Forward-Looking Valuations Unlock The Power Of Moat Investing

by: VanEck

For the Month Ending September 30, 2018

Performance Overview

Domestic moat companies, as represented by the Morningstar Wide Moat Focus IndexSM (MWMFTR, or "U.S. Moat Index"), shined in September, outperforming the S&P 500 Index (1.25% vs. 0.57%, respectively). The Morningstar Global ex-US Moat Focus IndexSM (MGEUMFUN, or "International Moat Index") trailed the MSCI All Country World Index ex-USA in September (0.25% vs. 0.46%, respectively), but remained ahead since the beginning of the year (-2.49% vs. -3.09%, respectively).

Index Review Highlights Importance of Valuations

The U.S. and International Moat Indices underwent their quarterly review in September, and both saw additions and deletions (see Index Reconstitution below). Valuation opportunities have historically been the primary driver of turnover as stock prices move above and below Morningstar's estimate of fair value.

What sets Morningstar's valuation methodology apart is its forward-looking nature. While many valuation metrics, like traditional price-to-earnings and price-to-book multiples, rely mostly on backward-looking data, rigorous company analysis from Morningstar's equity research analysts supports their future cash flow estimates. Their analysts then take these projections into account when determining a current fair value for a company. In other words, Morningstar's assessment of what a company is worth today encompasses tomorrow's potential.

Following the September index review, the U.S. Moat Index remained overweight health care stocks. Rather than being an indication of Morningstar's view of the sector as a whole, this reflects wide moat opportunities within the health care sector. The health care sector as a whole, as represented by the Morningstar US Healthcare Index, has fluctuated above and below fair value over the last five years, ending the period above fair value. However, looking at the individual stock level, several companies appear undervalued based on Morningstar's valuation research. For example, current U.S. Moat Index constituent and health care sector stock Medtronic has traded below Morningstar's fair value estimate since early 2017.

Health Care Sector Valuations
5 Years as of 9/30/2018

Health Care Sector Valuations
5 Years as of 9/30/2018

Morningstar's moat investing philosophy is all about investing in companies with sustainable competitive advantages and doing so at attractive prices relative to their fair value. This results in dynamic U.S. and international portfolios that repeatedly assess moat companies to identify mispricing in the market.

Monthly Index Returns

(%) Month Ending 9/30/18

1 Year Index Returns

(%) As of 9/30/18

Top/Bottom Index Performers

(%) Month Ending 9/30/18

Morningstar Wide Moat Focus Index (MWMFTR)

Top 5 Index Performers
Constituent Total Return
L Brands Inc. (LB) 14.64
Express Scripts Holding Co. (ESRX) 7.94
Compass Minerals International Inc. (CMP) 7.43
Zimmer Biomet Holdings Inc. (ZBH) 6.54
Starbucks Corp. (SBX) 6.34

Bottom 5 Index Performers
Constituent Total Return
General Electric Co. (GE) -11.93
Wells Fargo & Co. (WFC) -10.12
Microchip Technology Inc. (MCHP) -8.28
Campbell Soup Co. (CPB) -7.15
General Mills Inc. (GIS) -6.72

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
Beijing Enterprises Holdings Ltd. (OTC:BJINF) 17.93
Beijing Capital International Airport Co.
Ltd. (OTCPK:BJCHF)
15.68
SCOR SE (OTCPK:SZCRF) 14.38
Denso Corp. (OTCPK:DNZOF) 10.58
Cameco Corp. (CCJ) 9.58

Bottom 5 Index Performers
Constituent Total Return
ANTA Sports Products Ltd. (OTC:ANPDF) -11.89
Murata Manufacturing Co. Ltd. (OTCPK:MRAAF) -10.45
China Resources Gas Group Ltd. (OTCPK:CRBJF) -10.28
KION GROUP AG (OTCPK:KIGRY) -10.15
Yum China Holdings Inc. (YUMC) -9.23

View MOTI's current constituents

Index Reconstitution

As of 9/21/18

Morningstar Wide Moat Focus Index (MWMFTR)

Index Additions
Added Constituent Ticker
Intel Corp. INTC US
Philip Morris International PM US
BlackRock Inc. BLK US
Applied Materials Inc. AMAT US
KLA-Tencor Corporation KLAC US
Gilead Sciences Inc. GILD US
State Street Corp. STT US
John Wiley & Sons Inc. A JW.A US
Jones Lang Lasalle Inc. JLL US
T Rowe Price Group Inc. TROW US
General Dynamics GD US
Facebook Inc. A FB US
ServiceNow Inc. NOW US

Index Deletions
Deleted Constituent Ticker
Cheniere Energy Inc. LNG US
Lilly Eli & Co. LLY US
Express Scripts Holding Co. ESRX US
Merck & Co Inc. MRK US
Amgen Inc. AMGN US
CVS Health Corporation CVS US
Franklin Resources Inc. BEN US
General Electric Co. GE US
Stericycle Inc. SRCL US
L Brands Inc. LB US
Lowe's Cos Inc. LOW US
Twenty-First Century Fox Inc. A FOXA US

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
Tencent Holdings Ltd. (OTCPK:TCEHY) China
MGM China Holdings Ltd. (OTCPK:MCHVF) Hong Kong
Cameco Corp. (CCJ) Canada
Credit Suisse Group AG (CS) Switzerland
ANTA Sports Products Ltd. (ANPDF) China
Imperial Brands Plc (OTCQX:IMBBY) United Kingdom
Roche Hldgs AG Ptg Genus (OTCQX:RHHBY) Switzerland
Yum China Holdings Inc. (YUMC) China
Murata Manufacturing Co. Ltd. (MRAAF) Japan
China Shenhua Energy Co. Ltd. H Shares (OTCPK:CUAEF) China
UBS Group AG (UBS) Switzerland
Agricultural Bank of China Ltd. H Shares (OTCPK:ACGBY) China
China Mobile Ltd. (CHL) China
Sands China Ltd. (OTCPK:SCHYY) Hong Kong
Royal Dutch Shell PLC (RDS.A, RDS.B) United Kingdom
Denso Co. (DNZOF) Japan
Kingfisher (OTCQX:KGFHF) United Kingdom
WPP Plc (WPP) United Kingdom
Sociedad Quimica y Minera de Chile SA B (SQM) Chile
China Construction Bank Corp. H Shares (OTCPK:CICHY) China
Sodexo (OTCPK:SDXOF) France
Anhui Conch Cement Co. Ltd. H Shares (ANCHF) China
KDDI Corp. (OTCPK:KDDIF) Japan
Samsung Electronics Co. (OTC:SSNLF) South Korea
Overseas Chinese Banking Corp. (OTCPK:OVCHF) Singapore
Yaskawa Electric Corp. (OTCPK:YASKY) Japan
BP plc (BP) United Kingdom
Calbee Inc. (OTCPK:CBCFF) Japan

Index Deletions
Deleted Constituent Country
Banco Bilbao Vizcaya Argentaria SA (BBVA) Spain
Naturgy Energy Group SA (OTCPK:GASNF) Spain
Bank of China Ltd H Shares (OTCPK:BACHF) China
Beijing Capital International Airport Co. Ltd. (BJCHF) China
Beijing Enterprises Holdings Ltd. (BJINF) China
China Resources Gas Group Ltd. (CRBJF) China
Nordea AB (OTCPK:NRBAY) Sweden
Svenska Handelsbanken A (OTCPK:SVNLF) Sweden
Bayer AG (OTCPK:BAYZF) Germany
GEA AG (OTCPK:GEAGF) Germany
KION Group AG (KIGRY) Germany
Symrise AG (OTCPK:SYIEF) Germany
HeidelbergCement AG (OTCPK:HDELY) Germany
Koninklijke Philips Electronics NV (Royal Philips Electronics) (PHG) Netherlands
Koninklijke KPN NV (OTCPK:KKPNF) Netherlands
Kubota Corp. (OTCPK:KUBTY) Japan
Hoshizaki Electric Co. Ltd. Japan
SoftBank Group Corp.* (OTCPK:SFTBY) Japan
Kao Corp. (OTCPK:KAOCF) Japan
Unicharm Corp. (OTCPK:UNICY) Japan
Brambles Industries Ltd. (OTCPK:BMBLF) Australia
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (OMAB) Mexico
SK Telecom Co. Ltd. (SKM) South Korea
Vodafone Group (VOD) United Kingdom
Unilever (UL, UN) United Kingdom
Telecom Italia SpA (TI) Italy
LafargeHolcim Ltd. (OTCPK:HCMLF) Switzerland
CK Asset Holdings Ltd. (OTCPK:CHKGF) Hong Kong

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.

Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider a Fund's investment objective, risks, charges and expenses carefully before investing. To obtain a prospectus and summary prospectus for VanEck Funds and VanEck Vectors ETFs, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus for VanEck Funds and VanEck Vectors ETFs carefully before investing.