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Stocks have been on a wild ride this year due to red-hot global inflation, Fed rate hikes, hawkish global central banks, Russia-Ukraine war, surging energy prices, zero-COVID policy in China and the resultant occasional lockdowns, global supply chain woes and recession risks. The S&P 500 is down 21.4% this year.
Now it needs to be seen if the worst is over. According to Fairlead Strategies founder Katie Stockton, the weakness is likely to continue in the short-term, though it is temporary, as quoted on Business Insider.The S&P 500’s rally to start October was probably a dead-cat bounce. Last month, Goldman Sachs cut its year-end 2022 target for the S&P 500 by about 16% to 3,600 points. Now, Credit Suisse and Citi also reduced a 2022 year-end target for S&P 500.
Citi Research analysts cut their year-end 2022 target for the benchmark S&P to 4000 from 4200 and set a year-end 2023 target of 3900, as quoted on Wall Street Journal. Credit Suisse slashed its year-end 2022 target for the benchmark index to 3850 from 4300. It also said it expects stocks to rise again next year, pointing toward a climb back to 4050.
How to Navigate Through This Volatility?
Against this backdrop, investors may be looking for ways to navigate through this volatility. One way to stay afloat amid market volatility is to stay invested in moat ETFs. The term “economic moat” was popularized by legendary investor Warren Buffett who said that he seeks "economic castles protected by unbreachable moats.”
In simple words, a moat is a unique competitive advantage that allows a company to outperform others in the same industry over time. VanEck Morningstar Wide Moat ETF (MOAT - Free Report) is down 16% this year (as of Oct 6, 2022), meaning the fund has outdone the S&P 500 this year.
Wide-moat companies have stronger pricing power, Morningstar’s director of equity research for index strategies Lane said lately, meaning they are better-positioned to pass on rising inflation-related costs directly to consumers. And wide- and narrow-moat stocks have outperformed the broader equity market over the past several years, per Morningstar. Over the past five years, MOAT is up 55.4% versus 47% gains in the S&P 500.
Per Morningstar, most of the largest holdings in the Morningstar Narrow Moat Index are now pricey. But index heavyweights from the wide-moat group, by contrast, trade at discount prices as of Aug 15. Wide-moat Microsoft (MSFT) is at 83% of its fair value price, while another wide-moat company Amazon.com (AMZN) and Alphabet (GOOGL) each hover around 70% of their fair value.
The company is one of the largest e-commerce platforms in Latin America. The company is a market leader in e-commerce in Brazil, Argentina, Colombia, Chile, Ecuador, Costa Rica, Peru, Mexico, and Uruguay based on unique visitors and page views.
The company provides cloud computing services that automate digital workflows to accelerate enterprise IT operations. The company’s Now Platform enables enterprises to enhance productivity by streamlining system processes.
The company’s premier jet aircraft along with varied defense products positions it as one of the largest defense contractors in the United States. Its customers include domestic and foreign airlines, the U.S. Department of Defense (DoD), the Department of Homeland Security, the National Aeronautics and Space Administration (NASA), other aerospace prime contractors, and certain U.S. government and commercial communications customers.
ETFs in Focus
VanEck Morningstar SMID Moat ETF (SMOT)
VanEck Morningstar SMID Moat ETF seeks to track the Morningstar US Small-Mid Cap Moat Focus Index, which is intended to track the overall performance of small- and mid-cap companies with sustainable competitive advantages and attractive valuations according to Morningstar's equity research team. The 92-stock fund has hit the market recently and it charges 49 bps (net).
The fund tracks the overall performance of about 50 most attractively priced companies with sustainable competitive advantages. The fund charges 46 bps in fees.
VanEck Morningstar International Moat ETF (MOTI - Free Report)
The 73-stock fund tracks the overall performance of 78 attractively priced companies outside the United States with sustainable competitive advantages. China (24.7%) and United Kingdom (17.5%) hold the top two positions in the fund, geographically. The fund charges 57 bps in fees (net).
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Moat ETFs & Stocks: A Way to Fight Volatility
Stocks have been on a wild ride this year due to red-hot global inflation, Fed rate hikes, hawkish global central banks, Russia-Ukraine war, surging energy prices, zero-COVID policy in China and the resultant occasional lockdowns, global supply chain woes and recession risks. The S&P 500 is down 21.4% this year.
Now it needs to be seen if the worst is over. According to Fairlead Strategies founder Katie Stockton, the weakness is likely to continue in the short-term, though it is temporary, as quoted on Business Insider.The S&P 500’s rally to start October was probably a dead-cat bounce. Last month, Goldman Sachs cut its year-end 2022 target for the S&P 500 by about 16% to 3,600 points. Now, Credit Suisse and Citi also reduced a 2022 year-end target for S&P 500.
Citi Research analysts cut their year-end 2022 target for the benchmark S&P to 4000 from 4200 and set a year-end 2023 target of 3900, as quoted on Wall Street Journal. Credit Suisse slashed its year-end 2022 target for the benchmark index to 3850 from 4300. It also said it expects stocks to rise again next year, pointing toward a climb back to 4050.
How to Navigate Through This Volatility?
Against this backdrop, investors may be looking for ways to navigate through this volatility. One way to stay afloat amid market volatility is to stay invested in moat ETFs. The term “economic moat” was popularized by legendary investor Warren Buffett who said that he seeks "economic castles protected by unbreachable moats.”
In simple words, a moat is a unique competitive advantage that allows a company to outperform others in the same industry over time. VanEck Morningstar Wide Moat ETF (MOAT - Free Report) is down 16% this year (as of Oct 6, 2022), meaning the fund has outdone the S&P 500 this year.
Wide-moat companies have stronger pricing power, Morningstar’s director of equity research for index strategies Lane said lately, meaning they are better-positioned to pass on rising inflation-related costs directly to consumers. And wide- and narrow-moat stocks have outperformed the broader equity market over the past several years, per Morningstar. Over the past five years, MOAT is up 55.4% versus 47% gains in the S&P 500.
Per Morningstar, most of the largest holdings in the Morningstar Narrow Moat Index are now pricey. But index heavyweights from the wide-moat group, by contrast, trade at discount prices as of Aug 15. Wide-moat Microsoft (MSFT) is at 83% of its fair value price, while another wide-moat company Amazon.com (AMZN) and Alphabet (GOOGL) each hover around 70% of their fair value.
Against this backdrop, below we highlight a few wide-moat stocks and ETFs that can be tapped now. Stocks are picks from a Morningstar article published on Sep 27, 2022.
Stocks In Focus
Mercado Libre (MELI - Free Report)
The company is one of the largest e-commerce platforms in Latin America. The company is a market leader in e-commerce in Brazil, Argentina, Colombia, Chile, Ecuador, Costa Rica, Peru, Mexico, and Uruguay based on unique visitors and page views.
ServiceNow (NOW - Free Report)
The company provides cloud computing services that automate digital workflows to accelerate enterprise IT operations. The company’s Now Platform enables enterprises to enhance productivity by streamlining system processes.
Boeing (BA - Free Report)
The company’s premier jet aircraft along with varied defense products positions it as one of the largest defense contractors in the United States. Its customers include domestic and foreign airlines, the U.S. Department of Defense (DoD), the Department of Homeland Security, the National Aeronautics and Space Administration (NASA), other aerospace prime contractors, and certain U.S. government and commercial communications customers.
ETFs in Focus
VanEck Morningstar SMID Moat ETF (SMOT)
VanEck Morningstar SMID Moat ETF seeks to track the Morningstar US Small-Mid Cap Moat Focus Index, which is intended to track the overall performance of small- and mid-cap companies with sustainable competitive advantages and attractive valuations according to Morningstar's equity research team. The 92-stock fund has hit the market recently and it charges 49 bps (net).
VanEck Morningstar Wide Moat ETF (MOAT - Free Report)
The fund tracks the overall performance of about 50 most attractively priced companies with sustainable competitive advantages. The fund charges 46 bps in fees.
VanEck Morningstar International Moat ETF (MOTI - Free Report)
The 73-stock fund tracks the overall performance of 78 attractively priced companies outside the United States with sustainable competitive advantages. China (24.7%) and United Kingdom (17.5%) hold the top two positions in the fund, geographically. The fund charges 57 bps in fees (net).