The bottom performing U.S. Moat Index constituent was Allergan PLC (AGN US, -10.69%). The drug manufacturer faced two setbacks in its development pipeline in September causing a selloff. Despite pipeline setbacks, Morningstar analysts believed Allergan represents an attractive value in a September 25 research note.
Healthcare sector challenged
The healthcare sector has been the most challenged sector since the presidential elections in November 2016. President Trump’s plan to revive the sector has affected healthcare companies and investor sentiment.
Detractors in September
For September, the top two detractors in the Morningstar Wide Moat Focus Index (MOAT) were healthcare companies Allergan (AGN) and Varian Medical Systems (VAR), which posted negative returns of 10.6% and 5.8%, respectively. Allergan faced two setbacks in September when second-year data from its Phase 2 clinical studies for its NASH (non-alcoholic steatohepatitis) drug cenicriviroc stirred up some doubts about the product. Furthermore, the FDA (Food & Drug Administration) rejected the company’s supplemental new drug application for Vraylar for negative symptoms. Despite the setbacks, the company is well-positioned for growth over the long run. It holds a wide moat rating because of its intangible assets.
Another stock that provided negative returns in September was Yum! Brands (YUM), the holder of restaurants KFC, Pizza Hut, and Taco Bell. Others with negative returns included media and entertainment company Twenty-First Century Fox (FOXA) and industrial goods producer United Technologies (UTX). The chart below shows the index additions and deletions in the September sub-portfolio reconstitution.
Despite the few detractors, moat indexes can provide a competitive edge by sometimes offering higher, more sustainable returns to investors.