With a year of uncertainty ahead in 2021, here’s an ASX ETF that might be just what the doctor ordered in the VanEck Vectors Wide Moat ETF.
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Well, 2021 is just around the corner, and investors all over the world are wondering what it might bring to us. After one of the most dramatic years on the share market in living memory in 2020, it’s a fair question. Remember, this year has brought us both a 36% drop for the S&P/ASX 200 Index (ASX: XJO), and a 45% rise since 23 March (going off of today’s levels).
Over in the United States, American investors have a market that is currently near its new all-time highs, coming off of market that reached 4-year lows in March. What a rollercoaster!
So now that 2021 is looming, what should we expect? Well, if anyone tells you anything other than ‘who knows’, they’re lying to you! None of us can know what’s just around the corner. We could have a top year, a flat year or a disaster of a year. Only time will tell.
But how does one invest when we don’t know what’s around the corner?
Well, there’s an exchange-traded fund (ETF) that aims to invest in companies that are so strong, they can arguably absorb any crisis that comes their way. That ETF is the VanEck Vectors Wide Moat ETF (ASX: MOAT). Here’s how it works.
For every castle, a moat
The term ‘moat’ is one initially coined by the legendary investor Warren Buffett. It’s a metaphor that describes how a company with certain characteristics can use these attributes to fend off competition and protect its ‘castle’ against any attack. Hence the ‘moat’ analogy.
So Warren Buffett has talked extensively about what a ‘moat’ entails. But VanEck lists specific factors it looks for in its holdings for the MOAT ETF. These include characteristics such as brand strength, the switching cost of using a company’s product, the cost or scale advantages a company might have, and the ‘network effect’ a company’s product might create.
And this approach has worked out pretty well so far. The MOAT ETF has returned an average of 16.04% per annum over the past 5 years, and 19.65% per annum since its inception.
Right now, MOAT holds 49 companies, all listed over in the United States. They include American Express Company (NYSE: AXP), Kellogg Company (NYSE: K), Intel Corporation (NASDAQ: INTC), Coca-Cola Co (NYSE: KO), Harley-Davidson Inc (NYSE: HOG), Amazon.com Inc (NASDAQ: AMZN) and even Warren Buffett’s Berkshire Hathaway Inc (NYSE: BRK.A) (NYSE: BRK.B).
All of these companies have clear brand strength, as well as displaying at least some of the other characteristics VanEck lists above. With a year of uncertainty ahead, such strengths could prove to be very advantageous to these companies and, by extension, their sharholders.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sebastian Bowen owns shares of American Express, Coca-Cola, Intel, Kellogg, and VanEck Vectors Morningstar Wide Moat ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon and Berkshire Hathaway (B shares). The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Intel and recommends the following options: long January 2022 $1920 calls on Amazon, short January 2022 $1940 calls on Amazon, short January 2021 $200 puts on Berkshire Hathaway (B shares), and long January 2021 $200 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Amazon, Berkshire Hathaway (B shares), and VanEck Vectors Morningstar Wide Moat ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.