Morningstar

The Best European Funds That Invest in Wide-Moat Stocks

Gold-rated funds tend to have a higher proportion of stocks with a greater competitive advantage.

Illustration of 'wide moat' icon

Investors looking for quality stocks and funds can use the Morningstar Economic Moat Rating and Morningstar Medalist Rating for Funds as a filter.

This economic moat rating system assesses a company’s ability to maintain a competitive advantage over time to protect its market position and maintain high returns on capital.

Morningstar identifies five sources of competitive advantage: intangible assets, switching costs, network effects, cost advantages, and economies of scale. Companies can have no moat, a narrow moat or a wide moat.

What if we combine the moat rating with the Morningstar Medalist Rating for Funds, which assesses the quality of a fund or ETF? This rating is a summary of the forward-looking analysis carried out by Morningstar’s research team and is expressed on a scale ranging from Gold to Negative.

A Medalist Rating of Gold means that Morningstar analysts have a high degree of conviction that the fund will outperform its benchmark or peer group over a full market cycle, typically at least five years, on a risk-adjusted basis.

If we focus on the large-cap European equity funds, there are 63 funds and ETFs with a Gold Medalist Rating in Morningstar’s European database. Of those 63 funds, 53 have more than EUR 100 million in assets.

Do Gold-Rated Funds Have More Moatworthy Stocks?

There appears to be a positive correlation between the percentage of companies with a wide moat in the fund’s portfolio and its Medalist Rating. Funds with a Gold Medalist Rating have on average, as of May 23, 40.9% of companies with a wide moat, compared with 37.3% for funds with a Negative Medalist Rating.

Gold-Rated Funds Holding Wide-Moat Stocks

Looking at the list of 53 funds and ETFs with a Gold Medalist Rating and more than EUR 100 million in assets, these 10 funds and ETFs have the highest percentage of companies with a wide competitive advantage.

Key Morningstar Metrics for Gold-Rated Funds

Comgest Growth Europe

Comgest Growth Europe Plus

iShares Edge MSCI Europe Quality Factor UCITS ETF IEFQ

Fidelity Funds—European Dynamic Growth Fund

Vanguard European Stock Index Fund

UBS (Lux) Fund Solutions II — UBS MSCI Europe

iShares Europe Equity Index Fund (LU)

Vanguard FTSE Developed Europe UCITS ETF VEUR

Vanguard ESG Developed Europe Index Fund

Northern Trust Europe Custom ESG Equity Index Fund

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.

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