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The Vietnam Fund lost −3.2% in May with a NAV of USD 1,802.50, bringing the return since inception to +80.2%. This represents an annualised return of +14.2% p.a. The Ho Chi Minh City VN Index in USD lost −7.7%, while the Hanoi VH Index lost −6.5% (in USD terms). The broad diversification of the fund’s portfolio resulted in a low annualized volatility of 8.85%, a high Sharpe ratio of 1.54, and a low correlation of the fund versus the MSCI World Index USD of 0.26, all based on monthly observations.

Large cap stocks led to another strong decline in May, despite a 4% rebound in the last three trading days of the month. The HCMC index lost -7.4% and the Hanoi index -6.3%. Both indexes have now erased all of their previous gains for 2018 and are now slightly down for the year. The weak sentiment also dragged down most small- and midcap stocks, but to a much lesser extent. According to internal calculations our NAV is at USD 1,800, down -3.4% for the month.

Market Developments

As May was another weak month for the index, for reasons we have explained many times before, investors are now finally looking for alternatives to companies trading with high levels of volatility – and also some unrealistic valuations.

Not only do we find that now the media and analysts are increasingly reporting about the immense valuation gap between the top ten stocks and the other hundreds of stocks trading at half of their valuation, but also new capital is being raised by large institutions for investing into small- and midcap stocks as investors obviously see potential and value in this space.

After the huge and unrealistic price rise of the largest stocks, a sharp correction was to be expected. We can also see that despite the decline in the premium paid for those stocks, it continues to be too high in a historic context.

Excluding the top 10 stocks, the performance of the stock market would have been similar to our portfolio – more or less flat. Longer term, we are very convinced that like in any other market, only a broad advance will lead to a sustainable bull market, and our stocks will outperform as they did in the past, without the phase of irrational exuberance of a few hyped stocks.

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