The VanEck Vectors Morningstar Wide Moat ETF (MOAT) is the most venerable name among exchange funds focusing on companies with deep competitive moats.
With that in mind, investors looking to marry wide moats with environmental, social and governance (ESG) principles might want to look to VanEck for this combination, and the issuer is obliging, having launched the VanEck Morningstar ESG Moat ETF (CBOE: MOTE) last month.
MOTE owns 60 stocks and tracks the Morningstar US Sustainability Moat Focus Index, which is “a rules-based index designed to provide exposure to American companies at attractive prices with long-term competitive advantages, according to Morningstar, who have been selected for ESG risks, ” according to VanEck.
In short, MOTE is designed to offer investors a basket of quality stocks at attractive multiples that have wide gaps and are credible ESG games. MOTE’s lineup includes many familiar names that credibly tick those boxes, including Alphabet (NASDAQ: GOOG), Microsoft (NASDAQ: MSFT), ETF issuer BlackRock (NYSE: BLK), and American Express (NYSE: NYSE: AXP).
MOTE comes at a time of rapid growth in the ESG and sustainability-focused fund space, but its mix of ESG concepts and moats could help the newbie ETF stand out.
Funds that have been “identified as sustainable funds by Morningstar have seen their assets increase by almost 175% over the past three years.” At the same time, the number of US ETFs identified as sustainable has more than doubled, from 91 ETFs three years ago to 174 in September ”, says Brandon Rakszawski, senior product manager VanEck ETF. “While investment options are expected to continue to develop, we are probably in the early stages of how to incorporate sustainable investing considerations into portfolio construction, as investor views on ESG issues and business behavior will undoubtedly change. “
Although MOTE is a new ETF, the moat methodology separates it from a set of established ETFs that have similar methodologies, none of which focus on moats. Likewise, few ESG and sustainable funds focus on quality or value, indicating that MOTE is refreshing the ESG ETF proposition.
“Many of the more popular sustainable investing strategies seek to provide broad exposure to market indices while applying some level of exclusion or inclusion ESG filters,” concludes Rakszawski. “It can reduce ESG risk in a portfolio, but doesn’t address other performance drivers. The unique combination of the Morningstar US Sustainability Moat Focus Index forward-looking equity research and ESG screening offers investors a US equity strategy that aims to provide investors with attractive risk-adjusted returns while mitigating ESG risks .
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