By many measures, Vietnam is going through an economic boom. Gross domestic product continues to expand at a greater than 6 percent clip. Foreign direct investment in 2017 is pacing 52 percent ahead of 2016 levels. Inflation of 2.5 percent remains firmly in check.
And retail sales are growing at a 10 percent pace and are on track to reach $130 billion this year, as a middle-class consumer economy continues to build. ”Vietnamese are eager to shop and spend their hard-earned money to improve their quality of life,” writes Andy Ho, chief investment officer at Vina Capital, in a written response to ETF Advisor.
And these impressive economic trends have been in place for a considerable stretch. They’ve been aided by an unheralded privatization movement that has seen the number of state-owned companies shrink from around 6,000 in 2001 to around 700 today.
So why has the VanEck Vectors Vietnam ETF (VNM) lost nearly nine percent annually over the past three years? Don’t blame it on the country, blame it on the fund.
Simply put, this ETF, which is based on the underlying MVIS Vietnam Index, has failed to capture the most dynamic parts of the nation’s economy. “Oftentimes with these cap-weighted funds you tend to skew towards the bigger names,” says Alex Bryan director of passive strategies research at Morningstar.
In effect, by only focusing on the largest and most established firms, this index-investing approach misses out on young up-and-coming companies in the technology and consumer sectors. And the mandate to only own publicly-traded stocks is another crucial distinction here. Mutual funds have much more latitude in the types of investments they can make, and that can be a real advantage in places like Vietnam.
“Our primary focus is to seek out investments normally not available to the wider market, and negotiate our entry into these companies,” notes Vina’s Ho. “Over time, we can take these companies public through an IPO and hold them as listed assets.”
Vina Capital isn’t well-known here but it offers five Vietnam-specific funds on the London Stock Exchange. (These days, brokers are much better equipped to help clients trade shares listed on foreign exchanges).
The performance results when compared to the VanEck ETF are stark. The VinaCapital Vietnam Opportunity Fund (LSE: VOL), for example, is up 94.5 percent over the past five years.
The VanEck Vietnam ETF, which has around $300 million in assets, carries a 0.66 percent expense ratio. Ed Lopez, head of ETF product management at VanEck, stresses the basic appeal of a country-specific ETF. “It is aimed to be a liquid and investable reflection of Vietnam.”