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The AFC Vietnam Fund returned −0.7% in October with a NAV of USD 1,827.00, bringing the net return since inception to +82.7%. This represents an annualised return of +16.9% p.a. The September performance of the Ho Chi Minh City VN Index in USD was +4.1% while the Hanoi VH Index gained −2.3% (in USD terms). Since inception, the AFC Vietnam Fund has outperformed the VN and VH Indices by +29.8% and +39.7% respectively (in USD terms). The broad diversification of the fund’s portfolio resulted in a low annualized volatility of 9.18%, a high Sharpe ratio of 1.84, and a low correlation of the fund versus the MSCI World Index USD of 0.28, all based on monthly observations since inception. Most of our companies have reported their third-quarter earnings and were able to meet our expectations. Hence there was only a minor portfolio rebalancing this quarter, while our valuations continued to get more attractive; just the opposite of what we see for the main index and many other markets around the world. While Vietnam’s economy has outperformed most other Asian markets for some time now, the recent strength was mainly achieved thanks to a strong acceleration in credit growth, as reported by some banks of around 20%. This trend is of concern to some economists, but bank stocks are in vogue due to increased consumer lending and are now enjoying much higher valuations than most other Asian banks, though this doesn’t seem to bother investors. Foreigners, however, will have to pay a hefty premium in order to buy these banks since the FOL (foreign ownership limit) is already fully used up and only such a hefty premium will tempt some foreign shareholders to sell. As we previously mentioned, given that we are value investors, we wouldn’t buy these index-heavy-weight banks and we will not change our stance on this. But with many new banking stocks now recently listed on the stock market we have bought a bank which on one hand still has room for foreigners (but whose FOL seems to be closing rapidly) and on the other hand which has a very attractive valuation of 5.6x estimated 2017 earnings despite strong growth in recent years. At the end of October 2017, the fund’s largest positions were: Agriculture Bank Insurance JSC (3.6%) – an insurance company, Sam Cuong Material Electrical and Telecom Corp (2.8%) – a manufacturer of electrical and telecom equipment, Global Electrical Technology Corporation (2.6%) – an electrical equipment company, Cantho Pesticides JSC (2.2%) – a manufacturer of agricultural chemicals, and Sonadezi Long Thanh Shareholding Company (2.0%) – a residential real estate developer. The portfolio was invested in 77 names and held 2.7% in cash. The sectors with the largest allocation of assets were consumer goods (34.1%) and industrials (28.8%). The fund’s estimated weighted average trailing P/E ratio was 9.93x, the estimated weighted average P/B ratio was 1.76x and the estimated portfolio dividend yield was 7.05%.

Source: Asia Frontier Capital Limited

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