The Moat Index · Research Note
Quality’s five-year drought.
We run a quality screen. So it is worth saying plainly, in our own words, before anyone else does: for the last five years it has lost to the index. An equal-weight basket of the widest economic moats has trailed the S&P 500 every return-year from 2021 to 2025 — and against a dividend-adjusted benchmark it has lost ground over the whole 14-year record. We are publishing that before any reversion, not after. If quality turns, this note is on the record. If it doesn’t, we were honest about it while it was happening.
Beating the price index isn’t beating the index
Stop at the raw benchmark and the screen looks fine: over 2012–2025 the wide-moat basket compounded at 13.8% a year against the S&P’s 12.8% price return — a win of +1.1 points a year. But the price index is missing its dividends. Add them back — about 1.9% a year over this window — and the honest benchmark returned 14.7% a year. Measured that way, the screen’s win becomes a loss of 0.8 points a year, and the top-20 the same. The only screen that stayed ahead of the dividend-adjusted index was the broadest — the top-50, by +0.7 points a year — and that edge is smaller than the survivorship distortion sitting inside the test.
So the fair reading is not “quality beat the market.” It is: against a like-for-like, dividend-adjusted index, the concentrated quality screens lost over 14 years, and the one broad screen that kept pace did so by a margin we can’t distinguish from the backtest’s own bias.
The streak: five years and counting
Year by year against the price index — the low bar — the wide-moat and top-20 screens have now trailed for 5 straight return-years, 2021 through 2025. That is the active streak, and the longest in the record. Against the dividend-adjusted index, every one of those years would look worse. The broad top-50 broke its own streak by out-returning the index in 2023, which is the first hint of the pattern underneath all of this: breadth held up where concentration didn’t.
Quality didn’t cushion 2022
The case for a quality tilt is supposed to be the bad years: when rates spike and the market falls, durable businesses are meant to fall less. 2022 was the test, and quality failed it. The wide-moat screen returned −23% and the top-20 −26% that year, against the price index’s −20% — the screens fell more, not less. A single year proves nothing on its own, but it is the opposite of the reason many investors hold quality in the first place, and it sits inside the streak rather than interrupting it.
Breadth beat concentration
The most robust thing in the data isn’t about quality versus the market at all — it is about how much quality. The broad top-50 compounded at 15.4% a year; the concentrated top-20 at 13.9%. The top-50 out-returned the top-20 in 10 of 14 years, and it was the only screen to survive the recent drought with an edge over the dividend-adjusted index. Narrowing down to the “very best” moats didn’t add return here; it subtracted it.
The structural “why”
There is a mechanical explanation that doesn’t require quality to be broken. An equal-weight screen, by construction, under-owns the largest companies. The S&P 500 is capitalization-weighted, so a handful of mega-cap names carry it; from 2023 through 2025 a narrow set of the very largest stocks drove most of the index’s gain. An equal-weight quality basket holds those names at the same weight as everything else — often less, when the biggest companies don’t clear a wide-moat bar — so it simply wasn’t positioned for a concentration-led market. That is a statement about weighting and market breadth, not a verdict on whether moats matter.
What would have to be true
We are not going to tell you what happens next, because the data doesn’t. It only lets us name what each story would need.
For the drought to be noise — a stretch that reverses — market leadership would have to broaden back out from a few mega-caps, so that an equal-weight book stops fighting a cap-weighted index, and quality’s defensive premium would have to reappear in the next real drawdown the way it didn’t in 2022. For it to be structural — a smaller or absent premium — concentration would have to persist, and the survivorship flattering in a test like this would have to be doing more of the historical work than it looks. Both are consistent with what’s on this page. We report the record; we don’t predict the turn.
The whole record
Every number above comes from this table — one row per return-year, three equal-weight screens against the S&P price index. The streak years are shaded. Screen returns are total returns; the S&P column is price only. Nothing here is rounded away.
| Return-year | Top-20 | All wide | Top-50 | S&P (price) | Wide n |
|---|---|---|---|---|---|
| 2012 | 14.5% | 16.6% | 17.3% | 14.5% | 85 |
| 2013 | 38.1% | 37.6% | 36.7% | 25.3% | 111 |
| 2014 | 8.2% | 18.4% | 20.4% | 12.3% | 120 |
| 2015 | −2.5% | −3.0% | −2.3% | −2.2% | 113 |
| 2016 | 8.6% | 13.9% | 10.7% | 12.2% | 113 |
| 2017 | 47.5% | 28.1% | 31.2% | 19.4% | 119 |
| 2018 | 3.4% | 4.4% | 6.8% | −6.9% | 108 |
| 2019 | 27.8% | 27.9% | 23.9% | 29.8% | 112 |
| 2020 | 37.6% | 23.0% | 27.7% | 13.6% | 128 |
| 2021 | 26.6% | 28.8% | 29.2% | 29.6% | 113 |
| 2022 | −25.6% | −23.3% | −24.8% | −20.3% | 126 |
| 2023 | 22.0% | 23.4% | 32.0% | 24.0% | 151 |
| 2024 | 11.4% | 13.8% | 19.3% | 23.7% | 140 |
| 2025 | −1.0% | 0.3% | 4.2% | 16.9% | 138 |
| 2012–2025 CAGR | 13.9% | 13.8% | 15.4% | 12.8% |
Dividend-adjusted S&P over the same window: 14.7% a year (price return 12.8% plus ~1.9% in dividends). “Wide n” is the count of wide-moat names with an elapsed return that year — the all-wide screen’s sample.
How to reproduce this
The screens are built from the public backtest cohort API — one call per cohort year. For each year Y from 2011 to 2024:
- GET https://api-multi-site.advisorworld.com/api/moat/backtest/cohort/{year}?limit=1000 — rows come ranked widest-moat first.
- Keep rows whose 1-year forward return has elapsed (forwardReturns.windows.y1.return is non-null). Take the equal-weight mean of the top 20, of all tier === "Wide" rows, and of the top 50.
- Read the same-period index from benchmark.windows.y1.return (the ^GSPC price series). That cohort year’s 1-year window is return-year Y+1.
- Compound each series across the 14 return-years for the annualized figures; add 1.9%/yr to the index for the dividend-adjusted benchmark.
Screens use the equal-weight mean — what a screen-follower holding each name equally would have earned — where the backtest overview reports the wide-moat median; the two answer different questions and won’t match to the decimal.