VanEck ETF Combines ESG With Moat Approach

Today, VanEck launched an ESG-flavored follow-up to its popular $6.7 billion VanEck Morningstar Wide Moat ETF (MOAT). The methodology of the new fund, the Morningstar ESG Moat ETF (MOTE), combines Morningstar’s analytics capabilities with the ESG knowledge of its Sustainalytics subsidiary.

MOTE comes with an expense ratio of 0.49%, 2 basis points more than MOAT, and lists on Cboe Global Markets.

“It's really just identifying companies that have done a good job essentially addressing and managing material ESG issues, and then that is paired with a more traditional equity research process, the process of identifying companies with a long-term competitive advantage,” said Brandon Rakszawski, VanEck’s director of ETF product development, who notes that there has been increased demand for sustainable investments and that assets have increased in the space.

Like MOAT’s approach, MOTE tracks an index that looks for companies that are both attractively priced and have a solid competitive advantage over their rivals, otherwise known as a “moat,” a concept popularized by Warren Buffett. According to MOTE’s prospectus, when defining a firm’s competitive advantage, the index methodology looks at criteria like customer switching costs, internal cost advantages, intangible assets, network effects and efficient scale.

However, the new fund goes a step further than its predecessor and adds an ESG overlay that takes into account ESG-related risks. Morningstar acquired ESG ratings and research firm Sustainalytics last year, and has applied its data to its wide moat methodology. The process screens out firms with high ESG risk ratings, significant business controversies and high levels of carbon risk, as well as those with involvement in the weapons, coal or tobacco industries, the fund document says.

MOTE’s underlying index included 60 companies as of the end of August, and splits its portfolio into two parts. One half rebalances in June and the other rebalances in  December, with components equally weighted within each half, according to the document.

Contact Heather Bell at [email protected]