Vaneck Morningstar Wide Moat ETF (ASX: MOAT) is an exchange-traded fund (ETF) with an impressive history of long-term returns.
Past performance is not a guarantee of future results but since the ASX ETF’s inception in June 2015, it has delivered an average return per annum of 15.9%. In the past five years, the MOAT ETF’s average return per annum has been 16.7%.
These are impressive numbers generated over a number of years rather than just one spectacular year, thanks to the fund’s investment process.
Moat investing
While we’re not talking about a literal castle moat, it is a similar concept.
The idea is that some businesses have very strong economic moats where it’s hard for invaders (competitors) to take over because of the moat’s size, or the company’s competitive advantages.
Morningstar analysts, who are responsible for putting the ASX ETF’s portfolio together, believe there are five areas where companies can achieve competitive advantages: cost advantages, intangible assets, switching costs, network effects, and efficient scale.
Within these categories are advantages such as brand power, intellectual property, and patents.
The MOAT ETF only invests in businesses where the economic moat is expected to almost certainly endure for the next decade and is more than likely to endure for two decades. That should help with long-term returns if indeed those companies can grow profit for the long term.
Attractively priced companies
It starts with a list of businesses with strong competitive advantages. But the analysts only decide to add a company to the portfolio if it’s trading at an attractive price compared to Morningstar’s estimate of fair value.
As an example, imagine company A has a great economic moat and is trading at a share price of $20. Morningstar analysts may think a fair price for that company is $25, meaning it could possibly rise around 25%.
By only being invested in attractively priced stocks, the ASX ETF gives itself a better chance of delivering outperformance over time.
At the moment, the Vaneck Morningstar Wide Moat ETF is invested in companies like Domino’s Pizza, TransUnion, Polaris, Alphabet, Comcast, and Salesforce.com. But the names in the portfolio are likely to change as time goes on.
It had 53 portfolio positions at the time of writing.
Low fees
I think this investment style is certainly capable of producing good returns and it doesn’t come with a high cost. An active fund manager might charge an annual management fee of at least 1%, as well as outperformance fees.
Yet the MOAT ETF, which has performed admirably, only charges an annual management fee of 0.49%. As such, the net return is not reduced that much by the reasonable fee.
Foolish takeaway
I think the MOAT ETF is one of the highest-quality ASX ETFs that we can choose. Indeed, if I had to choose one ETF that has a good chance of doing well over the next year and beyond, it’d be this one.
