Funds: Enthusiasm for Vietnam is deserved
Sep 04, 2009
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Vietnam has had a lucky crisis
If any country could be said to have had a lucky crisis, it’s Vietnam. In early 2008, many feared that its currency would collapse due to soaring inflation and a widening trade deficit. Worst-case comparisons were made to Thailand in 1997, when the devaluation of the baht sparked panic across the region. In the end, Vietnam escaped with a moderate devaluation of the dong and a sharp slowdown in the economy. But had fear reached fever pitch during the autumn instead, the outcome could have been very different; Vietnam might have had to join most of eastern Europe in running to the International Monetary Fund for an emergency loan.
Now investor enthusiasm about the country is returning – and with good reason. Vietnam has some of the best fundamentals in Asia: a young, educated population, low labour costs and abundant natural resources. In development terms, it’s in much the same position as China was two decades ago as it transforms into a centre of low-end manufacturing – taking China’s place as that country moves up the value chain. All this has prompted US firm Van Eck to launch a new exchange-traded fund, the Market Vectors Vietnam (US: VNM), as a rival to Deutsche Bank’s x-tracker FTSE Vietnam (LN: XVTD), launched in 2008.
So how do the two stack up? Frankly, it looks like no contest. Deutsche Bank’s ETF provides fairly broad coverage of the local market, tracking all large firm that are available to foreign investors (the basket currently contains 27 stocks), at a total expense ratio (TER) of 0.85%. Van Eck’s fund has around 30% of its portfolio in non-Vietnamese stocks, many of which do not appear to be highly geared to Vietnam, and charges a TER of 1.42% once an initial cap expires. Needless to say, we’d back Deutsche Bank’s.
Investors could also look at several London-listed Vietnam investment trusts, many of which trade at large discounts to net asset value and can invest in assets such as real estate and unlisted companies, which can be the best options in frontier markets. However, with these you are dependent on the skill of the management and will pay higher fees and thus require higher returns than the index over the long term to justify them. Two funds worth investigating are the VinaCapital Vietnam Opportunity Fund (Aim: VOF), which charges 2% and 20% of any returns above 8% annually, and currently trades at a discount of 22%.
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