COMPLETE VANECK VIETNAM VNM ETF REVIEW – IS VNM ETF A BUY?

The Vaneck Vietnam ETF (VNM) is often reviewed without any context of what is going on with similar rival ETF products. A lot has changed in the area of Vietnam ETFs in the last year or two. Also many reviews fail to appreciate the different pros and cons of the active vs passive investing debate as it applies to the Vietnam stock market compared to the US. These differences are essential to understand when reviewing the performance of the Vaneck Vietnam ETF (VNM).

Read on to get the complete updated review of the VNM ETF, to make an educated assessment of whether VNM ETF might be a buy for 2022 and beyond.

PROS AND CONS OF VANECK VIETNAM VNM ETF

PROSCONS
Well established ETF with the inception date back in 2009 that has good liquidity.Historical performance since inception has been weak.
Good liquidity on the US exchange makes it very accessible to global investors.A risk that holding significant exposures to non-Vietnam listed companies lead to underperformance.
Cheaper Management Expense Ratio (MER).Many Vietnam active fund managers have done better even after their high fees.
Ability to redeem near NAV compared to Vietnam closed end funds (CEFs).As a foreign structured ETF, faces difficulty buying Vietnam listed stocks that are near their foreign ownership limits (FOLs).
Underlying exposure to strong large businesses that might better withstand a volatile economy.Can miss out on good opportunities in private equity and small cap stage of a company’s life cycle.
Exposures to non-Vietnam listed markets may be a positive in the future.An ETF will be fully invested even if valuations are extremely expensive.
Pros and cons of VNM ETF?

SOME COMMON MISCONCEPTIONS ABOUT THE VANECK VIETNAM VNM ETF

Some key factors that I wanted to draw attention to in this regard were touched on briefly in the pros and cons points above. They can be in-depth discussions so I wanted to summarise these in a few brief points, where then one can read further explanations in my previous blog posts if interested.

  • VNM ETF is not like some index ETFs in developed markets, its performance has stacked up poorly vs many active Vietnam fund managers.
  • VNM ETF holds a significant investment weighting to stocks that are not listed in Vietnam, for example investments in South Korea, Taiwan and Japan etc.
  • VNM ETF is at a somewhat structural disadvantage to Vietnam stock market ETFs that are listed on the Ho Chi Minh City stock exchange. It does not have the same level of access to get set in Vietnam stocks that have reached their foreign ownership limits. (FOLs).

With the above being said, I want to be clear that these 3 points don’t necessarily mean the conclusion is it will not outperform other rival products in the future. However arguably in the past these factors may have contributed to their lacklustre performance record.

The main reason I wanted to highlight these points are I feel they are glossed over when I read many other reviews on the Vaneck Vietnam ETF (VNM). I have seen some US investors on other forums that identify the Vietnam economic story as a reason to get some exposure to the Vietnam stock market. They identify VNM ETF quickly as it is well known and established, has moderate fees, and often come up with a positive review on the product. They do so regularly without paying any attention to some of the factors I have just raised.

If you want to learn more about factors like active vs passive in Vietnam, foreign ownership limits (FOLs), different Vietnam ETF structures, etc I recommend these other blog posts of mine below:

COMPLETE LIST OF ALL THE VIETNAM ETFs

Below you will get an understanding why there has been strong growth in Vietnam listed ETFs. You will also appreciate how foreign ownership limits (FOLs) are an important issue for Vietnam investors.

COMPLETE LIST OF ALL VIETNAM ETFs

REVIEW OF VNM ETF PERFORMANCE VS OTHER VIETNAM ETFs AND FUNDS

This discusses some recent performance issues of VNM ETF and other Vietnam fund structures etc.

VNM ETF PEFORMANCE COMPARISON VS OTHER VIETNAM FUNDS

Here is an updated summary of some of the Vaneck Vietnam ETF (VNM) factsheet details as it stands as we are approaching 2022.

VANECK VIETNAM VNM ETF SUMMARY

  • What index it tracks – The MVIS Vietnam Index, which includes securities of publicly traded companies that are incorporated in Vietnam or that are incorporated outside of Vietnam but have at least 50% of their revenues/related assets in Vietnam.
  • Size – Approximately US $548 million as at September 30, 2021.
  • Inception Date – August 2009.
  • Management Expense Ratio (MER) – Approximately 60 bps.
  • Dividend Yield – Approximately 0.4%.
  • Average Daily Volume – Approximately 200k shares.
  • Top 5 holdings – Vingroup, Vinhomes, Vinamilk, Masan Group & Hoa Phat Group, these 5 total about 36% of the fund at September 20, 2021.

Source: VanEck

VANECK VIETNAM VNM ETF HOLDINGS  

Source: VanEck

VANECK VIETNAM VNM ETF PERFORMANCE

Source: VanEck

You will notice that some of the ticker codes of the top ten holdings look different to Vietnam. In the last VNM ETF report we even saw about 20% of the asset in stocks spread out across Taiwan and South Korea. My intention in a future blog post is to explore some of these non-Vietnam listed stocks a bit more. That can be one of they keys to thinking about whether VNM ETF is currently a buy versus many of the other investment fund types with exposure to Vietnam.

CONCLUSION OF SHOULD I BUY THE VANECK VIETNAM VNM ETF?

The conclusion I arrive to at this stage though is that you would probably have to have done your own research on such non-Vietnam listed stocks before jumping into VNM ETF too quickly. From what I have observed to date I would prefer owning one of the Vietnam closed end funds (CEFs), that only last week were at persistently sizeable discounts, rather than VNM ETF.

I wouldn’t however rule out VNM ETF is a potential investment vehicle purely because their historical performance has lagged some active funds out there. As I have noted lately on the blog the smaller stocks in Vietnam have run hard, with larger stocks like that which VNM ETF own having lagged considerably. From a contrarian perspective perhaps, there is an opportunity for a bit of mean reversion there going forward. This may include potentially some of these Taiwan and South Korea listed stocks that VNM ETF owns to have a run.

The objective of this post was to help emphasize some of the structural differences with the VNM ETF compared to other Vietnam fund products. For those that understand and are comfortable with such differences, the low MER, convenience of access, and good liquidity within VNM ETF might be quite attractive still.

Is Vietnam a good investment?

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