VietNam Holding — Investing for the long term

VietNam Holding (LSE: VNH)

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VietNam Holding — Investing for the long term

VietNam Holding (VNH) seeks to capture the growth of Vietnam through an actively managed, high-conviction portfolio of companies. It has been managed by Dynam Capital (Dynam) since 2018 and has outperformed both the VN All Share and MSCI World indices over five years, with NAV and share price annualised total returns of c 7% and c 5%, respectively, versus c 2% and c 1% for the indices. Vietnamese growth paves the way for the continued expansion of domestic consumption and Dynam’s investment team chooses businesses intending to benefit from the positive demographic, industrial and urbanisation trends. As global market volatility continues, with renewed recession concerns triggered by recent events in the US and European banking sectors, following SVB’s and Credit Suisse’s rescues, Dynam continues to find attractively priced Vietnamese stocks with high long-term return potential.

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Investment Companies

VietNam Holding

Investing for the long term

Investment trusts
Vietnamese equities

27 March 2023

Price

263.5p

Market cap

£74.8m

AUM

£90.6m

NAV*

307.0p

Discount to NAV*

14.2%

*Including income. As at 24 March 2023.

Yield

N/A

Ordinary shares in issue

28.4m

Code/ISIN

VNH/GG00BJQZ9H10

Primary exchange

    LSE

AIC sector

Country Specialists: Asia Pacific

Benchmark

VN All Share index

52-week high/low

356.0p

221.0p

423.4p

246.7p

*Including income.

Gearing

Net cash at 28 February 2023

7%

Fund objective

VietNam Holding’s investment objective is to achieve long-term capital appreciation by investing in a diversified portfolio of companies that have high growth potential and an attractive valuation. The fund has been managed by Dynam Capital since July 2018.

Bull points

ESG considerations are a key part of the manager’s approach.

A very concentrated portfolio (c 20–25 holdings) and mid- to small-cap focus gives investors exposure to less well researched, high-growth companies.

The proactive board is committed to promoting shareholders’ interests.

Bear points

The relatively small market cap of c £76m limits liquidity and increases volatility, to some extent.

Near-term performance of this frontier country specialist mandate might be affected by the overall negative sentiment towards risky assets and emerging markets.

The trust has relatively high fees for an LSE-listed trust, but is in line with its two peers, as Vietnamese funds are expensive to run.

Analyst

Victoria Chernykh

+44 (0)20 3077 5700

VietNam Holding is a research client of Edison Investment Research Limited

VietNam Holding (VNH) seeks to capture the growth of Vietnam through an actively managed, high-conviction portfolio of companies. It has been managed by Dynam Capital (Dynam) since 2018 and has outperformed both the VN All Share and MSCI World indices over five years, with NAV and share price annualised total returns of c 7% and c 5%, respectively, versus c 2% and c 1% for the indices. Vietnamese growth paves the way for the continued expansion of domestic consumption and Dynam’s investment team chooses businesses intending to benefit from the positive demographic, industrial and urbanisation trends. As global market volatility continues, with renewed recession concerns triggered by recent events in the US and European banking sectors, following SVB’s and Credit Suisse’s rescues, Dynam continues to find attractively priced Vietnamese stocks with high long-term return potential.

VNH’s cumulative performance (total return)

Source: Refinitiv, Edison Investment Research. Note: Data to end-February 2023.

Why VNH?

According to the manager, VNH’s nimble size, compared to its two London-quoted peers (VEIL and VOF), allows the manager to be relatively more dynamic within the investment climate. For example, during the market correction in 2022, VNH’s performance benefited from the timely reduced exposure to the hard-hit real estate sector and an increased cash position. Despite heightened market volatility, the current discount to NAV of 14.2% is close to the 12-month average of 14.5%, thanks to the ongoing efforts of the board in managing the discount through regular share buybacks. Dynam has also delivered a strong relative performance since taking over and has an active investor relations programme.

The analyst’s view

We believe this country specialist fund offers investors exposure to a high-growth frontier market with conviction stock ideas across the market cap spectrum. VNH has 23 holdings and the top 10 make up c 67% of the portfolio (at end-February 2023). As a result, VNH’s performance relative to the index can be volatile, as it has been over the past 18 months. Dynam believes that the current VNH portfolio is fairly defensively positioned to withstand the uncertain times. The team considers the Vietnamese market, trading at c 8x 12-month forward P/E, undervalued (the 10-year average is c 14x) and is looking for more opportunities to invest c 7% cash for the performance to pick up momentum when the global economy turns the corner.

The manager’s view

The Vietnamese market has been very volatile over the past 18 months. During 2022, in addition to weak sentiment across the globe, the Vietnamese equity market’s performance was negatively affected by domestic concerns in the areas of real estate and corporate bond markets. In 2023, unprecedented political events in Vietnam amid the Vietnamese Communist Party’s (VCP’s) ongoing anti-corruption campaign have resulted in an extraordinary reshuffle of the country’s leadership and the appointment of Vo Van Thuong, the youngest member of its politburo, as the new president. According to Dynam, these events are weighing on domestic investors’ sentiment, as most are still reluctant to return to the equity market, preferring to hold cash.

The investment manager believes that while the government’s commitments to restoring confidence and controlling systemic risk in the markets are healthy for Vietnam in the long run, internal disruptions within the country could dampen sentiment into Q223, given the timing of the VCP’s regulatory and financial ‘clean-up’ happening at once. Nevertheless, in February, considering the near all-time low valuations, the Vietnamese market continued to attract new money from foreign investors ($3.1 bn for the first two months of 2023, according to Vietnam’s Ministry of Planning and Investment), and Dynam also observed a handful of domestic investors returning.

Dynam continues to see enormous potential from domestic consumers. With Vietnamese GDP per capita at c $4,000 (this has quadrupled since the year 2000), the manager expects high business growth from domestic brands and retailers. As Vietnam continues to urbanise, from a still relatively low 37% current urbanisation rate, Dynam sees further investment opportunities as cities expand and infrastructure improves, also benefiting the industrial sector and resulting in growth for modern retail chains. Moreover, Dynam expects Vietnam’s ‘middle class income’ to expand at a rate of 18% annually, and the manager can foresee an additional 35 million consumers of branded products by 2030, creating a whole new stage of growth and development.

VNH portfolio and performance

VNH’s portfolio had 23 holdings at 28 February 2023 (27 holdings at 28 February 2022). Exhibit 1 illustrates that Dynam is ultra-cautious about the real estate sector, which was reduced the most of all the sectors (by 15.3pp) over the 12 months to end-February 2023 amid a number of corporate and regulatory issues within a few sizeable national real estate groups. The sector’s weighting in the VNH’s portfolio is currently about half of its weighting in the VN All Share Index.

Exhibit 1: Portfolio sector exposure at 28 February 2023

% unless stated

Portfolio
28 Feb 2023

Portfolio
28 Feb 2022

Change
(pp)

VNAS* weight

Active weight vs index (pp)

Company weight/ index weight (x)

Banks

30.5

25.4

5.1

39.8

(9.3)

0.8

Industrial goods and services

15.6

13.5

2.1

7.5

8.1

2.1

Retail

13.3

13.0

0.2

6.9

6.4

1.9

Telecommunications

13.0

8.8

4.1

4.8

8.2

2.7

Energy

7.4

0.0

7.4

0.7

6.8

10.9

Real estate

6.2

21.5

(15.3)

12.6

(6.5)

0.5

Financial services

4.4

10.4

(6.0)

4.2

0.2

1.0

Construction and materials

1.5

0.3

1.2

3.7

(2.2)

0.4

Food, beverage and tobacco

0.9

3.5

(2.6)

11.0

(10.2)

0.1

Other

0.0

0.0

0.0

1.8

(1.8)

0.0

Cash

7.3

3.6

3.7

6.9

0.4

N/A

100.0

100.0

100.0

Source: VNH, Edison Investment Research. Note: Figures subject to rounding. *VN All Share Index.

While the banking sector is the largest portion of VNH’s portfolio, it is underweight compared to the index, as Dynam prefers to hold more defensive stocks during these uncertain times. The investment manager added to two consumer-focused sectors, namely retail and telecommunications, and also to industrial goods and services over the past 12 months, and the portfolio has higher weighing of these sectors relative to the index. Energy is another notable sector differentiated from the index with an overweight position. As commodity prices stayed elevated over the past year until recently, the manager bought two energy holdings, PetroVietnam Technical Services and Petrovietnam Transportation, in the past 12 months.

Exhibit 2 presents VNH’s performance relative to its two closest peers. With the current manager having been appointed in July 2018, all performance periods shown are relevant. VNH ranks first over the past three months and second over one- and five-year periods, on an NAV total return (TR) basis compared to VinaCapital Vietnam Opportunity Fund (VOF). VOF has c 20% in unlisted and private investments, and another c 20% in public equity with private terms, and, arguably, we believe that these parts of the portfolio cushioned its performance during the market’s sell off in 2022. Private equity valuations might move differently to listed companies’ valuations, and in this case have held up better, helping VOF’s performance. We note that five-year performance numbers still carry a tail from the previous manager, as Dynam took over the portfolio in mid-2018 and restructured it, following the take-over. VEIL is a much larger fund, and has underperformed both peers in recent months and years, as the equity market corrected. It takes the managers longer to adjust the sizeable portfolio positions, relative to smaller funds, such as VNH or those with private equity exposure, such as VOF.

VNH has a different mix of sectors, compared to its two peers. Vietnam Enterprise Investments (VEIL) is more overweight banks (40% versus 31% for VNH, and 40% for the VN All-Share Index) and has more real estate (19% versus 6%, and 13% for the index), while all other sectors are represented in VEIL at less than 10%. VOF’s highest weighting is in real estate (25%), followed by a 20% weighting in financial services (including banks) and 14% in the materials sector (data at end-January 2023).

While VNH’s ongoing charges are highest of the three funds (smaller funds tend to incur higher charges), in 2020 the board removed the performance fee for a 25bp increase in the management fee to 1.75% pa on NAV below $300m and 1.5% on NAV between $300m and $600m. The board notes that the initiative lowers the total expense ratio of the fund by c 80bp on a forward-looking basis. When Dynam took over VNH, the manager charged an incentive fee to 12% (lowered from 15% performance fee by the previous manager) of the excess performance in each financial year over an 8% compound hurdle, starting with the high-water mark as of 30 June 2018, capped at 3% of NAV in any financial year.

Exhibit 2: Country specialist – Vietnam peer group*

% unless stated

Market cap £m

NAV TR
3 months

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

Discount (cum-fair)

Ongoing charge

Perf.
fee

Net gearing

Dividend yield (%)

VietNam Holding

74.8

3.9

(22.6)

54.7

21.8

(14.2)

2.73

No

93

N/A

Vietnam Enterprise

1,173.0

(0.2)

(30.3)

29.2

10.3

(14.6)

1.90

No

95

N/A

VinaCapital Vietnam

699.8

3.0

(16.5)

53.5

30.3

(15.0)

1.54

Yes

99

3.1

Simple average

649.2

2.2

(23.1)

45.8

20.8

(14.6)

2.06

96

N/A

Rank

3

1

2

1

2

1

1

3

N/A

VN All Share Index

2.4

(32.0)

30.8

11.1

Source: Morningstar, Bloomberg, Refinitiv, Edison Investment Research. Note: *Performance data to end-February 2023 in pound sterling. TR = total return. Net gearing is total assets less cash and equivalents as a percentage of net assets.


General disclaimer and copyright

This report has been commissioned by VietNam Holding and prepared and issued by Edison, in consideration of a fee payable by VietNam Holding. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by VietNam Holding and prepared and issued by Edison, in consideration of a fee payable by VietNam Holding. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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