Vina Capital Vietnam Opportunity Fund: Up 158% Since Launch

VinaCapital Vietnam Opportunity Fund (VOF.L) is the largest and most liquid fund investing in Vietnam. It offers investors broad exposure to the Vietnamese economy with a portfolio that includes unlisted equity and real estate investments alongside listed equities and a small amount of bonds. VOF’s NAV is up 158% since launch compared with 108% for its benchmark, the VN Index. VOF has a pipeline of portfolio realisations and a programme to narrow its discount. The 3% uplift in NAV generated by the recent disposal of IndoChina Food (an unquoted investment, valued at 0.7% of the portfolio beforehand) highlights the latent potential within the portfolio.

Investment strategy: Diversified Vietnamese exposure
VOF offers a more diverse portfolio than would be available to an investor in listed stocks. VOF’s 38% allocation to listed equities is complemented by investments in unlisted companies, debt instruments, private equity and real estate assets. Industry exposure is focused on financial services, property investment, hospitality management and retailing. Gearing is permitted; VOF has not used it although a number of their investments do use leverage.

Political and economic outlook: Inflation under control
Vietnamese GDP per capita is around a third of that of Thailand and China but recently Vietnam has struggled to fulfil its potential for catch-up. It recovered quickly after the credit crunch, boosted by loose fiscal and monetary policy, but inflation rose above 20% in 2011 and corrective measures caused a sharp slowdown in GDP growth. Inflation has now moderated but growth is still below trend. The government is aiming for GDP growth of 5.7% this year although the stresses facing the US and European economies and a Chinese slowdown may hamper this. Investors are nervous following the arrest of a prominent banker, which has given rise to speculation about a power struggle within the ruling party and has highlighted the weakness of bank’s balance sheets. A swift injection of liquidity by the central bank has steadied markets, however.

Valuation: Board committed to narrowing the discount
The board is focused on narrowing the discount from its current level of 32%. VOF intends to direct the proceeds of asset disposals towards share repurchases, believing 15-20% is a more acceptable discount range. VOF has spent over $55m, buying back 10.8% of the share capital since it was granted power to do so at the end of last year.

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