Russel Kinnel: A wide moat means a company with strong competitive advantages that is difficult to displace. These companies tend to endure through economic cycles and therefore might be considered to deserve a premium.
However, outside of some fast-growing technology companies, wide-moat stocks and the funds that love them haven’t fared so well of late. Our stock analysts estimate companies’ moat levels, and then we roll them up to come up with a figure for exposure to wide moats, narrow moats, and no moats for each fund.
Let’s look at three funds with a very high level of wide-moat exposure.
3 Funds That Focus on Wide-Moat Stocks
Harbor Capital Appreciation has 82% of its portfolio in wide-moat stocks. The fund looks for companies with strong market positions that can sustain superior growth rates. Plus, you have names like NVDA, Amazon AMZN, and Microsoft MSFT. The emphasis on growth and moats means it isn’t as defensive as funds with a greater emphasis on valuation, but it has produced strong returns. I own this fund.
Silver-rated Fidelity Magellan is 78% in wide moats. There’s a little more emphasis on valuation here, so the fund has missed out on some of the returns of the Magnificent Seven. It has some Mag Seven stocks, but also steadier names like Visa V, Mastercard MA, and Costco COST. Thus, this fund plays better defense. It’s available in open-end and ETF formats.
Tamer still is Parnassus Core Equity, a Bronze-rated fund in the large-blend category. It has 82% of assets in wide moats. Besides some mega-cap tech, it owns industrials like Deere DE, Waste Management WM, and W.W. Grainger GWW. Managers try to limit downside by looking for enduring competitive advantages, modest valuations, and ethical management. Their style has been out of favor lately, but we still think this fund has the ability to generate solid long-term returns.
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