Warren Buffett is perhaps the most quotable person in the history of investing. He casually tosses off various thoughts, and legions of followers quickly relay those thoughts as the gospel truth. One of his most popular phrases: “In business, I look for economic castles protected by unbreachable moats.”

Indeed the notion of a “wide moat” around a business has become so popular that exchange-traded fund sponsors have built portfolios around the theme.

But what is a wide moat? Put simply, it is the barrier that helps a dominant company in an industry maintain its dominance. Such companies sit on five pillars of strength: a network effect whereby customers favor a product because their peers do as well (think of a company like eBay); a customer’s disincentive to switch to a competing product; high barriers to entry into the company’s market from new rivals; the company’s strong brands, patents and licenses; and scale economies that enable the company to produce at lower costs and thus compete on price.

Those companies with wide moats include Google (GOOG), Harley-Davidson (HOG) and the Hershey Company (HSY).

You’ll find all three of those in the Market Vectors Morningstar Wide Moat ETF (MOAT), launched by Van Eck Global in April 2012. Index managers at Morningstar select the 20 least-expensive stocks among the 1,200 thought to possess reasonably strong moats.

The fund, which rebalances quarterly with adjustments in the underlying index, has already proved to be quite popular with investors, and it now has roughly $850 million in assets under management.

Van Eck and Morningstar have decided to parlay that success into a just-launched fund with an international twist: The Market Vectors Morningstar International Moat ETF (MOTI) began trading on July 14, and time will tell if the foreign-focused doppelganger fund will hold similar appeal.

While the new international fund adheres to the same basic principles of wide moat investing, Morningstar’s index managers made a few slight tweaks. The new fund will have 50 constituents, and its geographic concentration isn’t tied to global market weightings. For example, four English-speaking countries (Australia, Canada, India and the United Kingdom) account for roughly 58 percent of the portfolio.

“The weighting will be heavily influenced by relative valuations at that time,” says Damien Conover, director of equity research at Morningstar. As a result, as valuations change across various foreign markets, future index rebalancings should lead to greater exposure for other countries in the portfolio. Nevertheless, certain regions may have more moat-rated companies than others, says Brandon Rakszawski, product manager at Van Eck Global.

Financial services stocks currently make up almost half of the portfolio (they cover only 20 percent of the domestic fund). The typical holding in the fund carries a $36 billion market value, so these are clearly large companies in their local economies. “Generally speaking, companies with longer track records have had more time to establish moats around their business,” says Conover.

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