HOW TO INVEST IN THE VIETNAM STOCK MARKET. ETF, CEF, FUND?

With the Vietnam stock market still considered a frontier market, my guess is most readers viewing this article likely have a bias to seeking exposure via a funds management product. I will therefore mostly focus on these options to compare pros and cons of Vietnam ETFs, CEFs and managed funds. In saying that those with a higher risk appetite may look to investing directly in Vietnam stocks, which is possible even for foreigners. I will touch on that aspect also. Read on for more of an understanding of various fund structures and what that means when deciding how to invest in the Vietnam stock market.

WHAT IS THE BEST WAY TO INVEST IN VIETNAM?

For most prospective investors in Vietnam, the simplest and most effective way to invest in the country is via a fund. More specifically, I would break this down into 3 main choices:

  • Invest in Vietnam Exchange Traded Funds (ETFs)
  • Invest in Vietnam Closed End Funds (CEFs)
  • Invest in Vietnam Open Ended Managed Funds

Now that we have established that, I want to explore what funds invest in Vietnam?

WHAT FUNDS INVEST IN VIETNAM? – COMPLETE GUIDE

The rest of this blog post will specifically explore nearly every fund you can think of that invests in Vietnam. It should be the only guide you need to start your research on which one to choose. I shall first begin with the main Vietnam ETFs that investors gravitate to.

Investing in Vietnam EXCHANGE TRADED FUNDS (ETFs)

The main advantage I see in choosing exposure via the Vietnam ETFs is cheaper management fees versus managed funds products. Having said that still expect some fees and costs of circa 80bps, so more of a hit than your standard S&P500 ETF.

There is the issue that your money is blindly following an index no matter what valuations are. The same can be said for developed market ETFs however arguably the overall market is less efficient in Vietnam. That could make this aspect more problematic.

Liquidity and being able to redeem your money quickly at NAV might suit many though.

List of Vietnam ETFs

  • VanEck Vectors Vietnam ETF (VNM US)
  • Xtrackers FTSE Vietnam Swap UCITS ETF (XFVT LN)
  • Premia MSCI Vietnam ETF (2804 HK)

Investing in Vietnam Closed End Funds CEFs

Some view the fact that CEFs may trade at discounts or premiums as a disadvantage. However I like this aspect is it has helped me make a living from investing by exploiting this buying CEFs at discounts.

CEFs however sometimes trade at discounts for a very long time, in part because of management fees and costs that are too expensive. Therefore you have to consider carefully what an appropriate discount may be. Such issues might be compounded if management are subpar on matters of corporate governance. CEFs dedicated to Vietnam tend to charge higher fees than you are used to compared with CEFs focused on developed markets.

The volatility in the discount on some CEFs can present good opportunities as we can see from the below chart. The below chart is for the Vietnam Opportunity Fund (VOF LN), managed by VinaCapital.

If corporate governance is reasonable the opportunity for the company to buy back shares at a large discount to NAV can be greatly beneficial for shareholders.

If one is likely to panic when markets head south however a lot of value can be lost if you sell at substantial discounts to NAV.

A closed end manager is in a better position to in that it does not need to stress about the fund having sudden redemptions, and it can better control its turnover and taxes.

List of Vietnam Closed End Funds (CEFs)

These are 3 well known Closed End Funds (CEFs) with exposure to the Vietnam stock market, but with their main listings on the London Stock Exchange.

  • Vietnam Opportunity Fund (VOF LN), managed by VinaCapital.
  • Vietnam Enterprise Investments Ltd (VEIL LN), managed by Dragon Capital.
  • Vietnam Holding Ltd (VNH LN), managed by Dynam Capital.

Investing in Vietnam open ended managed funds

With open end funds at least the investor themselves do not have to stress about the discount / premium issue, that might suit the temperament of some investors.

You still should do plenty of research about when you can redeem. Not all funds allow you to redeem your money in a few days like you can when you hold the largest Vietnam ETFs.

Also you need to read carefully about management / performance fees and other various costs in the structure.

The fact that the manager might have to worry about redemptions could disadvantage them when trying to effectively manage the fund.

Although fees can be more expensive than ETFs, some fund managers have proven their ability to add alpha on an after-fee basis. There is an argument that frontier markets are under researched, so an active manager stacks up better than an ETF. This could be a different dynamic than you typically think of with developed equity markets.

VIETNAM FUNDS

List of Vietnam open ended managed funds

  • Dragon Capital Vietnam Equity (UCITS) Fund
  • VCG Partners Forum One Vietnam (UCITS) Fund, managed by VinaCapital.
  • Pyn Elite Fund, managed by Pyn Fund management.
  • JP Morgan Vietnam Opportunities Fund
  • AFC Vietnam Fund, managed by Asia Frontier Capital.
  • Amundi Vietnam Opportunities Fund
  • Lion Global Vietnam Fund
  • TCM Vietnam High Dividend Fund, managed by Trustus Capital Management.
  • TIM Vietnam Actively Managed Certificate, managed by Turicum Investment Management.

Please note that the above lists I made on Vietnam ETFs, CEFs and managed funds may not necessarily be the only options out there. It is just a starting point for those looking at exposures. I plan to go into more depth in later blog posts discussing some in the above lists.

Can a foreigner invest in the Vietnam stock market? Should I invest directly in Vietnam stocks?

Then how about going direct into stocks listed on the Vietnam stock exchange? Well logistically there are some hoops to jump through in terms of opening up an account with a stockbroker in Vietnam. Such hoops are going to be more challenging if you are a foreigner. I hope to explore that more in later blog posts.

Another challenge is if you are picking the stocks yourself. It can be hard enough picking stocks beating major market indices in developed markets let alone a frontier market like Vietnam. You will have even more things to think about and potential traps.

There are however also some popular ETFs listed on the Ho Chi Minh Stock Exchange where you don’t have to stress about the stock picking.

List of Vietnam listed ETFs

  • VFMVN30 ETF (E1VFVN30 HOSE)
  • VMFM Diamond ETF (FUEVFVND HOSE)

SHOULD I INVEST IN VIETNAM AND HOW BEST TO INVEST IN THEIR STOCK MARKET?

As mentioned in other articles I have to date had good experiences investing in Vietnam closed end funds (CEFs) listed on the London Stock Exchange. However I would note that a big factor here is entering at significant discount to NAV. The funds have also been kept in check by activist investors pushing for fairer fees and accretive buybacks.

Going forward at this point in time some discounts have contracted meaningfully so choosing the best option is becoming more complex. I still however hold the Vietnam Opportunity Fund (VOF LN), managed by VinaCapital. Even though the discount has tightened I am still comfortable keeping exposure with this vehicle. Note that this is not advice and I may change my mind at any time!

In future blog posts I plan to take a closer look into many of the above listed products where I hope to provide more colour about deciding the how to best invest in the Vietnam stock market. Please feel free to comment below.

Is Vietnam a good investment?

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Thanks!

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