Economic Moat

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Economic Moat

Informal; a competitive advantage over other companies in the same industry. This comparative advantage may be cost-related; that is, one company may be able to produce a good or service more cheaply and can therefore sell it for less. However, the economic moat may also be intangible; one company's name recognition may encourage more consumers to buy its products. A "wide" or "deep" economic moat indicates a company with an economic moat difficult to overcome. See also: Comparative Advantage, Absolute Advantage.
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As part of this analysis, Morningstar's equity research team looks for sustainable competitive advantages, or wide economic moats such as intangible assets, cost advantages, switching costs, network effects and efficient scale.
MOAT's underlying index provides access to the proprietary research of Morningstar's equity analyst team and is based on their economic moat ratings and valuation model.
In its report, "Investing in the Emerging Market Consumer-Why Companies with Moats are Poised for Outsized Returns," Morningstar equity analysts found that companies with economic moats, or sustainable competitive advantages-more specifically, companies with brand portfolios across multiple pricing tiers and expansive distribution networks-are best positioned to monetize consumer demand in emerging markets.
As part of this analysis, Morningstar's equity research team looks for such sustainable competitive advantages, or wide economic moats, as: intangible assets (i.
Similar to the way castles are protected by moats, companies with economic moats are great businesses that can fend off competition and earn high returns on capital for many years.
Just as moats were dug around medieval castles to keep the opposition at bay, economic moats protect the high returns on capital enjoyed by the world's best companies.
Noon, "Why Moats Matter": In a 30-minute video featuring Morningstar analysts, fund managers, and corporate executives, learn more about the concept of economic moats, or sustainable competitive advantages, which is central to how Morningstar identifies companies worth investing in for the long term.
Financial services firms with the strongest economic moats are those that serve ultra-high-net-worth investors, defined as those with more than $20 million in investable assets, and offer comprehensive, sophisticated suites of financial products that are difficult for other companies to replicate.
Not only do we have the most ranked analysts among participating firms, but we believe our long-term outlook, independence, and emphasis on Economic Moats, or sustainable competitive advantages, differentiates our research and produces compelling stock ideas.
Morningstar's comprehensive research report includes investment ideas among its list of potential takeover candidates, merger and acquisition analysis by sector, credit implications of merger and acquisition activity, an examination of the role economic moats and stewardship play in deal-making, and a global outlook for merger and acquisition activity.
Morningstar identifies several sources of economic moats including high customer-switching costs, patents, copyrights and other government protections, economies of scale, and the ability to produce goods or services at a very low cost.
We focus on companies with wide economic moats, meaning they reside in profitable industries and have long-term advantages versus competitors," Sellers said.
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