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With the S&P going flat for nearly two quarters and recently slipping just north of 3% from its highs, the market certainly feels “toppy,” and the negative headlines predicting some sort of near-term pullback are starting to feel more realistic.
Before you buy into the fear, though, it’s worth considering whether or not your portfolio is ready for that annual correction. It’s been almost a year since we had one, and if there was a good time to rip the band-aid off, it’d probably be now.
Either way, corrections are great buying opportunities, provided you have the extra cash and the ability to separate your emotions from your investment moves. If you’re not sufficiently diversified or invested in wide-moat firms, though, you might be at risk of falling even faster than the market or if you’re not already down more on a year-to-date basis. That’s why it’s time to get pickier with the types of names you batten down the hatches with.
This piece will look at two ETFs with strong, wide-moat firms that can not only help one reduce their portfolio’s beta, but also keep one calm, cool, and collected, as AI threatens to upend business models. Anthropic, OpenAI and other frontier innovators are going to keep releasing mind-blowing tools (like Cowork). And they’re going to induce a market reaction.
That’s why it might be time to check in on the width of the economic moats of the firms in your portfolio. The wide, secured moats should go for a premium while the narrowing moats (like those in software) might go away entirely, with nothing much to protect their fortresses.
When it comes to the “moat-heavy” ETFs, consider the following:
VanEck Morningstar Wide Moat ETF
Believe it or not, there’s exactly an ETF for wide moats. Enter the VanEck Morningstar Wide Moat ETF (MOAT), which tracks the Morningstar Wide Moat Focus Index. In short, it likes big moats or, as Warren Buffett would describe, durable competitive advantages. In an era where moats are narrowing at the hands of a profound technology (like AI agents and robotics), the VanEck Morningstar Wide Moat ETF certainly does shine. What’s more, though, is that the index also prioritizes reasonable valuations. Morningstar has a star rating system to indicate how attractively priced a stock is.
Wide Moat ETF looks increasingly interesting, especially for those of us who’ve thrown in the towel on the software names. Whether it’s war, AI disruption, or something not on our radars yet, I think the VanEck Morningstar Wide Moat ETF is a fantastic one-stop shop to ensure you’ve got your portfolio’s guard up and ready. With a 0.49% expense ratio, the ETF is reasonably priced, given its uniqueness and exposure to what I like to describe as “durable value.”
So, what’s the ultimate moat? Whether we’re talking about cherished brands, unmatched operating economics, monopolistic structures, patents, or massive technological advantages, there’s more than one way to build a wide moat. For those who want to keep it simple, buying and holding the VanEck Morningstar Wide Moat ETF would suffice.
Invesco S&P 500 Quality ETF
Invesco S&P 500 Quality ETF (SPHQ) owns “high quality” stocks, many of which also happen to have some of the widest moats out there. Though “moat” might not be a part of the methodology, the holdings clearly show some behemoths that have either outclassed the competition or have shut the door out to new entrants.
Whether we’re talking about credit-card firms and their network effects, powerful brands, or oligopolistic market structures, the Invesco S&P 500 Quality ETF is full of untouchable businesses that can continue to shine no matter what new tool Anthropic launches. Whether the next big “killer” AI-native app sparks a huge sell-off in another industry, I think investors can sleep comfortably at night with such a quality, “moaty” ETF.
The mere 0.15% expense ratio makes this ETF a bargain, given the peace of mind it can provide in such an uncertain time.