The VanEck Morningstar Wide Moat ETF (MOAT) used to be my favorite equity ETF. It can’t be anymore. Why? Because I’m convinced that equity investing has changed so dramatically that stocks are more like wagers in a casino. That means it’s best not to play favorites and to let the charts be my guide.
So it is intriguing to see MOAT, which owns a set of stocks considered to have sustainable competitive advantages (“wide moats”), breaking out to new highs. Does it mean that the market is finally coming to its senses again?
MOAT: Quality Companies at a Discount
If you are worried about high stock market valuations and top-heavy mega-cap tech concentration, the VanEck Morningstar Wide Moat ETF offers a practical alternative. Because while it is an index ETF, it does not just buy big companies. It targets U.S. large-cap firms that possess a verified “economic moat,” meaning structural competitive advantages like strong patents, brand power, high customer switching costs, or network effects. Crucially, the fund only buys these high-quality companies when Morningstar’s analysts determine they are trading at an attractive price relative to their fair value.
Why Wide-Moat Large Caps Make Sense Right Now
Standard S&P 500 Index ($SPX) funds are heavily weighted toward a tiny handful of massive tech giants. MOAT uses an equal-weighted approach across its holdings. This provides true large-cap exposure without putting all your eggs in the same tech basket.
High-flying stocks occasionally get overextended. Because MOAT rebalances systematically by selling companies that become overvalued and buying those trading at a discount, it naturally acts as a value-oriented shock absorber.
Companies with genuine competitive moats can raise prices when input costs rise without losing their customers. That pricing power protects profit margins better than standard growth stocks during sticky inflation or choppy economic cycles. With the current inflation overhang, this is even more timely than usual.
What Are the Risks?
Because MOAT avoids overvalued high-flyers, it can underperform the broader S&P 500 when a few massive mega-cap stocks are driving the entire market higher. The ETF relies on Morningstar’s human analysts to estimate “fair value” and identify “moats.” If analysts misjudge a company’s competitive advantage or future earnings, the fund can hold an underperforming stock longer than expected. And, rebalancing based on valuation means MOAT can swing significantly between sectors (like industrials, healthcare, or financials) depending on where bargains appear.
While I am generally a fan of highly concentrated stock ETFs, MOAT serves a second, important role for me. It is one of the first places I look to identify stocks with solid fundamentals, when hunting for stocks to trade while they are at a discount. That wide moat designation means a lot to me.
MOAT is still a nice core equity ETF for DIY investors. It cuts out the noise of chasing overhyped stocks by focusing on stable, high-quality businesses bought at reasonable prices. That said, keep in mind that in the modern world of U.S. stock investing, any and every stock and ETF will be more prone to massive, time-stealing pullbacks than at any point in recent memory.
Rob Isbitts is a semi-retired CIO, former fiduciary investment advisor, and Barchart columnist. Check out his other work at ETFYourself.com (featuring the Fresh Charts weekly trading post), and ROAR.PiTrade.com, helping investors to better-manage their own portfolios.
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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