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Monday, August 06, 2012

Moats Work, But Not Forever

News summary by MFWire's editors

Moats can be a big plus to mutual funds and ETFs, but they don't last forever, writes Jonathan Burton for MarketWatch.

Warren Buffet, chairman of Berkshire Hathaway, used "moat" to describe the advantage of barriers built by companies to defend the portfolios they offer. He said he wants "economic castles protected by unbreachable moats."

"A company that has a greater duration of competitive advantage is simply worth more," said Morningstar chief equity strategist Paul Larson. "[Wide moat companies] should be able to parlay that into higher returns on invested capital.

"A wide-moat business, purchased at the right price, is the ultimate 'sleep well' kind of investment," Yacktman Fund co-manager Jason Subotky also told MarketWatch.

In 2007, Morningstar came up with the Wide Moat Focus Index, which is comprised of the 20 least expensive wide-moat stocks handpicked by the from 1,200 U.S. stocks. This index is used by the Market Vectors Morningstar Wide Moat Research ETF and Elements Morningstar Wide Moat Focus.

Some funds that invest in wide-moat stocks are SPDR Dow Jones Industrial Average, Schwab US Dividend Equity and Vanguard Dividend Appreciation ETF

Edited by: HFD

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