U.S. Moats Ahead Despite IT Underweight

For the month Ending July 30, 2018

Performance Overview

Domestic moat companies, as represented by the Morningstar Wide Moat Focus IndexSM (MWMFTR, or "U.S. Moat Index"), once again posted strong results in July, outperforming the S&P 500 Index (4.11% vs. 3.72%, respectively) and pulled ahead on a year-to-date basis (7.15% vs. 6.47%). International moats outpaced the broad international market for the second straight month, and returned to roughly even on a year-to-date basis relative to the broad international market. The Morningstar Global ex-US Moat Focus IndexSM (MGEUMFUN, or "International Moat Index") led the MSCI All Country World Index ex-USA modestly in July (2.84% vs. 2.39%, respectively).

U.S. Domestic Moats: Impressive Despite IT Underweight

The U.S. Moat Index posted strong performance again in July, and by the end of the month, its year-to-date results overtook the S&P 500 Index despite being underweight to the information technology sector. The U.S. Moat Index has been overweight healthcare companies for some time now as a result of the valuation dynamics in the sector. That positioning paid off in July, with the top-five performing constituents all coming from the sector. All nine represented GICS sectors contributed strongly to U.S. Moat Index performance except for energy. Cheniere Energy Inc. (LNG, -2.59%), the lone constituent for the energy sector, posted negative performance. L Brands Inc. (LB, -14.13%) was the top detractor and worst performer in July. For several months now, L Brands has been a dog in the U.S. Moat Index, and as of July 27, 2018, Morningstar equity analysts have downgraded its Economic Moat Rating. Morningstar cites a lack of conviction in future profitability that can allow them to justify a 20-year wide economic moat rating. According to the U.S. Moat Index methodology, L Brands will be removed from the Index in subsequent index reviews.

International Moats: High-Flyer

Grupo Aeroportuario del Centro Norte (OMAB, 15.31%), which operates 13 airports in Mexico and handles roughly 15% of domestic air travel, according to Morningstar, was the top contributor to International Moat Index returns in July. Morningstar recently increased its fair value estimate from $42 to $45 per share as a result of the strengthening Mexican peso relative to the U.S. dollar. Interestingly, the election of Andrés Manuel López Obrador as president also impacts Morningstar's fair value model because of expectations that he will cancel or delay existing plans to build a new Mexico City airport. This may limit Centro Norte's growth potential. Germany and Australia were the top contributors to index performance in July from a country perspective, and telecom, industrials, and financials were the top contributing sectors. Tencent (OTCPK:TCEHY, -9.82%) was the poorest performer and leading detractor from the International Moat Index returns in July. Its share price decline further widened the company's valuation gap between its current price and fair value of HKD 641.

Monthly Index Returns

1-Year Index Returns

Top/Bottom Index Performers

(%) Month Ending 7/30/18

Morningstar Wide Moat Focus Index (MWMFTR)

Top 5 Index Performers

Constituent Total Return
Eli Lilly and Co. 15.80
Biogen Inc. 15.20
Zimmer Biomet Holdings Inc. 12.63
Allergan PLC 10.42
Pfizer Inc. 10.06

Bottom 5 Index Performers

Constituent Total Return
L Brands Inc. -14.13
Twenty-First Century Fox Inc. Class A -9.44
McKesson Corp. -5.85
AmerisourceBergen Corp. -4.03
Guidewire Software Inc. -2.91


View MOAT's current constituents
View MWMZX's current constituents

Morningstar Global ex-US Moat Focus Index (MGEUMFUN)

Top 5 Index Performers

Constituent Total Return
GEA Group AG 15.86
Grupo Aeroportuario del Centro Norte SAB de CV 15.31
SoftBank Group Corp. 14.92
Meggitt PLC 14.84
TPG Telecom Ltd. 12.10

Bottom 5 Index Performers

Constituent Total Return
Tencent Holdings Ltd. -9.82
Seven & I Holdings Co. Ltd. -6.70
Yum China Holdings Inc. -6.19
Smiths Group PLC -5.56
SINA Corp. -4.97


View MOTI's current constituents

Index Reconstitution

As of 6/15/18

Morningstar Wide Moat Focus Index (MWMFTR)

Index Additions

Added Constituent Ticker
Campbell Soup Co. CPB
General Mills Inc. GIS
Comcast Corp. A CMCSA
Philip Morris International PM
Dominion Energy Inc. D
Procter & Gamble PG
Hershey Foods Corp. HSY
PepsiCo Inc. PEP
Colgate-Palmolive Co. CL
Franklin Resources Inc. BEN

Index Deletions

Deleted Constituent Ticker
Monsanto Co. MON
Veeva Systems Inc. A VEEV
Stericycle Inc. SRCL
VF Corp. VFC
Lowe's Cos. Inc. LOW
TransDigm Group TDG
John Wiley & Sons Inc. A JW.A
Emerson Electric Co. EMR
Visa Inc. A V
NIKE Inc B NKE


View Latest MOAT Reconstitution Report
View MOAT's list of current constituents

Morningstar Global ex-US Moat Focus Index (MGEUMFUN)

Index Additions

Added Constituent Country
Cameco Corporation Canada
Credit Suisse Group AG Switzerland
Fanuc Corp. Japan
UBS Group AG Switzerland
LINE Corp. Shs Japan
Beijing Capital International Airport China
Agricultural Bank of China China
SK Telecom South Korea
Nabtesco Japan
Shire PLC United Kingdom
Denso Corporation Japan
Rolls-Royce Holdings PLC United Kingdom
CI Financial Inc. Canada
National Australia Bank Australia
HeidelbergCement Germany
SCOR SE Act Prov Regpt France
Murata Mfg Co. Ltd. 100 Japan
Magellan Financial Group Australia
GlaxoSmithKline PLC United Kingdom
Anta Sports Products China
Yum China Holdings Inc. China
Platinum Asset Management Ltd. Australia
IOOF Holdings Limited Australia
TPG Telecom Ltd. Australia
Kubota Corporation Japan

Index Deletions

Deleted Constituent Country
Nordea Bank AB Common Stock Sweden
Contact Energy Limited Common Stock New Zealand
Telecom Italia Az. Italy
Grupo Aeroportuario del Centro Norte S.A.B. de C.V. Mexico
Smiths Group PLC Ordinary Shares United Kingdom
Samsonite International S.A. Common Stock Hong Kong
Meggitt PLC Shs United Kingdom
Telefonica S.A. Common Stock Spain
Infosys Ltd. India
Crown Resorts Ltd. Australia
Mobile TeleSystems PJSC * Russian Federation
Danske Bank A/S Shs Denmark
Vodafone Group PLC Common Stock United Kingdom
Roche Holding AG Dividend Right Cert Switzerland
Swedbank AB Ordinary Shares A Sweden
Oversea-Chinese Banking Singapore
GEA Group Aktiengesellschaft Germany
Sanofi France
Commonwealth Bank of Australia Ordinary Share Australia
SoftBank Group Corp. shs Japan
Bayer AG Namen-Akt Germany
Grupo Aeroportuario del Pacifico SAB de CV Com Stk B Mexico
China Resources Gas Group Ltd. China
Wipro Ltd. India


View Latest MOTI Reconstitution Report

View MOTI's list of current constituents

Important Disclosures

This commentary is not intended as a recommendation to buy or to sell any of the named securities. Holdings will vary for the MOAT and MOTI ETFs and their corresponding Indices.

Index performance is not representative of fund performance. To view fund performance current to the most recent month end, call 800.826.2333 or visit vaneck.com.

An investor cannot invest directly in an index. Returns reflect past performance and do not guarantee future results. Results reflect the reinvestment of dividends and capital gains, if any. Index returns do not represent Fund returns. The Index does not charge management fees or brokerage expenses, nor does the Index lend securities, and no revenues from securities lending were added to the performance shown.

Fair value estimate: the Morningstar analyst's estimate of what a stock is worth.

Price/Fair Value: ratio of a stock's trading price to its fair value estimate.

The Morningstar® Wide Moat Focus IndexSM and Morningstar® Global ex-US Moat Focus IndexSM were created and are maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Vectors Morningstar Wide Moat ETF or VanEck Vectors Morningstar International Moat ETF and bears no liability with respect to the ETFs or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar Wide Moat Focus Index and Morningstar Global ex-US Moat Focus Index are service marks of Morningstar, Inc.

The Morningstar® Wide Moat Focus IndexSM consists of U.S. companies identified as having sustainable, competitive advantages and whose stocks are attractively priced, according to Morningstar.

The Morningstar® Global ex-US Moat Focus IndexSM consists of companies outside of the U.S. identified as having sustainable, competitive advantages and whose stocks are attractively priced, according to Morningstar.

The S&P 500® Index consists of 500 widely held common stocks covering industrial, utility, financial and transportation sector; as an Index, it is unmanaged and is not a security in which investments can be made.

The S&P 500® Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2018 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC's indices please visit www.spdji.com. S&P is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third-party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third-party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.

The MSCI All Country World Index ex USA Index captures large and mid-cap representation across 22 of 23 developed markets countries (excluding the U.S.) and 24 emerging markets countries.

Effective June 20, 2016, Morningstar implemented several changes to the Morningstar® Wide Moat Focus IndexSM construction rules. Among other changes, the index increased its constituent count from 20 stocks to at least 40 stocks and modified its rebalance and reconstitution methodology. These changes may result in more diversified exposure, lower turnover, and longer holding periods for index constituents than under the rules in effect prior to this date.

Effective June 20, 2016, Morningstar implemented several changes to the Morningstar® Global ex-US Moat Focus IndexSM construction rules. Among other changes, the index increased its constituent count from 50 stocks to at least 50 stocks and modified its rebalance and reconstitution methodology. These changes may result in more diversified exposure, lower turnover, and longer holding periods for index constituents than under the rules in effect prior to this date.

An investment in VanEck Vectors Morningstar Wide Moat ETF (MOAT®) may be subject to risks which include, among others, investing in the health care, consumer discretionary, industrials, financial services sectors, medium-capitalization companies, equity securities, market, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified, and concentration risks, which may make these investments volatile in price or difficult to trade. Medium-capitalization companies may be subject to elevated risks. The Fund's assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.

An investment in VanEck Vectors Morningstar International Moat ETF (MOTI®) may be subject to risks which include, among others, equity securities, investing in the financial services, health care, industrials and telecommunication sectors, medium-capitalization companies, foreign securities, foreign currency, emerging market issuers, special risk considerations of investing in Asian and European issuers, depositary receipts, cash transactions, market, operational, high portfolio turnover, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified, and concentration risks, which may make these investments volatile in price or difficult to trade. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund's returns. Medium-capitalization companies may be subject to elevated risks. The Fund's assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.

You can lose money by investing in the VanEck Morningstar Wide Moat Fund (the "Fund"). Any investment in the Fund should be part of an overall investment program rather than a complete program. An investment in the Fund may be subject to risks which include, among others, investing in concentration, equity securities, index tracking and data, consumer discretionary, financial services, the health care, industrials, information technology, underlying fund, market, medium-capitalization companies, new fund, non-diversification, operational, portfolio turnover and replication management risks, which may make these investments volatile in price or difficult to trade. Medium-capitalization companies may be subject to elevated risks. The Fund's assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.

ETF shares are not individually redeemable and will be issued and redeemed at their Net Asset Value (NAV) only through certain authorized broker-dealers in large, specified blocks of shares called "creation units" and otherwise can be bought and sold only through exchange trading. Shares may trade at a premium or discount to their NAV in the secondary market. You will incur brokerage expenses when trading ETF shares in the secondary market. Past performance is no guarantee of future results.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.