VinaCapital Vietnam Opportunity Fund (VOF) has followed rival Vietnam Enterprise (VEIL) in buying Vingroup (VIC), the country’s largest conglomerate whose “national champion” status has made it a red-hot favourite with Vietnamese investors.
Having baulked at Vingroup’s valuation and leveraged exposure to its fledgling electric vehicle business, fund manager Khan Vu was caught out when its shares soared 350% in the year to 30 June.
Annual results showed that not holding the $62bn group was the main factor in the £496m investment company’s underperformance with a 10.5% total dollar investment return trailing the 36.5% return of the VN Index.
Although performance lagged, the growth in net asset value (NAV) did at least beat the fund’s 10% annual target and was more consistent with VOF’s long-term track record of 11% annualised growth. It also improved on the 2.2% decline in the previous financial year
At 30 June, Vingroup accounted for 19.3% of the VN Index and had contributed to 24.2%, or two thirds, of the benchmark’s advance in the 12-month period.
The report said VOF had partially benefited from the mania for Vingroup as it is a long-term investor in its Vinhomes subsidiary, the fund’s top holding at 10% of assets after a doubling in its shares in the financial year.
Nevertheless, the absence of Vingroup was painful given VOF’s weak performance over five years with a 5% fall in the value of its investments.
Fund manager Khanh Vu revealed he had capitulated after the financial year-end, allocating a 5.4% weighting in August to make Vingroup the fund’s fifth biggest holding. By the end of September, it had risen to fourth place at 5.6% of net assets.
By contrast, VEIL captured more of the surging share price, having hiked a small and very underweight position last year and seeing it rise from 0.1% to 9.1% as its largest holding. It still leads the portfolio at 11.2% of NAV at 30 September. Nevertheless, its underlying five-year performance is not much better than VOF with a 2% decline.
Justifying his new stance, Vu said Vingroup’s “fundamentals have recently changed, evidenced from its recent decision to spin off its electric vehicle subsidiary into a separate manufacturing and operating company. Furthermore, the government’s willingness to grant VIC several major infrastructure projects (metro, rail and highway) and Transport-Oriented Development projects will contribute significantly to its earnings outlook in the coming years.”
The 12 months to 30 June were a year of change for the company as VinaCapital overhauled the portfolio, selling $472m of stocks and buying $371m to elevate turnover to 39% in a bid to reinvigorate performance and build a “pipeline of opportunities”.
The fund manager strengthened its team hiring Tuan Ago from Viet Capital Securities as head of investments and lifting Michael Schmidt from Mekong Capital as private equity lead.
VOF has seven unlisted investments alongside its 23 listed holdings and has long viewed private equity as an important part of its proposition.
However, Kathryn Matthews, the former Fidelity Asia Pacific chief investment officer who is now chair, said a couple of its unlisted investments were “distressed” and the manager was looking to exit.
With conditions in the asset class “extremely challenging” Matthews said no new private equity investments would be made until performance improves, adding that the “hurdle for any new PE opportunities is high given the low valuation of listed equities t the moment.”
She hoped Vietnam’s “strong economic growth and very attractive valuations would support a broader stock market recovery and proved the team with exciting investment opportunities in 2027.”
Our view
Richard Williams, senior analyst at QuotedData, said: “VOF’s return to positive NAV growth is encouraging, but the scale of its underperformance against the Vietnamese stock market remains disappointing. Admittedly, the benchmark’s 36.5% gain was heavily distorted by Vingroup, which alone accounted for almost two-thirds of the increase, and the manager’s reluctance to chase its elevated valuation was understandable. Interestingly, VOF has since initiated a position in Vingroup, citing changes to the company’s fundamentals and improving earnings prospects following its restructuring and involvement in major infrastructure projects. Nevertheless, the trust’s longer-term relative performance remains a concern. The extensive portfolio restructuring under Khanh Vu, alongside the revised fee arrangements, suggests that the board and manager recognise the need for change. Progress in resolving problematic private equity holdings is also welcome, although several legacy investments remain challenging. Meanwhile, buybacks have provided meaningful NAV accretion, but have yet to resolve the persistent discount. With Vietnam’s economic fundamentals remaining attractive, the priority now is to demonstrate that the reorganised investment approach can deliver sustained improvements in performance.”
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