ryan jackson: Some of the best stocks are a step ahead of their rivals. The Morningstar Economic Moat Rating measures a company's competitive advantage by evaluating its strength and sustainability. An edge that lasts 20 years deserves a wide moat rating. A 10-year advantage gains a narrow moat. And stocks that are likely to keep competitors at bay have no moat at all.
ETFs don't have moats, but their holdings do. Portfolios with many wide moat companies tend to be quality buys with more downside protection than other portfolios. Today, we'll be looking at three ETFs chock full of Widemort stocks. All three companies earn Silver Morningstar Medalist ratings, reflecting our analysts' confidence that they will outperform their respective category indexes on a risk-adjusted basis over the long term.
3 ETFs full of wide moat stocks
- Invesco S&P 500 Quality ETF SPHQ
- SPDR S&P Dividend ETF SDY
- Harbor International Compounders ETF OSEA
Start with the Invesco S&P 500 Quality ETF. It trades under the ticker SPHQ and charges a nominal fee of 0.15%.
This index strategy ranks all stocks in the S&P 500 by quality score and selects the top 100 stocks for your portfolio. We weight the selection by the product of quality score and market capitalization, doubling quality to tie portfolio weight to market price.
Quality scores favor stable, profitable companies over those that mortgage their balance sheets for rapid growth. This blueprint has made Widemort stock a popular choice. At the end of October 2024, approximately 77% of the portfolio consisted of wide moat companies, which is approximately 15 percentage points above the average for the Morningstar US Large Mid Index and Large Blend Category.
These holdings take advantage of the moat. SPHQ ranks in the top 1% of all large blend funds for the 15 years to October, and is well within the best quintile for the following three, five, and 10-year periods.
Let's move on to the SPDR S&P Dividend ETF, SDY. This is a dividend enthusiast index fund that sits in the mid-cap value category.
This strategy only allows stocks in the S&P 1500 index that have increased their dividends for 20 consecutive years. Are you demanding? yes. However, its strict requirements provide important benefits to your portfolio.
Among them, there is a tendency to particularly favor wide moat companies. These accounted for 36% of the portfolio entering November 2024. This compared to 11% for Russell Midcap Value and 7% for its average peer.
Portfolios typically range from 100 to 150 holdings. We weight them by dividend yield. This is a weighted approach that accounts for the slope of value. Undervalued stocks have been underperforming for quite some time, but this fund has a stellar long-term track record anyway. It has grown 9.7% annually over the past 10 years, outperforming the category index by 1.2 percentage points annually and ranking in the top 10% of its mid-priced peer group.
Rounding out today's list is the Harbor International Compounders ETF, an actively managed foreign equity strategy under the ticker OSEA.
Copenhagen-based C Worldwide is sub-advising the fund. We deploy a collegial team of skilled and experienced managers and analysts to execute our strategy. Two of the managers have overseen the fund since the early 1990s and have extensive experience supporting the above-average talent pillar rating.
The team invests with strong conviction to express long-term views on stocks and themes. They tend to focus on two core elements of a company's moat: maintaining competitive advantage and pricing power. This explains why about 56% of the money in this 30-stock portfolio was sitting in Widemoat companies. This ratio was 18 points higher than the overseas large growth category index and 13 points higher than the average for peer companies.
This ETF only launched in the second half of 2022, so its track record is short. But this strategy has long been successful in other ways, and early returns are promising here. It grew 18.9% annually over the two years to October 2024, outperforming the category index and ranking just outside the top quartile of its peer group.
For more information on Ryan Jackson, see 3 Great Contrarian ETFs.
