Moat Stocks Await Rebound Following May Headwinds

seekingalpha06-11

The Morningstar Wide Moat Focus Index faced challenges in May due to its equal-weighting, value stock bias and lack of mega-cap tech exposure. History may provide context for what comes next.US ...

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History may provide context for what comes next.US ...</p>\n\n<a href=\"https://seekingalpha.com/article/4698527-moat-stocks-await-rebound-following-may-headwinds\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Moat Stocks Await Rebound Following May Headwinds</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nMoat Stocks Await Rebound Following May Headwinds\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-11 13:15 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4698527-moat-stocks-await-rebound-following-may-headwinds><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>The Morningstar Wide Moat Focus Index faced challenges in May due to its equal-weighting, value stock bias and lack of mega-cap tech exposure. History may provide context for what comes next.US ...</p>\n\n<a href=\"https://seekingalpha.com/article/4698527-moat-stocks-await-rebound-following-may-headwinds\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU0965509010.AUD","symbol_name":"AB LOW VOLATILITY EQUITY PORTFOLIO \"AD\" (AUDHDG) INC","start_time":0,"source_url":"https://seekingalpha.com/article/4698527-moat-stocks-await-rebound-following-may-headwinds","article_id":"2442338002","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1453953453/image_1453953453.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2442338002","pubTimestamp":1718082900,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"The Morningstar Wide Moat Focus Index faced challenges in May due to its equal-weighting, value stock bias and lack of mega-cap tech exposure. 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History may provide context for what comes next.US equities re-initiated their upward trend in May, with markets ending the month higher, but not without some volatility.Helping move markets higher was positive inflation data and quarterly earnings results.   tadamichi The Morningstar Wide Moat Focus Index faced challenges in May due to its equal-weighting, value stock bias and lack of mega-cap tech exposure. History may provide context for what comes next. US equities re-initiated their upward trend in May, with markets ending the month higher, but not without some volatility. To start the month, the three major US stock indices rallied from prior month declines and not only fully recovered from April drawdowns but went on to set new all-time highs by mid-May. Helping move markets higher was positive inflation data and quarterly earnings results. However, ending the month was a divergence in performance between AI-tangential tech and nearly everything else. The Dow Jones Industrial Average slid over 4% from its new high water mark, giving up much of its gains to end the month up slightly, while the S&P 500 and Nasdaq finished May up a noteworthy 5% and 7%, respectively. Once again it was the narrow leadership of mega-cap tech supporting the market with Nvidia (NVDA), Apple (AAPL), Alphabet (GOOG) (GOOGL), Microsoft (MSFT) and Meta (META) accounting for 60% of the S&P 500’s return in May. Notably though, signs of doubt appeared in big tech on the final trading day of the month, with the Nasdaq falling nearly 2% intraday before mounting a late day rally to close flat. The Morningstar Wide Moat Focus Index (the “Moat Index”) experienced a challenging performance in May, lagging the S&P 500 by more than 300 basis points. This was largely due to its equal-weighting scheme, bias toward value stocks, and the simple absence of Nvidia and other mega-cap technology names among its holdings. These are the same headwinds that have challenged the Index for much of the year, leading to a frustrating 2024, so far, for moat investing patrons. However, with a track record spanning more than 15 years, the Moat Index has experienced similar periods before. More importantly, these difficult periods have historically been followed by periods with some of the strongest outperformance. More on this later. Smaller US companies also rebounded in May, following steep April declines, with the small- and mid-cap broad benchmarks keeping pace with the S&P 500 during the month. The rally moved small caps back into positive territory for the year, while mid caps held their notable lead but still lagged large caps. The Morningstar US Small-Mid Cap Moat Focus Index (the “SMID Moat Index”) did not fully participate in the rally due to its stock selection, despite positive sector positioning. Moat Stocks Faced Strong Headwinds in May | As of 5/31/2024  Source: Morningstar. As of 5/31/2024. Past performance is no guarantee of future results. Index performance is not representative of fund performance. It is not possible to invest directly in an index. Fund performance current to the most recent month end is available by visiting vaneck.com or by calling 800.826.2333. History Suggests Better Days Ahead for Moat Stocks The Moat Index has faced challenging headwinds for much of this year given its equal-weighting approach amidst a market with narrow leadership and record levels of concentration. While it can be tough to weather periods of underperformance, subscribers of the moat investing philosophy have often been rewarded on the other side of the storm. Historically, the Moat Index has experienced its strongest relative performance following periods of notable underperformance. During the more than 15 years of live history for the Moat Index, when it has underperformed the S&P 500 by more than 2.5% in any six-month period, the Index has gone on to substantially outperform in the following 1- and 3-year periods. In fact, the Moat Index has outperformed the S&P 500 by an average of 4.28% annually in the three years following six-month periods with greater than -5% relative performance. While history is no guarantee, it can still serve as a useful guide, and the historical context suggests potentially better days ahead for moat stocks. Outperformance Historically Followed Periods of Underperformance | 2/28/2007-5/31/2024  Source: Morningstar, May 2024. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Effective 6/20/2016, Morningstar implemented several changes to the Morningstar Wide Moat Focus Index construction rules. Among other changes, the index increased its constituent count from 20 stocks to at least 40 stocks and modified its rebalance and reconstitution methodology. These changes may result in more diversified exposure, lower turnover and longer holding periods for index constituents than under the rules in effect prior to this date. Moat Index Top Contributors and Detractors While Nvidia does not currently make the cut for the Moat Index, that doesn’t mean the index has no exposure to the semiconductor market. The Moat Index instead includes the perhaps lesser-known semiconductor equipment and materials company Teradyne (TER), which gained over 20% in May, landing it at the top of the list in terms of contributors to performance during the month. Teradyne is a heavyweight supplier of automated test equipment for semiconductors, boasting market-leading capabilities that run the gamut of chips. It is one of two companies worldwide that can produce testers for the most cutting-edge semiconductors, thanks to robust engineering talent across hardware and software and a structural lead in organic investment. The firm is a vital partner to chipmakers across the industry and has an impressively strong relationship with Apple and Taiwan Semiconductor (TSM). Teradyne’s market leadership exhibits itself in industry-leading margins, strong returns on invested capital, and a top market share. Following its rise in May, the stock now trades just about on par with Morningstar’s $135 estimate of fair value. The largest detractor to performance within the Moat Index during the month was beauty products company Estee Lauder (EL). Estee Lauder fell more than 15% in May following mixed earnings results which showed beats on revenue and earnings per share, but soured investors with lower than expected guidance. Despite the negative reaction by the market, Morningstar was encouraged by Estee Lauder’s inventory management, agility in product innovation and consumer-facing initiatives which combined to fuel top-line growth and drove gross margin expansion. Morningstar also sees EL as being poised to benefit from growth opportunities in global markets like Asia, India and Brazil as middle-market consumers upgrade from lower quality mass brands. EL currently trades at a 40% discount to Morningstar’s $210 estimate of fair value. Top Contributors and Detractors from Moat Index - May 2024  Leading Contributors  Company Ticker Sector Avg. Weight (%) Contribution (%)   Teradyne Inc. TER Technology 2.83 0.60   International Flavors &Fragrances Inc. (IFF) Materials 2.69 0.37   Pfizer Inc. (PFE) Healthcare 2.19 0.30   C.H. Robinson Worldwide (CHRW) Industrials 1.25 0.27   RTX Corp. (RTX) Industrials 2.86 0.20   Click to enlarge  Leading Detractors  Company Ticker Sector Avg. Weight (%) Contribution (%)   The Estee LauderCompanies Inc. EL Consumer Staples 2.58 -0.40   Veeva Systems Inc. (VEEV) Health Care 2.40 -0.29   Etsy Inc. (ETSY) Consumer Cyclical 2.27 -0.17   Salesforce Inc. (CRM) Technology 1.24 -0.16   Bristol-Myers Squibb Co. (BMY) Health Care 2.04 -0.13   Click to enlarge Source: Morningstar, May 2024. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein. SMID Moat Index Top Contributors and Detractors The smaller-cap SMID Moat Index also benefited from the above-mentioned Teradyne as the mid-cap stock’s May performance led the pack of SMID moat companies as well. Consumer electronics retailer Best Buy (BBY) was also a top contributor following better than expected earnings results late in the month, which sent the shares up nearly 20% in the final days of May. Morningstar noted Best Buy’s revenue and earnings results were largely in line with their expectations and that the rapid repricing of the stock was likely reflecting the market’s unnecessarily dim top-line expectations before the earnings release. Morningstar maintained their $90 estimate of fair value for Best Buy with shares of the company ending the month trading in the mid-$80 range. Names that most negatively contributed to the SMID Moat Index performance during the month include payroll and human capital management software solutions company Dayforce (DAY), global payment processing and software solutions company Global Payments (GPN), online food order aggregator and deliverer DoorDash (DASH), and travel services agency Expedia (EXPE), which all declined by double digits in May. Top Contributors and Detractors from SMID Moat Index - May 2024  Leading Contributors  Company Ticker Sector Avg. Weight (%) Contribution (%)   Teradyne Inc. TER Technology 1.50 0.32   Best Buy Co Inc. BBY Consumer Cyclical 1.28 0.20   DuPont de Nemours Inc. (DD) Materials 1.32 0.18   Corning Inc. (GLW) Technology 1.38 0.17   Pinterest Inc. (PINS) Communication Services 0.67 0.16   Click to enlarge  Leading Detractors  Company Ticker Sector Avg. Weight (%) Contribution (%)   Dayforce Inc. DAY Technology 1.29 -0.25   Global Payments Inc GPN Industrials 1.34 -0.23   DoorDash Inc DASH Communication Services 1.51 -0.22   Expedia Group Inc (EXPE) Consumer Cyclical 1.30 -0.21   Skyworks Solutions Inc. (SWKS) Technology 1.35 -0.17   Click to enlarge Source: Morningstar, April 2024. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. Not intended as a recommendation to buy or to sell any of the securities mentioned herein. Choose Your Moat Strategy VanEck’s suite of moat investing strategies is powered by Morningstar’s equity research team, which seeks quality companies trading at attractive valuations. The below ETFs offer access to US moat companies: VanEck Morningstar Wide Moat ETF (MOAT): Companies with a wide moat rating, which means Morningstar believes the company is likely to sustain its competitive advantage for at least the next 20 years. VanEck Morningstar SMID Moat ETF (SMOT): Small and mid-cap moat companies. VanEck Morningstar Wide Moat Growth ETF (MGRO): Wide moat companies within Morningstar’s growth characteristics. VanEck Morningstar Wide Moat Value ETF (MVAL): Wide moat companies within Morningstar’s value characteristics. Important Disclosures Source for all data unless otherwise noted: Morningstar. Fair value estimate: the Morningstar analyst's estimate of what a stock is worth. Price/Fair Value: ratio of a stock's trading price to its fair value estimate. This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees. Holdings will vary for the MOAT ETF and its corresponding Index. For a complete list of holdings in the ETF, please click here: MOAT - VanEck Morningstar Wide Moat ETF - Holdings. Holdings will vary for the SMOT ETF and its corresponding Index. For a complete list of holdings in the ETF, please click here: SMOT - VanEck Morningstar SMID Moat ETF - Holdings. Holdings will vary for the MGRO ETF and its corresponding Index. For a complete list of holdings in the ETF, please click here: MGRO - VanEck Morningstar Wide Moat Growth ETF - Holdings. Holdings will vary for the MVAL ETF and its corresponding Index. For a complete list of holdings in the ETF, please click here: MVAL - VanEck Morningstar Wide Moat ETF - Holdings. An investor cannot invest directly in an index. Returns reflect past performance and do not guarantee future results. Results reflect the reinvestment of dividends and capital gains, if any. Certain indices may take into account withholding taxes. Index returns do not represent Fund returns. The Index does not charge management fees or brokerage expenses, nor does the Index lend securities, and no revenues from securities lending were added to the performance shown. The Morningstar® Wide Moat Focus IndexSM and Morningstar® US Small-Mid Cap Moat Focus IndexSM were created and are maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Morningstar Wide Moat ETF or the VanEck Morningstar SMID Moat ETF and bears no liability with respect to the ETFs or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar® Wide Moat Focus IndexSM and Morningstar® US Small-Mid Cap Moat Focus IndexSM are service marks of Morningstar, Inc. The Morningstar® US Broad Value Wide Moat Focus IndexSM and Morningstar® US Broad Growth Wide Moat Focus IndexSM were created and are maintained by Morningstar, Inc. Morningstar, Inc. does not sponsor, endorse, issue, sell, or promote the VanEck Morningstar Wide Moat Value ETF and VanEck Morningstar Wide Moat Growth ETF and bears no liability with respect to the Funds or any security. Morningstar® is a registered trademark of Morningstar, Inc. Morningstar® US Broad Value Wide Moat Focus IndexSM and Morningstar® US Broad Growth Wide Moat Focus IndexSM are service marks of Morningstar, Inc. Effective June 20, 2016, Morningstar implemented several changes to the Morningstar Wide Moat Focus Index construction rules. Among other changes, the index increased its constituent count from 20 stocks to at least 40 stocks and modified its rebalance and reconstitution methodology. These changes may result in more diversified exposure, lower turnover, and longer holding periods for index constituents than under the rules in effect prior to this date. Past performance is no guarantee of future results. The Morningstar moat-driven indexes represent various regional exposures and consist of companies identified as having sustainable, competitive advantages and whose stocks are attractively priced, according to Morningstar. The Morningstar® Wide Moat Focus IndexSM Intended to track the overall performance of attractively priced companies with sustainable competitive advantages according to Morningstar's equity research team. The Morningstar® US Small-Mid Cap Moat Focus IndexSM is intended to track the overall performance of small- and mid-cap companies with sustainable competitive advantages and attractive valuations according to Morningstar's equity research team. Morningstar® US Broad Value Wide Moat Focus IndexSM: consists of at least 30 U.S. value-oriented companies identified as having sustainable, competitive advantages, and whose stocks are the most attractively priced, according to Morningstar. Morningstar® US Broad Growth Wide Moat Focus IndexSM: consists of at least 30 U.S. growth-oriented companies identified as having sustainable, competitive advantages, and whose stocks are the most attractively priced, according to Morningstar. The S&P SmallCap 600 Index represents small-cap US companies. The S&P Midcap 400 Index provides investors with a benchmark for mid-sized US companies. The S&P 500 Index tracks the stock performance of 500 of the largest companies listed on stock exchanges in the United States. The S&P 500 Equal Weighted Index which is an equally weighted version of the market-cap weighted S&P 500 Index. The Dow Jones Industrial Average, Dow Jones, or simply the Dow, is a stock market index of 30 prominent companies listed on stock exchanges in the United States. Nasdaq Composite is a stock market index that includes almost all stocks listed on the Nasdaq stock exchange. The S&P 500® Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2024 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spglobal.com/spdji/en/. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein. An investment in the VanEck Morningstar Wide Moat ETF (MOAT®) may be subject to risks which include, among others, risks related to investing in equity securities, health care sector, industrials sector, information technology sector, financials sector, medium-capitalization companies, market, operational, high portfolio turnover, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversification and index-related concentration risks, all of which may adversely affect the Fund. Medium-capitalization companies may be subject to elevated risks. An investment in the VanEck Morningstar SMID Moat ETF (SMOT®) may be subject to risks which include, among others, risks related to investing in equity securities, small- and medium-capitalization companies, consumer discretionary sector, financials sector, health care sector, industrials sector, information technology sector, market, operational, high portfolio turnover, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified, and index-related concentration risks, all of which may adversely affect the Fund. Small- and medium-capitalization companies may be subject to elevated risks. An investment in the VanEck Morningstar Wide Moat Value ETF (MVAL) may be subject to risks which include, among others, risks related to investing in equity securities, value style investing, financials sector, health care sector, industrials sector, large- and medium-capitalization companies, market, operational, index tracking, authorized participant concentration, new fund, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, and index-related concentration risks, all of which may adversely affect the Fund. Large- and medium-capitalization companies may be subject to elevated risks. The Fund’s value strategy may result in the Fund investing in securities or industry sectors that underperform the market as a whole. Furthermore, the value companies identified by the Index provider may not operate as expected, and there is no guarantee that the index provider’s proprietary valuation model will perform as intended. An investment in the VanEck Morningstar Wide Moat Growth ETF (MGRO) may be subject to risks which include, among others, risks related to investing in equity securities, growth style investing, consumer discretionary sector, industrials sector, financials sector, large- and medium-capitalization companies, health care sector, information technology sector, market, operational, index tracking, authorized participant concentration, new fund, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, and index-related concentration risk, all of which may adversely affect the Fund. Large- and medium-capitalization companies may be subject to elevated risks. The Fund’s growth strategy may result in the Fund investing in securities or industry sectors that underperform the market as a whole. Furthermore, the growth companies identified by the Index provider may not operate as expected, and there is no guarantee that the index provider’s proprietary valuation model will perform as intended. Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing. © Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation. 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