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Why Moat Indexes Outperformed Others in February


Mar. 27 2017, Published 12:41 p.m. ET


Performance Overview

The U.S.-oriented Morningstar® Wide Moat Focus IndexSM (MWMFTR, or “U.S. Moat Index”) continued its strong start to the year by outperforming the S&P 500® Index (5.15% vs. 3.97%) in February. International moat stocks as represented by the Morningstar® Global ex-US Moat Focus IndexSM (MGEUMFUN, or “International Moat Index”) also expanded its 2017 performance gap over the MSCI All Country World Index ex USA by outpacing the Index for the month (2.25% vs. 1.29%).

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Market Realist

Morningstar moat indexes outperform others

US stocks have performed well since Donald Trump’s inauguration. Many tailwinds drove markets to record levels. Following Trump’s endorsement of lower corporate taxes and higher infrastructure spending, recent economic indicators, such as consumption spending and initial jobless claims, suggest that the economy is gradually gaining traction.

Buoyed by the improving economy, S&P 500 companies’ earnings grew 4.9% YoY (year-over-year) in 4Q16, according to data from FactSet Research Systems. Earnings are likely to continue the momentum this year, with an expected growth rate of 9% in 1Q17. The rate would mark the highest YoY earnings growth for the S&P 500 since 4Q11, when its earnings grew 11.6%, according to FactSet.

Moat indexes’ advantage

Although all indexes edged higher, Morningstar indexes were not only among the biggest gainers in February but year-to-date as well. The Morningstar Wide Moat Focus Index (MOAT) provides exposure to US stocks (MON) that have a wide moat and trade at a discount to Morningstar’s fair value estimates. Meanwhile, the Morningstar Global ex-US Moat Focus Index (MOTI) tracks the performance of stocks in developed and emerging markets around the world. The stocks are selected based on their attractiveness compared with Morningstar’s fair value estimates. Moat indexes’ outperformance of other indexes could be due to the fact that they comprise companies (DIS) (AGN) with sustainable competitive advantages.


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