Back to Saigon: Vietnam ETF

In 40 years, it will be the turn of Afghanistan and Iraq to become hot investment destinations for Americans. And there will be a closed end fund investing in Venezuela. But now, the push is to Vietnam. The French, after Dien Bien Phu, had absolutely no interest in getting back into the Saigon bourse. They confined their interest in 'Nam to a consortium drilling for offshore oil into which Total invested.

But G.I. Joe always likes to return to his messes with money and with hopes to make out well despite the shambolic departure the last time around.

My reflections are stimulated by the news that Van Eck on Friday launched a Vietnam Index Fund, an Exchange-Traded Market Vector Fund listed on the NYSE Arca and the Euronext. This is not the first Vietnam Fund attempt; Mark Mobius of Templeton Group tried to create a listed Vietnam Fund in the 1980s, but once the money was raised he could not find any public companies to invest in.

In the interval, Saigon has risen to the stratosphere as less-savvy investors than Mark gobbled up what little bits of private enterprise shares were available to buy. And then there was bust, with the international cowboys heading home from the Ho Chi Minh trail as the global crisis hit.

So this may be a good moment for another attempt to bring the helicopters back to the roof of the American Embassy. The Market Vector fund is rules-based, capitalization-weighted, and float-adjusted. That means that if there is a pile into 'Nam shares again, it will benefit as long as new money is coming in to the market, and crash if there is another rush for the doors.

The fund trades as VNM and tracks an index created to manage the money. This index is 70% by capital made up of Vietnamese companies getting more than half their revenues from Vietnam, and made whole by non-Vietnamese companies with a similar revenue source.

In the start-up, 37% of the allocation is into finance; 19% in energy (maybe they bought into the local Total?); and 12% in materials. Nobody is mentioning profit and I won't either. This is not a recommendation.

Comments

[Joseph L. S...:]

Vivian, which of the many closed-end fund websites afford us the opportunity to begin our research based upon the discount to NAV?

And -- given the often poorer public information in emerging markets, have you discovered greater discount-to-NAV opportunities in either single-country or emerging market regions?

Aug 17 11:41 AM

[Clara James:]

Well it is really appreciated that one discuss the market actually whose information about EFT is less available on internet ... after all discussion it is obvious that the market has high potential to grow... Nice post

Aug 17 03:40 PM

[Mad Hedge F...:]

rtyu. If you think that the place where China does its offshoring would be a great investment, you’d be right. Vietnam has been one of the top performing stock markets this year, its index rising by an amazing 85%. It was a real basket case last year, when zero growth and a 25% inflation rate took it down 78% from 1,160 to 250. This is definitely your E-ticket ride. Vietnam is a classic emerging market play with a turbocharger. It offers lower labor costs than China, a growing middle class, and has been the target of large scale foreign direct investment. General Electric (GE) recently built a wind turbine factory there. You always want to follow the big, smart money. Its new membership in the World Trade Organization is definitely going to be a help. Remember what happened when China joined the WTO? Until now, the only way to get involved with this country was to go through the tedious process of opening a local currency brokerage account, or buy a region sub emerging market ETF. But now there is a vehicle to get in and out of this ultra emerging market easily, through the London listed Vietnam Opportunities Fund (VOF.LN), run by Vena Capital Management. I still set off metal detectors and my scars itch at night when the weather is turning, thanks to my last encounter with the Vietnamese, so it is with some trepidation that I revisit this enigmatic country. Throw this one into the hopper of ten year long plays you only buy on big dips, and go there on vacation in the meantime.

Aug 18 12:59 AM

[EconoMarcus:]

Besides the VNM, there is still the db x-trackers FTSE Vietnam ETF of Deutsche Bank, launched in January 2008. It invests in Vietnam *only* (unlike VNM, which invests in companies that "predominantly are domiciled and primarily listed in Vietnam and which generate at least 50% of their revenues from Vietnam") and with a TER of 0.85% it's cheaper than Van Eck's ETF. Also its sector weighting is quite different. As a drawback in the eyes of some people: It isn't listed in the USA, but you can trade it in the UK, Germany, Italy, Switzerland and I think some other exchanges. Anyway, here are the fact-sheets to compare the two ETFs:
www.vaneck.com/sld/van...
www.dbxtrackers.co.uk/...

Aug 18 06:06 AM

[William M. ...:]

"In 40 years, it will be the turn of Afghanistan and Iraq to become hot investment destinations for Americans. And there will be a closed end fund investing in Venezuela." You are a lady of wisdom and history. You understand the brilliant US Government foreign policy strategy. First: Spend a fortune in money rationalizing we need to fight the communist, Second: then send them American jobs by getting them into the WTO and then spend a fortune of American money investing in new plants and eguipment to build them back up. Third: Come out with an ETF fund after their markets have gone up 80% to give Vietnam another pumb and dump on Americans.

You'd think we would have learned from the French, after Dien Bien Phu, and left Vietnam to the Vietnamese. Sorry, just to many bad memories culminating in the helicopters on roof of the American Embassy. I'm leaving Vietnam to the Vietnamese investors.

Aug 18 11:38 AM

[Global Inve...:]

unlike the mad hedge fund guy, for a site where China offshores, I prefer Thailand to Vietnam, because (surprisingly) the stock market is well regulated. remember that our GIs also discovered the joys of Bangkok R&R during the Vietnam War.
moreover its political crisis is easier for me to understand. from an investing perspective both sides are okay, unlike VN where the other guys are reds.

Thai companies are well covered by Paul Renaud who writes for us. So I do not have to buy a mindless mechanical ETF and can buy real shares as my fancy falls.

if you want 'Nam you are better off with a closed-end fund because it will not be just tracking a pretty ephemeral index, esp. if you can get it at a discount from Net Asset Value. They are all offshore and wild.

as for the question about where the bargains are in Closed-end funds I am at a disadvantage right now, Joe, because I am in London on business and family business. Here I cannot buy Barron's. And the Closed-end Fund Assn. has ended provision of net asset values on its website (WHY?) as of July 31. so I cannot get current data on US and Canada CEFs until I am back Stateside.

while you should not buy closed-end funds because of the discount disappearing (it won't) it helps your money go further if you get a dollar's worth of assets for 85 or 90 cents. You get the return and the gains for the full buck. This is really insane. Markets price irrationally.

Aug 18 02:52 PM

[Ricard:]

"This is not the first Vietnam Fund attempt; Mark Mobius of Templeton Group tried to create a listed Vietnam Fund in the 1980s, but once the money was raised he could not find any public companies to invest in."

I have a question for anyone knowledgeable enough to respond. Anyone heard of the Vietnam Opportunity Fund? Based out of London, they boasted market price 30% above NAV a couple years back. I believe they have given back all of their returns plus some change (i.e. lots of red ink). Luckily I didn't bite.

Why is this time around any different?

Aug 18 05:52 PM

[Hamish Gunn:]

I easily bought the db X-trackers Vietnam ETF through Fidelity (on the London Exchange). Glad I did.

Aug 19 01:31 AM

[Hoa Nguyen:]

It is interesting that most of foreign funds have been making huge losses or very marginal profit since their debut in Vietnam until now (Jun 09).
To my estimate, they poured in about $8 billion and they money left now is about $4 billion. Trading in Vietnam appears quite different and more difficult than in other markets.

On Aug 18 11:38 AM William M. Wright wrote:

> You'd think we would have learned from the French, after Dien Bien
> Phu, and left Vietnam to the Vietnamese. Sorry, just to many bad
> memories culminating in the helicopters on roof of the American Embassy.
> I'm leaving Vietnam to the Vietnamese investors.

Aug 24 06:11 AM

[Global Inve...:]

From Cambridge MA fund flow trackers EPFR Global report: “China’s resilient growth has been a key driver of flows into emerging markets equity funds in recent months. During the third week of August, however, doubts about the quality of the loans doled out at breakneck speed by Chinese banks during 1H09 prompted investors to book profits and take some of their recent gains off the table. EPFR Global-tracked China Equity Funds had their worst week since early 1Q08 while outflows from Asia ex-Japan and Global Emerging Markets (GEM) Equity Funds hit 24 week and year-to-date highs respectively.”

While we have lightened up on China as its local markets fell 20%, as we reported yesterday, this is a buy opportunity. Shanghai is a very immature rumor-driven exchange and the pattern of panic selling followed by a new boost can be spotted again and again.


My Vietnam commentary (linked to the creation of an new U.S. ETF) has got a lot of play, so I follow up. Here are items about other ways to invest in Nam from readers in MD, NY and FL.

*"VCVOF, VinaCapital Opportunity Fund, seems to be a good Vietnam Fund. As you described, I bought my first shares far too high and got crunched last year. Fortunately, I doubled up not far from the bottom. They are managed out of London but also have managers in Viet Nam. As the above symbol indicates, I bought them instantly through Fidelity. They also have a Viet Nam Infrastructure Fund that interests me a lot because it sells below NAV. However Fido had to get that one for me in London."

*Cavico Corp., one of the largest infrastructure and natural resources companies in Vietnam announced a reverse stock split to position the company to apply for a listing on the Nasdaq exchange. Cavico could become the first Vietnam based company to be listed on a major U.S market. Timothy Pham, a Vice President and Director of Cavico (and an American) is boosting infrastructure development in Vietnam as the company will soon begin building a 30 megawatt (MW) wind power plant.

*Further material on offshore funds investing in Vietnam from Compagnie Financière Edmond de Rothschild is provided thanks to yet another reader, but if you cannot afford a subscription you should not be investing in 'Nam, and particularly not with a posh Rothschild bank, source of our oldest and most successful investment of all.

I have to apologize to the Closed-End Fund Association because their CEFA.COM website was down, but it is now back on line. I feared it had disappeared. There is therefore current information on closed-end funds (CEFs) from the U.S. and Canada showing pricesa nd net asset value of the funds. This is useful information for investing even if you do not delude yourself into thinking the discounts will disappear.

CEFs issue a fixed number of shares which are priced by the stock market depending on how attractive they seem to be. They therefore can (and often do) fall to discounts below the net asset value of the portfolios they own. This is a prime example of how prices on exchange do not reflect all known information, and it shows that markets are irrational.

Aug 26 03:26 PM

[keven:]

I am Vietnamese -American investor ,I grew up in vietnam and live here in US.
Invest in Vietnam like casino mixing with mafia and gangster.
You can make alot alot of money but have to run fast , fast ... and never come back .
Good luck

Aug 31 03:05 PM