AI-driven downgrades drive turnover in Moat Index

AI-driven downgrades identified in Morningstar’s March reassessment accounted for the bulk of changes in the Morningstar Wide Moat Focus Index during its quarterly review implemented on June 18, 2026 and reported by VanEck on June 24. The review reduced exposure to technology and industrials and increased weights in consumer discretionary and financials.

Morningstar’s March reevaluation of economic moat ratings used artificial intelligence tools to reassess companies’ competitive positions. Seven of the 12 stocks removed from the Index were deleted because their moat ratings were downgraded; those deletions were concentrated among software companies. Turnover for this rebalance was driven more by changes in moat assessments than by valuation moves.

Technology is now the Index’s largest sector underweight, more than 10 percentage points below the S&P 500. Despite the overall tech reduction, several lower-priced tech-related names were added after trading below Morningstar fair value estimates. New entrants include Broadcom, Fair Isaac (FICO), Guidewire, Jack Henry & Associates and Amphenol. Removed names included NXP Semiconductors, Fortinet and multiple software firms affected by moat downgrades.

Sector weights rose in consumer discretionary, financials and health care, while industrials continued to decline after prior quarters’ overweight positions. The Index’s style mix remained similar to the prior quarter, maintaining a bias toward value. Morningstar’s price-to-fair-value ratio for the Index indicated roughly a 22% discount to Morningstar fair value estimates.

The Morningstar Wide Moat Focus Index targets U.S. companies that Morningstar analysts identify as having sustainable competitive advantages and that trade at attractive valuations. VanEck offers an ETF and a mutual fund that seek to track the Index before fees and expenses; fund holdings can differ from the Index and the Index itself cannot be invested in directly.

The quarterly review reflects both the updated moat assessments and the Index’s rebalance and reconstitution rules established in 2016. Morningstar and VanEck noted that fair value estimates and price targets are subject to change, are not investment advice, and reiterated standard disclosures about past performance and investment risk.