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Vietnam fund makes case for continued existence
The £500 million VinaCapital Vietnam Opportunity fund has urged shareholders to support it ahead of a vote next month that could liquidate the trust.
In line with its corporate governance, the fund is required to seek shareholder permission for its continuation every five years and the next occasion falls on 22 July.
VinaCapital should approach this confidently, having surged recently. Over the past year, it has generated a total return of 49 per cent compared with the MSCI Vietnam index’s 5 per cent. Since 2010, it has delivered 42 per cent against the market’s loss of 18 per cent.
Through the full five years since the previous vote, though, the fund has lagged the index with a total return of 36 per cent to its 69 per cent after underperforming in 2008’s financial crash.
So rather than relying on its recent strength, the fund has cut its fees as a further incentive for its renewal. The annual charge will be reduced from 2 per cent to 1.5 per cent of the fund’s net asset value. The performance fee will also be modified, including a drop from 20 per cent to 15 per cent in the rate and a cap of 1.5 per cent of the fund’s net asset value on the maximum amount that could be paid.
Regarding the investment opportunities in Vietnam, the fund noted the International Monetary Fund’s expectations of average annual GDP growth of between 5 per cent and 6 per cent for the next five years, but acknowledged the problems faced by the country.
These revolve around Vietnam’s banks, which are plagued by bad debts. However, VinaCapital has taken heart from the government’s efforts to address these non-performing loans by rooting out corruption, as well as an emphasis on transparency from the State Bank of Vietnam on its balance sheet.
As part of the government’s programme of economic liberalisation, VinaCapital also predicted that more state-owned enterprises would be privatised in the years ahead, and so the fund has confirmed that it will adjust its portfolio to benefit from this.
Around half of the fund’s holdings are currently publicly traded companies, but VinaCapital advised that this was likely to decline as a reaction to both the steep valuations of listed firms and the better prospects in private equity and the sale of nationalised businesses.
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