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High-Quality Held Up During Rally

Although you'd expect wide-moat stocks to underperform during rallies like in 2017, the Wide-Moat Focus outperformed its benchmark.

Andrew Lane: Within the Morningstar equity research department, we keep a close eye on the performance of the Wide Moat Focus Index, a collection of the cheapest U.S. wide-moat-rated stocks under our coverage. Typically, the strategy holds 40 to 50 stocks, with reconstitutions taking place four times per year. The index is important to us as its construction represents the cross section of our differentiated economic moat methodology and our rigorous bottom-up valuation work.

In the fourth quarter of 2017, the strategy performed closely in line with its benchmark, the Morningstar US market index. However, for 2017 as a whole, the Wide Moat Focus Index outperformed the benchmark by 2.3 percentage points, delivering an absolute total return just shy of 24%. This builds on even more encouraging results from 2016, when the strategy outperformed its benchmark by roughly 10 percentage points.

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