Choosing the Right ETF for Long-Term Investments: MOAT vs. SPY
What are MOAT and SPY?
MOAT and SPY are both ETFs or exchange-traded funds. ETFs are baskets of stocks that are traded on an exchange like stocks. They offer a convenient and cost-effective way to invest in a diversified group of stocks.
MOAT tracks an index of U.S. companies identified as having sustainable competitive advantages, known as “economic moats.” These companies are typically leaders in their industries and have strong brand recognition, high barriers to entry, and a loyal customer base.
SPY replicates the S&P 500 Index, which is a market-cap-weighted index of the 500 largest U.S. stocks. This means that SPY holds a weighted average of all the stocks in the S&P 500, with the largest stocks having the largest weightings.
Expense Ratio: Comparing the Costs of MOAT and SPY ETFs
The first point of differentiation between MOAT and SPY is the expense ratio. MOAT has an expense ratio of 0.46%, considerably higher than SPY’s 0.0945%. Over time, the compounding effect of these fees could significantly reduce returns.
Size and Liquidity
Another aspect to consider is the ETF’s size and liquidity. SPY, with an AUM of $358B, is much larger than MOAT, which has a $7.19B AUM. In addition, SPY sees much higher trading volumes, leading to a tighter bid/ask spread compared to MOAT.
Liquidity matters when you want to buy or sell shares. If an ETF is thinly traded, you may not get a good price when you sell, especially during volatile periods. Moreover, ETFs with larger AUMs tend to have more stability, which can be appealing to long-term investors.
Performance and Diversification: Analyzing Historical Returns and Risk Profiles
Historical performance and total return figures appear to favour MOAT. However, it’s important to remember that past performance is not indicative of future results.
Moreover, SPY provides broader market exposure by investing in 500 different stocks, whereas MOAT is much less diversified with around 50 stocks in its basket. Greater diversification generally means less volatility and lower risk, which can be significant for a long-term investor.
While MOAT might have better historical returns, SPY offers more diversification and stability due to its broader market exposure and larger AUM. Moreover, SPY’s lower expense ratio could result in higher net returns over the long run.
Choosing the right ETF depends on your investment goals, risk tolerance, and investment horizon. SPY might be a better choice if you’re looking for broad exposure to the U.S. equity market with low costs. On the other hand, MOAT could be suitable if you believe in the fund’s selection strategy and are willing to take on a bit more risk for potentially higher returns.
In conclusion, the “best” ETF depends on the individual investor’s needs and circumstances. It’s recommended to thoroughly research, understand your risk tolerance, and perhaps consult a financial advisor before making investment decisions.
Additional Considerations: Taxes, Trading Costs, and Investment Styles
In addition to the factors discussed above, there are a few other considerations that investors may want to keep in mind when choosing between MOAT and SPY.
Taxes: MOAT is a non-dividend-paying ETF, while SPY pays quarterly dividends. Investors in MOAT may be able to defer taxes on their capital gains until they sell their shares, while investors in SPY will have to pay taxes on their dividends each quarter.
Trading costs: MOAT and SPY both trade on the NYSE, but MOAT has a higher bid-ask spread than SPY. This means that investors may pay more to buy and sell MOAT shares than SPY shares.
Investment style: MOAT is a growth-oriented ETF, while SPY is a value-oriented ETF. Growth stocks are typically priced higher than value stocks, but they have the potential to grow at a faster rate. Value stocks are typically priced lower than growth stocks, but they may offer a better value for investors who are looking for income or capital appreciation.
Ultimately, the decision of whether to invest in MOAT or SPY is a personal one. Investors should carefully consider their investment goals, risk tolerance, and investment horizon before making a decision.
How to Invest in MOAT and SPY: Accessing ETFs through Providers
A range of different providers can allow you to access ETFs, for example, see Charles Schwab, Fidelity, and Vanguard, remember to always speak to a financial advisor before investing,
Charles Schwab: https://www.schwab.com/
A Comparison between MOAT and SPY: Key Parameters and Fund Details
|Parameters||Wide Moat Fund (VanEck)||Large Cap Fund (SPDR)|
|Fund Category||All Cap Equities||Large Cap Growth Equities|
|Index Followed||Morningstar Wide Moat Focus Index||S&P 500 Index|
|Management Expense Ratio||0.46%||0.09%|
|Fund Management Company||VanEck||State Street|
|Date of Initiation||2012-04-25||1993-01-22|
|Total Assets Under Management (AUM)||$8.42B||$391B|
|Total Shares in Circulation||111M||933M|
|Average Daily Volume Traded (Past 1 month)||700,322.0||80,895,320.0|
|Average Daily Volume Traded (Past 3 months)||618,742.0||89,160,936.0|