Morningstar Wide Moat Focus Index Q3 2026: Keeping Pace as Tech Stocks Soared

The Morningstar Wide Moat Focus Index targets undervalued US stocks with wide economic moat ratings, as determined by Morningstar equity analysts.

In the third quarter, the Morningstar Wide Moat Focus Index generated a +1.77% total return as its benchmark, the Morningstar US Market Index, rose +1.69%. While these headline figures indicate that the index market-performed, the quarter saw an initial stretch of significant outperformance, followed by a concluding stretch of offsetting underperformance. With below-market exposure to “AI stocks”, the Morningstar Wide Moat Focus Index outperformed its benchmark by +783 basis points from July 1 to August 31 as the AI trade fizzled. During this period, strong performance was driven by its exposure to the Healthcare, Consumer Cyclical, Financial Services, Industrials sectors, while and non-AI Technology exposure was also beneficial. Concurrently, the Morningstar North America Semiconductors Index fell -11.9% from July 1 to August 31, after rising a stunning +95.4% in the second quarter.

However, in the month of September, strong momentum resumed for the AI trade and the Morningstar Wide Moat Focus Index underperformed its benchmark to the tune of -699 basis points. In particular, the omission of non-wide moat semiconductor stocks, such as Micron and AMD, detracted meaningfully from relative performance in the month of September.

Historically, the Morningstar Wide Moat Focus Index has benefitted when the momentum factor underperforms. This typically leads to outperformance for equal-weighted indexes vs. market cap-weighted indexes and a pivot away from narrow market concentration towards greater breadth. Indeed, the index prospered from these conditions in July and August as the momentum of the AI trade took a breather. Still, the AI boom has led to the most concentrated US equity market we’ve seen in the last 100 years, as measured by the % weighting of the ten-largest holdings across the total US equity market capitalization.

Data from 11/30/1998 to 9/30/2026 | Benchmark: Morningstar US Market Index | Source: Morningstar Direct | Data Frequency: Monthly All performance data reflects USD total returns | Indexes are unmanaged and not available for direct investment

Oil prices were also in the spotlight for US investors in the third quarter. Energy emerged as the best-performing sector in the US market, up nearly 16% in the third quarter, as oil prices rose about 30%. This is not a theme that materially affected the Morningstar Wide Moat Focus Index, however. With exceedingly few wide moat-rated Energy companies across our equity research coverage the index had no exposure to the sector. This underweight Energy position contributed to 44 basis points of underperformance for the index relative to its benchmark.

Looking ahead to the fourth quarter, the Morningstar Wide Moat Focus Index exhibits a healthy overweight position in Consumer Defensive stocks (nearly 20% in the Index versus 4% for its benchmark). We see attractive valuations for a number of consumer-packaged goods and alcoholic beverages companies. The Morningstar Wide Moat Focus Index is also overweight the Consumer Cyclical, Healthcare, and Industrial sectors.

Meanwhile, the index remains underweight the Financial Services and Technology sectors. Within Technology, the index is modestly overweight Software, which is the single largest weighting among industry groups in the index at 15%. Software stocks fared well in the third quarter, as market concerns over AI disruption proved to be overblown.