The AFC Vietnam Fund gained +2.3% in December with a NAV of USD 1,789.27, bringing the return since inception to +78.9%. This represents an annualized return of +10.1% p.a. The Ho Chi Minh City VN Index in USD lost −0.9%, while the Hanoi VH Index gained +0.1% (in USD terms) in December 2019. For the full year 2019, the fund gained +0.7%, underperforming the Ho Chi Minh City VN Index which rose +8.2% and outperforming the Hanoi VH Index which lost −1.2%. The broad diversification of the fund’s portfolio resulted in a low annualized volatility of 8.53%, a Sharpe ratio of 1.07, and a low correlation of the fund versus the MSCI World Index USD of 0.25, all based on monthly observations.
International money flows show an interesting, although unlucky picture for investors, like us, investing into undervalued stocks in an undervalued market. With the decoupling of a historical trend in world markets in recent years, the valuation gap between the U.S. and the developing world is at its biggest in the past 10 years.
Within Asian frontier markets, Vietnam has already been the main beneficiary in 2019 from a manufacturing shift out of China, despite lower global trade. Depending on future talks and possible agreements from the U.S. with its trading partners, pressure on China’s manufacturing sector will diminish, but a change in direction back into China and out of Vietnam is highly unlikely, simply because of the huge difference in labor costs.
At the end of December 2019, the fund’s largest positions were: Agriculture Bank Insurance JSC (6.6%) – an insurance company, Vietnam Container Shipping JSC (4.1%) – a container port management company, Phu Tai JSC (3.9%) – a home and office furnishings company, Sametel Corporation (3.4%) – a manufacturer of electrical and telecom equipment, and Idico Urban and House Development JSC (3.4%) – an energy, construction, and real estate business.
The portfolio was invested in 59 names and held 5.2% in cash. The sectors with the largest allocation of assets were industrials (32.5%) and consumer goods (30.2%). The fund’s estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 7.00x, the estimated weighted harmonic average P/B ratio was 1.00x and the estimated weighted average portfolio dividend yield was 7.84%.