Investing in blue-chip stocks: trust the titans of the market
Holding big blue-chip stocks with enduring competitive advantages – AKA a wide moat – is lucrative. It has also just got easier with this investment trust.


Over the last few years more and more market commentators have noticed a concentration effect whereby a small number of very successful businesses are becoming more powerful in terms of market share, which in turns leads to higher share prices. Backing these businesses has been a profitable trade for active fund managers.
For investors with a more passive inclination the choice in this context has historically been more limited, but that is now changing. In recent years a few new exchange-traded funds (ETFs) have tried screening national or global markets for a more focused collection of large, highly profitable businesses where the competitive advantage is defensible.
Borrowing from Buffett
An enduring competitive advantage is known as a “moat”. A company with a wide moat can keep competitors at bay for an extended period of time. It’s an idea borrowed from Warren Buffett but is also widely used by many active fund managers. It’s also the core strategic objective of a new ETF from US-based issuer called VanEck. It’s called the VanEck Vectors Morningstar Global Wide Moat UCITS ETF (LSE: GOAT), and has just launched on the London Stock Exchange. According to VanEck, the Morningstar Global Wide Moat Focus IndexSM, which the fund tracks “has outperformed the MSCI World Index by 3.97% since its launch on 23 April 2018”, and contains stocks from Europe, Japan, China and Australia. The underlying index tracks “the overall performance of attractively priced global companies with sustainable competitive advantages”. The new ETF has a total expense ratio of 0.52% per year.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
So how are the stocks chosen? Morningstar’s analysts crunch lots of numbers starting with the “return on invested capital (ROIC) relative to the company’s cost of capital to determine profitability”. The next step is called “show me the money”: has the ROIC exceeded their expectations?
Then the analysts see whether that abnormal return can persist, by looking for advantages such as high switching costs (is it a pricey hassle for a client to move to a rival?), a distinct cost advantage, lots of intangible assets or maybe a technology-driven network effect: everyone needs to be on a platform to take advantage of a product. These are the hallmarks of firms with wide moats. To Morningstar, a key criterion is also an ability “to generate ROIC in excess of its cost of capital for at least 20 years”.
What kind of businesses pass these tests? A US version of the GOAT fund gives us the answer. Top holdings include Tencent, Alibaba, Microsoft, Constellation Brands, Salesforce and Julius Baer. The average market cap is $178bn, with an average price/earnings ratio of 22.2 – US stocks account for 64% of the index, China 7%, and the UK 6.6%. In terms of sectors, healthcare stocks are the biggest weighting at over 20%.
An alternative approach
Building a fund around moat companies isn’t the only strategy for targeting large-cap, high-margin, successful businesses. There is also the S&P Dow Jones Global Titans Index, which is tracked by the Lyxor DJ Global Titans 50 UCITS ETF (LSE: MGTU); it has gained an impressive 94% in three years. This index looks at market cap, revenue and net income and then for each company ranks their weighting in the index by market cap, at 60%, the revenue rank at 20%, and the net profit rank at 20%. The 50 companies with the highest final rank are selected.
Top holdings include Fast Retailing (whose brands include Uniqlo, at 8.81%) and Itochu, an industrial firm (8.78%), alongside better known names such as Softbank (6.85%), Amazon, Toyota and Fujitsu.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.

David Stevenson has been writing the Financial Times Adventurous Investor column for nearly 15 years and is also a regular columnist for Citywire.
He writes his own widely read Adventurous Investor SubStack newsletter at davidstevenson.substack.com
David has also had a successful career as a media entrepreneur setting up the big European fintech news and event outfit www.altfi.com as well as www.etfstream.com in the asset management space.
Before that, he was a founding partner in the Rocket Science Group, a successful corporate comms business.
David has also written a number of books on investing, funds, ETFs, and stock picking and is currently a non-executive director on a number of stockmarket-listed funds including Gresham House Energy Storage and the Aurora Investment Trust.
In what remains of his spare time he is a presiding justice on the Southampton magistrates bench.
-
Is it time to ride the recovery in emerging markets?
Interview What's the outlook for emerging markets? Gustavo Medeiros, head of research at Ashmore Group, gives his analysis and reviews progress in developing economies
-
Could the Enterprise Investment Scheme cut your tax bill?
The Enterprise Investment Scheme is tax-efficient and potentially lucrative. Taking a chance on the scheme could trim your family’s IHT bill, says David Prosser
-
'Ride the recovery in emerging markets': Gustavo Medeiros of Ashmore Group tells MoneyWeek
Interview What's the outlook for emerging markets? Gustavo Medeiros, head of research at Ashmore Group, gives his analysis and reviews progress in developing economies
-
What is the Enterprise Investment Scheme and should you have one?
The Enterprise Investment Scheme is tax-efficient and potentially lucrative. Taking a chance on the scheme could trim your family’s IHT bill, says David Prosser
-
The alcohol industry is suffering as consumers sober up – is it still worth investing in the sector?
Changing consumer tastes are rocking the alcohol industry, but the best players are adapting their strategies. Buy them while their shares are still cheap
-
A strange calm in credit
Corporate bond markets remain remarkably relaxed, with yields that offer little compensation for risks
-
The City's big bet on green finance fails to pay out
Opinion Insurers and banks are backing away from “green finance”, and there is not much sign of the green boom we were promised. That’s a problem for the City
-
Six top investment trusts for smaller stocks
Liquidity constraints mean investment trusts are best placed to seize the juiciest opportunities
-
Why is English football thriving – and can it last?
What has gone so right for English football? The national team has found its feet; the Premier League is swimming in money and profits are soaring
-
Could colour diamonds add a sparkle to your portfolio?
Diamonds of various shades never go out of fashion, says Chris Carter