The Batting Average
According to Van Eck statistics, these fluctuations in performance tied to the valuation aspect of the portfolio are to be expected.
In fact, a measure of MOAT’s index success rate versus the S&P 500 shows that the MOAT index tends to outperform the S&P 500 only about half the time on a rolling one-month period. It’s a 50/50 chance of outperformance—a coin flip.
If you expand that holding period to one year—12 rolling months—that number rises to a 60% average of outperformance versus S&P 500.
And if you go out three to five years, you are looking at an 80-90% average. Over the long haul, the index underlying MOAT almost always outperforms the broad market in a longer time period.
So far, that has been the case. Since the fund’s inception in 2012, the fund has outperformed SPY by more than 3 percentage points:
Charts courtesy of StockCharts.com
That batting average holds true, according to Van Eck, because it is in the longer holding period when you start to see the outperformance due to the value tilt. MOAT is essentially buying stocks that have experienced some negative performance leading up to their inclusion in the index, so in the short term, these stocks may not look or do so great.
But that’s the goal—to buy quality stocks low, and sell them high at some point down the road. MOAT is not designed to be an ETF trading tool for short-term investors.
The Latest Mix
Looking ahead, the latest rebalancing of the portfolio in late March shifted the fund’s sector allocations dramatically, putting health care and financials at the top, as the chart below shows:
MOAT’s current sector allocation is significantly different from SPY’s, where information technology leads, with 21% of the portfolio, followed by financials, at 15%. Health care comes third, at 14% of SPY’s portfolio.
These divergences in sector exposures, coupled with MOAT’s value tilt and relatively high stock-specific risk—given its concentration on only 20 securities—should almost certainly translate into performance divergence relative to SPY in the near term.
But to the long-term investor, the ups and downs of rolling 30-day performance windows doesn’t matter. It’s all about keeping the eye on the prize long term.
Contact Cinthia Murphy at [email protected].