VinaCapital Vietnam Opportunity Fund (LSE: VOF)

Last close As at 18/05/2024

GBP4.92

1.50 (0.31%)

Market capitalisation

GBP753m

VinaCapital Vietnam Opportunity Fund (VOF) holds a high-conviction, concentrated portfolio of equity and debt-like investments in listed and unlisted Vietnamese companies. Its shares have been listed on the LSE since its inception in 2004 and have been part of the UK’s leading 250 equity index since 2018. It is VinaCapital’s flagship fund, with assets under management of close to US$1bn. Through VOF’s private investments, investors can gain exposure to attractive sectors, such as healthcare, which are underrepresented on Vietnam’s stock exchange.

Equity Proposition

1. Vietnam is a beneficiary of evolving global supply chains.

Vietnam is attracting significant foreign direct investment inflows, predominantly into manufacturing, as global giants are diversifying their supply chains. Vietnam has adopted an open trade policy, tightening its relationships around the globe, and trade represents twice Vietnam’s GDP. Vietnam is also a ‘young’ country, with a median population age of 32.5 years and a 73% employment-to-population ratio (the global average is 55%). Strong economic growth paired with favourable demographics translates into a rapidly growing middle class and domestic spending.

2. The portfolio is well-positioned to benefit from Vietnam’s growth.

VOF sees its opportunity predominantly in the companies that create the ecosystem around the growing manufacturing base, as well as companies prone to benefit from the increasing urbanisation and growing disposable income of Vietnam’s populace. Its portfolio is skewed towards financials and real estate (urbanisation) as well as consumer discretionary and healthcare companies (increasing disposable income).

3. VOF’s portfolio is designed to offer downside protection.

While the majority of VOF’s portfolio is in listed equities, over 80% of the investments were entered into on private terms – either before listing, or through privately negotiated terms with publicly listed entities. VOF’s usual terms include board representation, put options at minimum internal rate of return and convertible components. Some investments also include recurring income components that support its dividend payments. The effectiveness of VOF’s downside protections was highlighted during the 2022 real estate crisis in Vietnam when it secured collateral in the form of real assets despite the default of some portfolio holdings.

4. VOF’s clawback mechanism assures alignment of interest.

VOF is characterised by a relatively low total expense ratio (at 1.7% in FY23), which is attributable to both a low management fee (at 1.3%) and a clawback mechanism implemented on its incentive fees, whereby the accrued fee is returned to VOF in the event of a decrease in NAV. We view this structure as an attractive feature in a frontier market characterised by relatively high volatility, which acts as a guarantee that the investment manager will not capitalise on short-term, temporary gains.

5. The fund has consistently outperformed the Vietnamese stock market in the long term.

VOF considers all its investments as illiquid given the relatively shallow stock market in Vietnam compared to VOF’s average ticket size. With that in mind, the fund focuses on investing over a long-term horizon, with an average holding period of five to six years. This further amplifies the importance of a close cooperation with underlying companies and downside protections. This strategy has allowed VOF’s NAV to significantly outperform the broad Vietnamese equity market by 4.6pp per year on average over the 10 years to end-2023.

Latest Insights

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Equity Analyst

Milosz Papst

Milosz Papst

Director, Financials

Michal Mordel

Analyst, Investment trusts

Key Management

  • Andy Ho

    Investment Manager

  • Steven Bates

    Chairman of the board

Share Price Performance

Price Performance
% 1M 3M 12M
Actual 5.5 11.3 14.7
Relative (2.2) 1.9 5.5
52 week high/low 492.0p/426.0p

Overview

VinaCapital Vietnam Opportunity Fund (VOF) posted a one-year NAV TR in US dollars to end-October 2023 of 13.1%, versus 2.8% for the VN Index, as a result of the rebound from last year’s market trough. VOF’s NAV TR since end-2022 of 9.1% was driven by financials and materials investments. Given the improving outlook for real estate and several of VOF’s portfolio companies in the sector, VOF reversed US$26.8m of the US$52.9m in write-downs recognised in the December 2022 interim report. VOF continues to pay out 1% of opening NAV in dividends, with the next payment due in December at US$0.07 per share, implying an annualised dividend yield of 2.4% based on the last closing share price.

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