About Michael Holt
Michael Holt, chief strategy officer and president of research, investments and analytics at Morningstar, advised new graduates to pursue a career in finance by staying curious about how markets work, how funds are structured, and how companies are valued. He cautioned against assuming that someone will "bail you out" of an investment and encouraged graduates to dig into valuation approaches and learn from them.
In a 2015 interview, Holt discussed the wide moat index, which selects 20 of the cheapest wide moat stocks each quarter. He explained that the index focuses on companies with durable competitive advantages expected to sustain profits for 10 to 20 years, and that stocks are chosen based on the intersection of high-quality businesses and attractive valuations. Holt noted that Facebook was considered a wide moat business but was only added to the index when its valuation became attractive. He described the ETF structure as tax-efficient despite high turnover, and said that some of Morningstar's best analysts participate in the quarterly selection process.
Source: AI-verified profile updated from Michael Holt's recent appearances.
Browse all interviews →
Transcript (15 segments)
T
Tom Liden0:11
Hi, I'm Tom Liden, editor of VF Trends, here at the Morningstar conference in Chicago, and I'm here with Michael Holt from Morningstar and Pat Finn from Van Eck Global Market Vectors ETFs. Gentlemen, welcome.
M
Michael Holt0:22
Thanks for having us.
T
Tom Liden0:25
So you two have a unique relationship where your firms have gotten together. Pat, explain that.
P
Pat Finn0:30
Yeah, absolutely. So Morningstar has an index, the Wide Moat Index, and it's been live since 2007. The performance has been very strong, and we felt that this was a great opportunity to offer the marketplace access to bright minds like Michael and his team, the Morningstar research. So we licensed the ETF, and it was launched in 2012 under the very easy to remember ticker MOAT. And things have gone really well since then.
T
Tom Liden1:02
So it's a unique index. Van Eck Market Vectors licensed it from Morningstar. The whole idea about wide moat investing, you know, kind of a Warren Buffett approach to investing. Explain a little bit about how you select and how often you select the constituents in that index.
M
Michael Holt1:20
All right, so the constituents are selected each quarter. So it's equal weighted, and 20 of the cheapest wide moat stocks are selected. And I think what's interesting is they have to be wide moat stocks, and that means that they've got a durable competitive advantage. So this is not have they made money recently or today, but are they going to have excess profits 10 years from now and 20 years from now? No flash in the pan companies.
T
Tom Liden1:41
No flash in the pan, right. High quality business with durable, decade-long sustainable businesses. And every quarter there are 20 companies, and you can actually have some decent turnover quarter to quarter.
M
Michael Holt1:51
Correct, there can be, because what we're really looking at is this intersection of really high quality businesses and attractive valuation. So you don't want to just find a high quality company and say, well, that's what I should buy. We've got to also say, what's the current valuation? So every quarter we say, what are the 20 cheapest based on our estimate of intrinsic value, and then make those the selection candidates for the index.
P
Pat Finn2:10
Right. So one thing on that, that's what's great about the ETF structure. We have a high turnover potential, but the ETF structure allows tax efficiency, and therefore is the perfect option for encompassing the Wide Moat Index.
T
Tom Liden2:26
You know, I remember when it launched, and then over time I saw, as we all saw, Facebook take off and then it declined, and then after it declined, you folks put it in the index. That's right. And so the idea, Facebook's going to be around for a long period of time, but kind of hit a valuation point where it gave you the right criteria to put it in. Is that right?
M
Michael Holt2:46
Absolutely. So we've always thought of Facebook as a wide moat business, but we waited until the valuation looked attractive. So you're right, as it came down, we said, this is a truly high quality business, let's get it in there.
T
Tom Liden2:57
So great. You know, advisers respect Morningstar, and here's a way to kind of get their good thinking in a very simple, inexpensive ETF. And to a great degree, you know, some of the best minds at Morningstar are sitting around the table on a quarterly basis selecting these individual stocks. So you've got to be pretty proud of what's gone on so far, Pat.
P
Pat Finn3:17
Absolutely. I think you said it best. It's a cost efficient way to get the best of Morningstar's analysts. So approaching a billion dollars, we're almost there. I think we have a celebration party all planned when we... I'm looking forward to an invitation.
T
Tom Liden3:36
Yeah, absolutely. Great guys, thanks for being with us.
M
Michael Holt3:38
Thanks so much.
