdaq:AMZN), Compass Minerals International (NYSE:CMP), Northern Trust (Nasdaq:NTRS) and Pfizer (NYSE:PFE). One strategy I have implemented in the past to find new stock ideas is to look at the holdings of the top performing ETFs. For the ETF to outperform the underlying stocks, it must be doing well.
Amazon is well known to most investors and non-investors as the online marketplace for all things from books to clothing. The stock recently rallied to a new multi-month high after reporting earnings for the first quarter. The combination of the online marketplace and its eBook Kindle, the company is clearly a leader in the markets it does business in. However, Microsoft's (Nasdaq:MSFT) and Barnes & Noble's (NYSE:BKS) ventures in the eBook sector could threaten Amazon's in the future.
Compass Minerals is a salt and specialty fertilizer company that has been moving sideways for the majority of 2012, but still has a gain of over 10%. The 2.6% dividend yield is attractive, but a PEG ratio of roughly 1.71 puts the stock at fairly valued. A breakout above the $80 level would be needed to spur more bullish action in the stock.
Northern Trust provides asset management and various banking services to individual and institutional clients. The stock has had a good run in 2012, but remains well off the highs set before the 2008 financial collapse. The stock pays a 2.6% dividend and trades with an attractive PEG ratio of about 1.03. The future of the company relies heavily on the outcome of the debt issue that is currently hurting Europe.
Pfizer is a large pharmaceutical company that is best known for Viagra, Celebrex and Lipitor. The company has begun to turn around after a multi-year downtrend as its pipeline was depleted. The stock pays a 3.9% dividend and trades with a PEG ratio around 3.62. Of the large-cap pharmaceutical stocks, Pfizer would not be my favorite.
SEE: Valuing Large-Cap Stocks
The Bottom Line
The top four stocks in MOAT were highlighted and as you can imagine, not one has me overly excited. The ETF as a whole does have me excited and this is a situation where I would prefer to own the basket of stocks in MOAT and pay the 0.49% expense ratio for their research. This is the beauty of new and innovative ETF products.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
The ETF is the Market Vectors Morningstar Wide Moat Research ETF (ARCA:MOAT). According to the ETF's website the underlying index has outperformed the S&P 500 since its inception in February 2007, and the index has gained around 51% versus 9% for the S&P 500 through Mar. 31, 2012.
Based on its performance, the ETF deserves a second look and analysis. It currently only has about $11 million in assets under management and it charges an expense ratio of 0.49%. There are a total of roughly 20 stocks in the allocation with the largest holding making up around 6.2% and the smallest at 4.5%. Not one stock has an above average weighting, helping it be more diversified even with only 20 stocks.
SEE: Advantages And Disadvantages Of ETFs
Top Holdings
The current top holdings are Amazon.com (Nasdaq:AMZN), Compass Minerals International (NYSE:CMP), Northern Trust (Nasdaq:NTRS) and Pfizer (NYSE:PFE). One strategy I have implemented in the past to find new stock ideas is to look at the holdings of the top performing ETFs. For the ETF to outperform the underlying stocks, it must be doing well.
Amazon is well known to most investors and non-investors as the online marketplace for all things from books to clothing. The stock recently rallied to a new multi-month high after reporting earnings for the first quarter. The combination of the online marketplace and its eBook Kindle, the company is clearly a leader in the markets it does business in. However, Microsoft's (Nasdaq:MSFT) and Barnes & Noble's (NYSE:BKS) ventures in the eBook sector could threaten Amazon's in the future.
Northern Trust provides asset management and various banking services to individual and institutional clients. The stock has had a good run in 2012, but remains well off the highs set before the 2008 financial collapse. The stock pays a 2.6% dividend and trades with an attractive PEG ratio of about 1.03. The future of the company relies heavily on the outcome of the debt issue that is currently hurting Europe.
Pfizer is a large pharmaceutical company that is best known for Viagra, Celebrex and Lipitor. The company has begun to turn around after a multi-year downtrend as its pipeline was depleted. The stock pays a 3.9% dividend and trades with a PEG ratio around 3.62. Of the large-cap pharmaceutical stocks, Pfizer would not be my favorite.
SEE: Valuing Large-Cap Stocks
The Bottom Line
The top four stocks in MOAT were highlighted and as you can imagine, not one has me overly excited. The ETF as a whole does have me excited and this is a situation where I would prefer to own the basket of stocks in MOAT and pay the 0.49% expense ratio for their research. This is the beauty of new and innovative ETF products.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.
by
Matthew McCall
Matthew McCall is the president of Penn Financial Group, LLC, a registered investment advisor. He also publishes two newsletters, The ETF Bulletin and The PFG Letter as well as other educational material. As a registered investment advisor, he manages clients' investments based on their specific goals and objectives.
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