Out of the hundreds of shares on the ASX, the VanEck Vectors Wide Moat ETF (ASX:MOAT) is my favourite right now. Here’s why.
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Which ASX share is my favourite right now?
Well, that’s a tricky question. There are quite a few shares in my ASX portfolio, and each one is there for a reason. Some provide some portfolio ballast, even though I know they’re not going to be the shares that shoot the lights out over the next few years. Others are just there as a hedge against another share market crash or share market instability in general. And I do have some ‘high-conviction’ ideas that I’m hoping are going to at least offer the chance of a ’10-bagger’ return or better.
But the share I’m going to name as my favourite falls into none of the above categories. It’s a share that I own for market-beating performance as well as providing a decent stream of dividend income. It’s a healthy ‘core holding’ of my portfolio.
This share is the VanEck Vectors Wide Moat ETF (ASX: MOAT).
This exchange-traded fund (ETF) gets its name from the ‘moat’ concept. A moat is an idea popularised by the great investor Warren Buffett. He describes a moat as an ‘intrinsic competitive advantage’ a company has that protects it from ‘attackers’ or competition. There are many types of moats a company can have, but the most common are a powerful brand, a product ecosystem that ‘locks’ customer in, and a ‘toll bridge’ moat where customers simply have to use a company’s products or services due to a lack of alternatives.
Think of the companies Warren Buffett is famous for investing in. Apple Inc (NASDAQ: AAPL) arguably has one of the best brands in the world that elicits its customers to pay far more for an Apple product than any competitor. It’s a similar story with the Coca-Cola Company Inc (NYSE: KO), which has one of the most recognisable brands on the planet.
Alternatively, think of Intel Corporation (NASDAQ: INTC). The vast majority of personal computers sold today, whether that be an Apple or a Windows, has an Intel chip in it. That means that consumers can’t really avoid using Intel’s products if they want a computer of most descriptions – a form of a ‘toll-bridge moat’.
The MOAT ETF holds only companies that display these characteristics. That’s why you’ll currently find Intel and Coca-Cola in MOAT’s holdings, as well as companies like Kellogg Company (NYSE: K), Amazon.com Inc (NASDAQ: AMZN) and American Express Co (NYSE: AXP).
Because of this investing philosophy, MOAT has managed to return an average of 18.61% per annum over the past 10 years. That’s an amazing return in my view and one that both exceeds the S&P 500 Index as well as the S&P/ASX 200 Index (ASX: XJO). And that’s why MOAT is my favourite ASX share right now.
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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, Kellogg, Coca-Cola, 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 Apple and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia has recommended Amazon, Apple, and VanEck Vectors Morningstar Wide Moat ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.