Pieter Slegers — ETF Portfolio Update June 2026 (Compounding Quality)

One-line take: the monthly ETF issue, built on stacking two documented premia rather than picking a theme. The two claims are quantified: "since 2008, the Morningstar Wide Moat Index has beaten the US Market by 4% a year," and "small companies outperform the market by 3% per year" — so the spotlight is the fund that requires both, VanEck Morningstar SMID Moat (SMOT), 0.49% TER, 115 holdings, screened from the Morningstar US Small-Mid Cap Index for a wide or narrow moat, then filtered on momentum and price. The entry-point argument is a single chart: SMID-cap forward PE relative to large-cap forward PE now stands at 0.87 against a 1.15 twenty-two-year average — the cheapest relative reading since 2004 — with the coverage gap as the second-order reason ("11 analysts per SMID security versus 26 for the S&P 500"). The moat taxonomy is the teaching content, five sources each with one worked example: switching costs (FICO), intangible assets (Hermès), network effects (Visa), cost advantages (Costco), efficient scale (Union Pacific). The size argument is arithmetic, not preference: a $50m business needs $10m of new sales to grow 20%; Apple would need $80bn — "iPads and Macs combined generated $62 billion in revenue last year," so it "would have to invent an entirely new category bigger than both." The transaction: $500 into VB at $296.5 for Americans, €500 into IUSN at €9.1 for everyone else. The two model portfolios now stand at $11,481.46 (CAGR 14.8%) and €12,771.13 (CAGR 18.7%) after eighteen and nineteen transactions respectively.

1. Stocks & names mentioned

Ten names. Three ETFs carry a view — the spotlight and the two funds actually bought — and the rest are the worked examples used to teach the five moat sources and the size problem, so they are Neutral. The other portfolio ETFs are named in the charts but their tickers are not given in the post and are not inferred. Research legend: QT Qualtrim · SA Seeking Alpha · STK Stock Analysis. Written post with no timestamps — the At link opens the article.

Ticker	Name	Research	View	What he said	At
SMOT	VanEck Morningstar SMID Moat ETF	SA · STK	Positive	ETF of the Month. "You want to invest in companies with a wide moat. But you know what's even better? Finding a small company with a wide moat." Mechanics: starts from the Morningstar US Small-Mid Cap Index, keeps only Wide or Narrow moat companies, then screens out bad momentum and picks "the best-priced companies (115 in total)." TER 0.49%, physical, ISIN US92189H7301. Sectors: IT 18.2%, Health Care 18.1%, Industrials 15.8%. Top holdings are a genuinely different set from the archive's usual universe — Carnival 1.51%, Acuity Brands 1.46%, Masco 1.46%, Gentex 1.45%, Block 1.42%, Bio-Techne, Royalty Pharma, Airbnb, Norwegian Cruise Line, Biogen. Not added to either model portfolio in this issue.	read ↗
VB	Vanguard Small-Cap ETF	SA · STK	Positive	BOUGHT (American portfolio) — $500 at the next market opening, price $296.5. "We are increasing our exposure to small caps." Already the largest position at 21.8% and the best performer in that book at roughly +67%; this is its fourth purchase (Dec 2023 at $212.8, Mar 2024 at $224.6, Oct 2024 at $242.7, Feb 2026 at $277.32). Adding to the biggest winner rather than rebalancing away from it.	read ↗
IUSN.DE	iShares MSCI World Small Cap UCITS ETF	STK	Positive	BOUGHT (non-American portfolio) — €500 at the next market opening, price €9.1. The UCITS equivalent of the VB purchase, "because if you live in the US, you can't buy non-US ETFs. And if you live outside the US, you can't buy US ETFs." Currently 18.1% of that book at roughly +33%, its fourth purchase since November 2023 (€5.62, €6.37, €6.85, €8.41).	read ↗
FICO	Fair Isaac	QT · SA · STK · FA	Neutral	The worked example of switching costs: "Banks have built their automated loan approval systems around them, and switching to a competitor means massive operational risk for no real advantage." Teaching use only — the rating itself is BUY on the 18 June list.	read ↗
RMS.PA	Hermès International	QT · SA · STK	Neutral	The worked example of intangible assets: "A competitor can make a similar bag, but they'll never have the prestige that allows Hermès to consistently raise prices without losing demand." Rated Hold on the June list after an upgrade from Sell.	read ↗
V	Visa	QT · SA · STK · FA	Neutral	The worked example of network effects: "Consumers use Visa because every merchant accepts it. Merchants accept Visa because every consumer carries it." A holding and a Buy elsewhere; no fresh view here.	read ↗
COST	Costco Wholesale	QT · SA · STK · FA	Neutral	The worked example of a cost advantage: "Costco buys in bulk, and passes the cost savings to customers, which makes the customers more loyal, and drives higher volumes, which allows Costco to lower prices even more." Cited as the textbook flywheel; no stance taken.	read ↗
UNP	Union Pacific	QT · SA · STK · FA	Neutral	The worked example of efficient scale: "Building a new coast-to-coast rail network would require hundreds of billions of dollars in land rights and infrastructure, only to split an already mature market." One of the ten oldest companies in the Lindy Effect list.	read ↗
AAPL	Apple	QT · SA · STK · FA	Neutral	The worked example of the size problem: on ~$400bn of revenue, a 20% year means finding $80bn of new sales — "iPads and Macs combined generated $62 billion in revenue last year. Apple would have to invent an entirely new category bigger than both to grow by 20%." Used as arithmetic, not as a view.	read ↗
BRK.B	Berkshire Hathaway	QT · SA · STK · FA	Neutral	The second size illustration, and the more uncomfortable one: "Berkshire has nearly quadrupled its revenue in the past 20 years. But the revenue growth rate is slowing down." With Buffett's own 1995 line — "The giant disadvantage we face is size: In the early years, we needed only good ideas, but now we need good big ideas." Upgraded to Buy on the 18 June list a week earlier; the two statements sit awkwardly together.	read ↗

Two observations on the model portfolios. (1) The non-American book is ahead on CAGR but behind per position on the biggest bet: 18.7% versus 14.8% overall, yet the American Vanguard Small-Cap position is up ~67% against ~33% for its UCITS world-small-cap equivalent — the American portfolio's edge is concentrated in US small caps, the non-American's in emerging markets and multifactor. (2) The one losing position in either book is the March 2026 purchase of the iShares Edge MSCI World Minimum Volatility UCITS ETF, at −3.94% — bought at €75.72, now €72.74. That is the same low-volatility factor the archive buys again in July on the argument that the discrepancy versus high volatility is the widest since 2006.

2. Talking points

Reversion to the mean, and the exception

"Capitalism is brutal. When a company starts making a lot of money, it usually attracts competition… That's called reversion to the mean. But sometimes… This is not the case."
The moat is defined by what it prevents rather than by what it is: "reversion to the mean doesn't take place when a company has a durable competitive advantage."

Morningstar's three moat ratings

Wide: a durable advantage expected to last 20 years or more. Narrow: 10-20 years. None: no advantage, or one that disappears quickly.
Note that SMOT keeps both Wide and Narrow — a looser filter than the headline "moat" framing implies.

The five moat sources, one example each

Switching costs — FICO scores embedded in banks' automated loan approval systems.
Intangible assets — Hermès: the bag can be copied, the prestige cannot.
Network effects — Visa's two-sided loop.
Cost advantages — Costco's bulk-buying flywheel.
Efficient scale — Union Pacific: a market too small to be worth entering.

The two premia, quantified

"Since 2008, the Morningstar Wide Moat Index has beaten the US Market by 4% a year."
"Small companies outperform the market by 3% per year."
The fund exists to capture both at once. Neither figure is sourced beyond Morningstar and VanEck's own material.

The size problem, as arithmetic

$50m of revenue needs $10m of new sales for 20% growth — "a few new enterprise contracts or expanding into one new state."
$400bn of revenue needs $80bn — larger than iPads and Macs combined.
Buffett, 1995: "The giant disadvantage we face is size: In the early years, we needed only good ideas, but now we need good big ideas."

The entry-point chart

SMID-cap forward PE relative to large-cap forward PE: 0.87 today against a 1.15 average since 2004, having spent most of two decades between 1.1 and 1.4.
Second reason: coverage. 11 analysts per SMID security versus 26 for an S&P 500 constituent — "this offers opportunities for rational investors."
Small caps are 51% of US listed securities by count but 13% of them are large caps by the same measure — the breadth argument for indexing rather than picking.

What SMOT actually holds

Carnival, Acuity Brands, Masco, Gentex, Block, Bio-Techne, Royalty Pharma, Airbnb, Norwegian Cruise Line, Biogen — roughly 1.35-1.51% each, so the top ten is under 15% of the fund.
Worth noting that two cruise lines and a payments company sit at the top of a "moat" fund: the Narrow-moat inclusion and the valuation screen pull it toward cyclicals.

The transaction, and the pattern behind it

$500 into VB at $296.5; €500 into IUSN at €9.1. Same amount, same day, both portfolios.
Nineteen transactions over 32 months at €500 a time in the non-American book: the ETF portfolio is the archive's demonstration of the monthly-addition discipline argued in the 16 June letter, at 1% of the size.

3. In plain English

A jargon-free summary of the thesis behind each argued name. (Renders on each name's consolidated page.)

SMOT — VanEck Morningstar SMID Moat ETF Positive

This fund tries to do two things at once that have historically each worked on their own. The first is to own companies with a durable competitive advantage — Morningstar rates these "wide moat" if it expects the advantage to last twenty years or more — which has beaten the American market by about four percentage points a year since 2008. The second is to own smaller companies, which have historically beaten the market by about three points a year, mainly because it is much easier to grow a small business than a very large one.

How it works in practice: start with all American small and medium-sized listed companies, keep only those Morningstar says have a moat, throw out the ones whose share prices are behaving badly, and from what is left buy the cheapest 115. The annual fee is 0.49%.

The reason for raising it now is a single relationship: smaller American companies currently trade at 0.87 times the earnings multiple of large ones, against a twenty-two-year average of 1.15 — as cheap, relative to big companies, as they have been in the whole period measured. And they are far less examined: eleven analysts follow the average one, against twenty-six for a member of the S&P 500.

One thing to notice before assuming this is a fund full of Hermès-like businesses: it accepts "narrow" moats as well as wide ones, and the cheapness filter pulls it toward cyclical companies. The largest holdings include two cruise lines.

VB — Vanguard Small-Cap ETF Positive

A plain, cheap fund holding a broad basket of smaller American companies. It is already the largest position in the model portfolio for US-based readers, at about 22%, and the best performing one, up roughly two thirds since it was first bought in December 2023 at $212.80 — it now trades near $297.

This month's $500 goes into it again, which is worth noting as a behaviour: rather than trimming the winner to rebalance, the addition goes to the position that has already worked, because the reasoning behind it — smaller companies are unusually cheap relative to large ones — has not changed. Adding a fixed amount every month means the purchase price is whatever the market offers on the day.

IUSN.DE — iShares MSCI World Small Cap UCITS ETF Positive

The European-domiciled equivalent of the small-company purchase above, bought with €500 at about €9.10. It exists in the portfolio for a regulatory rather than an investment reason: European investors generally cannot buy American-listed funds, and American investors cannot buy European ones, so the archive runs two parallel portfolios that aim at the same exposures.

One difference is worth seeing: this fund holds smaller companies from around the world rather than only American ones, and it is up about a third since late 2023 against roughly two thirds for its American counterpart. Same idea, different geography, materially different result so far.

Summary derived from the archived Compounding Quality post (text in transcript.txt) for personal study. Not investment advice. © Compounding Quality / Pieter Slegers for source material.

Pieter Slegers — ETF Portfolio Update: June 2026