The VanEck Vietnam ETF Has Multiple, Potential Catalysts

The growth of the Vietnamese economy has decelerated sharply lately, largely due to decreased demand for consumer electronics products.

However, recently there have been multiple signs that the drop in demand for these products has bottomed, and Vietnam is benefiting from the exodus of many manufacturers from China, while the size of its middle class is increasing.

Consequently, over the longer term, Vietnam’s economy could reaccelerate tremendously, stoking a rally in the lone Vietnamese exchange-traded fund in U.S. markets, the VanEck Vietnam ETF (US:VNM).

Meanwhile, the ETF scores in the top decile on Fintel’s Fund Sentiment dashboard. With a score of 84.18, the Vietnam fund ranks at 3,020 out of 36,902 securities assessed.  And while many institutions have been selling the ETF in recent weeks, a few very well-known institutions bought sizable amounts of it in February and have held onto their shares so far.

On Feb. 14, Citadel Advisors reported that it had bought 979.64 shares of the VanEck Vietnam ETF for $1.56 million. Citadel is controlled by billionaire investor Ken Griffin. On the same day, the Royal Bank of Canada disclosed that it had purchased 168,821 shares for $2.01 million, while Wells Fargo reported on Feb. 13 that it had acquired nearly 1.4 million for $16.56 million that same day.

Weaknesses and Opportunities of Vietnam’s Economy

Vietnam’s economy expanded 3.3% in the first quarter of this year, versus the same period a year earlier, way down from the 8% increase that it registered last year. Nikkei Asia blames the sharp deceleration on a sharp decline in “global semiconductor demand” and reduced “electronics exports.”

But Taiwan Semiconductor (US:TSM), the world’s largest semiconductor manufacturer, is predicting that its chip business will slowly rebound going forward, And according to research firm Canalys, smartphone sales could rebound in the coming quarters. As a result, it’s reasonable to believe that the entire consumer electronics sector could meaningfully rise this year.

Many Chinese companies, following in the footsteps of a large number of Western companies, “are shifting parts of their supply chains out of China to manage risks, and heading to India and other nearby countries,” The South China Morning Post reported on April 23.

One of the main winners of this exodus is Vietnam, the publication stated.

Indeed, many sizable Chinese firms have been looking into investing in Vietnam recently, Michael Chan, senior director of leasing at industrial real estate specialist BW Industrial Development, told Reuters in March.

Diverse Portfolio

Real estate equities account for 28.9% of the VanEck Vietnam Fund’s 42-stock portfolio, while financial stocks comprise 24.1% of its holdings  and consumer staples names account for 21.9% of its assets. The basis gauge, the MarketVector Vietnam Local Index (MVVNML), is rebalanced quarterly.

Its largest holding is Vinhomes (HM:VHM), which builds commercial real estate, with an 7.9% allocation, followed by a 7.59% weighting for Vingroup (HM:VIC), a “multi-service corporation” that focuses on technology, industrial businesses, trade and services. Coming in third with a 7.06% weighting is Vinamilk (HM:VNM), a dairy company, while steelmaker Hoa Phat Group (HM:HPG) is fourth and accounts for 6.42% of the VNM stock’s ETF portfolio.

As of the end of March, the portfolio held 25.65% of its net assets in mid-cap companies ($1 billion-$5 billion) and the balance, or 74.1%, in small-cap firms of under $1 billion in market capitalization.

The fund carries a 0.66% net expense ratio, which equates to $66 for every $10,000 invested. At current price levels, it has a market cap of $492.3 million.

This article originally appeared on Fintel

By Larry Ramer