VanEck Morningstar Wide Moat Value ETF (MVAL)

What does “wide moat” mean?

A moat is a competitive advantage that protects a company from rivals and allows it to earn outsized profits. The term comes from the medieval castle model: a wide moat surrounding a castle made it hard for invaders to breach the walls. In business, a moat might be a powerful brand (Coca-Cola), control of essential infrastructure (a regional utility), a network effect (Facebook), proprietary technology, or cost advantages that competitors cannot easily replicate. Morningstar, the investment research firm, systematically identifies companies it believes have these durable advantages and rates them on the width of the moat. A company with a wide moat is believed to be able to sustain above-average profit margins for many years because competitors cannot easily undercut it.

MVAL focuses on U.S. large-cap companies that Morningstar has designated as having wide moats. This screens out companies whose competitive advantages are fragile or temporary, leaving a portfolio of businesses with genuine structural strengths.

The value angle

But MVAL is not purely a “wide moat” fund. It adds a second filter: valuation. A wide moat is attractive, but not at any price. MVAL screens for large-cap companies with wide moats that are also trading at reasonable or attractive valuations relative to their earnings and assets. This is the value-investing piece — the idea that you want to pay a sensible price for a good business, not overpay for it just because it is strong.

This two-factor approach — quality (moat) plus value (price) — appeals to investors who believe that the best returns come from owning excellent businesses bought at reasonable prices. It differs from a pure growth fund, which might own excellent businesses regardless of price, and from a pure value fund, which might buy cheap companies without regard for the strength of their competitive positions.

How MVAL is constructed and rebalanced

The fund tracks an index maintained by Morningstar and VanEck that starts with large-cap U.S. companies, applies the wide-moat criterion (based on Morningstar’s proprietary equity research), then filters for valuation attractiveness. The result is typically 50 to 100 holdings — far fewer than a total-market index fund, but broad enough to avoid excessive concentration.

The index is reconstituted annually, meaning the holdings change based on updated moat and valuation assessments. A company that Morningstar previously assigned a wide moat might lose that rating if its competitive position erodes; a company might be added if it develops a wider moat and becomes cheaper. This active reassessment is one way MVAL differs from passive market-cap-weighted funds.

The moat framework in practice

To own a wide moat in Morningstar’s view, a company typically needs evidence of durable competitive advantages — demonstrated over many years — that show up in superior profitability or pricing power. Coca-Cola owns a wide moat because of its brand and distribution network, which allow it to price premium to rivals and maintain margins even under competitive pressure. Microsoft owns a wide moat because of switching costs (once a company standardises on Windows and Office, switching to alternatives is expensive and disruptive). A railroad owns a moat because building a competing rail network is prohibitively expensive and slow.

By contrast, a company in a commoditised industry with thin margins and many competitors — say, a regional airline or a low-end retailer — would likely not qualify, regardless of how well-run it is. The moat must be structural, not merely a reflection of current management competence.

The value piece and economic cycles

MVAL’s value filter means the fund tends to own stocks that are cheaper relative to their earnings and book value than the broader market. This positioning sometimes works beautifully — when value stocks outperform — and sometimes underperforms — when growth and momentum stocks lead the market. Value investing is notoriously cyclical: long periods of underperformance followed by sudden rebounds. An investor in MVAL must be comfortable with that volatility and willing to hold through stretches when the fund lags.

The advantage is that when value does cycle back into favour, MVAL’s positions — sitting at reasonable prices — may deliver outsized returns. Historically, value investors have been rewarded over very long time horizons, but the path is rarely smooth.

Which companies typically appear in MVAL?

MVAL’s actual holdings vary with market conditions and Morningstar’s moat updates, but the fund typically includes large-cap industrial companies (railroads, diversified manufacturers), established financial firms (banks, insurers), consumer staples companies (food, beverage, household products), healthcare firms with durable advantages (pharmaceuticals, medical-device makers), and established technology companies with strong moats (semiconductor manufacturers, software firms with lock-in). It tends to avoid expensive growth companies, thinly capitalised industries, and companies in structurally declining sectors.

This creates a portfolio that feels more conservative and defensive than a growth index but with more upside optionality than a pure dividend or utility fund.

Risks and limitations

One risk is that Morningstar’s moat assessment could be wrong. A company might appear to have a wide moat but face disruption from new entrants or technology. A streaming service might seem to have a defensible position until a better competitor emerges; a railroad might seem safe until new transport technology bypasses the need for rail.

Another risk is value trap: a stock might appear cheap because it is priced for a permanent decline in competitive position. MVAL’s screening for wide moats attempts to avoid this, but the assessment is human and fallible.

The fund is also concentrated relative to the total market — 50 to 100 stocks instead of 500 or 3,000 — so individual stock movements have larger portfolio effects.

Finally, MVAL is subject to style rotation risk. If growth investing comes into favour and stays there for years, MVAL will underperform because it does not hold the same expensive growth stocks driving the market. This is a structural feature of a value-tilted fund and something long-term investors must accept.

How to research MVAL

Begin with the fund fact sheet on VanEck’s website, which lists the current holdings, the sector and geographic breakdown, and the fund’s valuation metrics (price-to-earnings, price-to-book) compared to the broad market. A lower valuation suggests the fund is trading at a discount, which may appeal to contrarian value investors.

Review Morningstar’s equity research to understand its moat methodology. Morningstar publishes detailed research on individual stocks, and understanding how they assess competitive advantages helps you evaluate whether you agree with their framework.

Compare MVAL to other value and moat-focused funds (such as the Vanguard U.S. Value ETF or the Berkshire Hathaway portfolio, which is famously biased toward moat-rich companies) to understand where MVAL sits on the value-to-growth spectrum.

Watch for Morningstar’s annual rebalancing announcements, which detail which companies are entering or exiting the index and why. These changes signal shifts in how Morningstar views competitive positioning across different industries.

Finally, consider your own time horizon and temperament. MVAL is designed for long-term investors who can tolerate value-style underperformance for stretches without capitulating. If you need steady short-term returns or cannot tolerate years of relative underperformance, a more market-cap-weighted or growth-oriented fund may be better suited to your needs.