Wide Moats, International Style

Many U.S. investors know about companies with deep competitive advantages, also known as wide-moat firms. In fact, wide-moat investing is a core tenet of Warren Buffett's investment philosophy. That is to say, investing in companies with entrenched competitive advantages can receive no better endorsement.

The concept of wide moat investing is accessible under the exchange-traded funds' umbrella with the VanEck Vectors Morningstar Wide Moat ETF MOAT. MOAT has been around over five years, and in that time, the ETF has returned 86.2 percent compared to about 77 percent for the S&P 500.

The $1.2 billion MOAT has an international equivalent, the VanEck Vectors Morningstar International Moat ETF MOTI. MOTI is just over 2 years old and is proving there are advantages to considering international wide-moat companies.

Impressive Performance

MOTI is up 23.5 percent year-to-date, well ahead of the 15.3 percent returned by the MSCI ACWI ex-U.S. Index.

“International moat stocks posted strong results in July gaining 4.99% as represented by the Morningstar Global ex-US Moat Focus Index compared to a 3.69% rise for the MSCI All Country World Index ex USA ,” said VanEck. “July's results extended the International Moat Index's YTD outperformance to 24.39% versus 18.30% for its counterpart. U.S. moats also maintained their YTD outperformance (14.91% versus 11.59%), despite retreating slightly in July.”

MOTI holds 76 stock and its largest holding commands a weight of just 2.3 percent. Eighteen countries are represented in the ETF, including five emerging markets. China is MOTI's largest country allocation at almost 18 percent followed by Australia at 14.2 percent.

What's Boosting MOTI

“Financial firms led the way in July for the International Moat Index as all 16 constituents from the sector posted positive performance,” said VanEck. “The Index's financial sector exposure was led by Belgian bank KBC Group, which has a sizable share of the Belgian and Czech Republic markets, and Chinese banks.”

Belgium is 3.1 percent of MOTI's geographic weight, but financials are the ETF's largest sector weight at 20.5 percent. Healthcare and telecom stocks combine for 26.5 percent of the ETF's roster.

“In July, healthcare was the only sector that detracted from Index performance, while no single country or regional allocation detracted from the Index,” added VanEck.

MOTI has $70 million in assets under management, of which $31.2 million has flowed into the fund this year.

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