Van Eck's Market Vectors exchange traded fund division has added a new fund product that follows companies that are able to hold onto their competitive edge over an extended period of time.
According to a press release, the Market Vectors Morningstar Wide Moat Research ETF (MOAT) will try to reflect the performance of the Morninstar Wide Moat Focus Index (WMW), which is comprised of companies that have created a "moat" or could maintain a competitive advantage for the next 20+ years. MOAT has an expense ratio of 0.49%.
The Morningstar Economic Moat Rating methodology follows companies that are able to hold an economic moat to keep competitors from stealing away market share and generate higher profits over an extended period. Companies will have earnings above average returns on capital and a competitive edge that prevents others from eroding returns, including intangible assets like brand name and patents; cost advantages like economies of scale; switching costs associated with changing provider or producers; network effects of new customers adds value for all; and efficient scale.
About 10% of the total broad equity market can be categorized as "wide" moat stocks. The Morningstar Wide Moat Focus Index holds 20 of the most attractively priced stocks from the 10% "wide" moat companies.
Between September of 2002 and March 31, 2012, the Index has generated a 15.3% annualized total return, compared to the 8.1% of the S&P 500.
Sector allocations include: information tech 25.0%, financial services 19.9%, health care 15.4%, materials 15.1%, industrials 9.9%, energy 5.2%, utilities 4.9% and consumer discretionary 4.6%.
"We're pleased to offer this new addition to our ETF suite," Allison Lovett, Vice President of Marketing, Market Vectors ETFs, told us. "Market Vectors is always looking for global index providers that offer compelling methodologies. In this case, Morningstar's wide-moat stock selection process certainly stands out among broad equity approaches. We hope that investors find MOAT to be a compelling alternative to S&P-based investments."
"The Morningstar Wide Moat Focus IndexSM leverages Morningstar's unique, long-term approach to stock analysis, and includes a collection of undervalued high-quality businesses that are expected to generate returns on capital above their cost of capital," Sanjay Arya, Senior V.P. of Morningstar Indexes, said in the press release.
Max Chen contributed to this article.
Disclosure: I am long PFE. Tom Lydon's clients own PFE.