Transcript
Speaker: Welcome to Uncovering Trust, a podcast by Edison Group. I'm your host, Chloe Wong, and today I'm joined by Milos Peps, Director of Investment Company Content at Edison, to talk about Vina Capital Vietnam Opportunity Fund, ticker VOF.
Speaker: Milos, thanks for joining us. Thanks, Chloe. Good to be here. um Vof has just completed its financial year to the 30th of June, 2026. So we have a useful combination of fresh portfolio data and a very interesting backdrop for Vietnam's economy and capital markets.
Speaker: Let's start with the basics. What is Vof and what is it trying to achieve? WoW is FTSE 250 constituent listed on the main market of the London Stock Exchange. um It launched in September 2003. It's managed by Vina Capital with Canvu as lead portfolio manager and is domiciled in Guernsey.
Speaker: um Since inception, the fund has delivered an annualized NAV total return of around 11% in US s dollar terms. um Its objective is medium to long term capital appreciation from investments across Vietnam's public and private markets. um The portfolio is benchmarked Gnostic in construction, but VOLF aims to outperform the FTSE Vietnam All Share Index over the long term.
Speaker: um The important point is that it applies private equity disciplines, not only to unlisted companies, but um also to many listed investments. What does that mean in practice and why is it a differentiator?
Speaker: Yes, so at the end of July, um listed equities were at close to 80% of NAV, private equity 12.5%, and cash and other assets at close to 8%. But I would note that the distinction between listed and private does not tell the whole story. um A significant part of the listed portfolio was originally sourced through privately negotiated transactions. um For example, private placements or pre-IPO allocations rather than um you know simply bought in the market.
Speaker: That can give off access to entry prices or deal terms that ordinary secondary market investors cannot replicate. It also means that the manager thinks in multi-year terms and is prepared to negotiate meaningful stakes and protections where appropriate.
Speaker: um That privately negotiated approach is an important part of the equity story, although um the recent difficulties in some legacy private real estate holdings are also a reminder that, well, ah but liquidity can cut both ways. Let's turn to the latest financial year.
Speaker: What were the headline performance numbers? Yes, FY26 was described by them by the manager as a year of transformation. Vovv's NAV total return was 9.5% in US dollar terms, um while the share price total return was 11.9% in sterling.
Speaker: Financials, real estate and industries were the main positive contributors, while consumer, um including the fund's IT exposure, detracted. The um obvious comparison was with the VN index, which returned 36.5% in dollars, um but ah that headline was unusually concentrated.
Speaker: Vingroup, the listed parent company, rose by more than 300% and contributed about 26.5% of the index return. And um excluding Vingroup, the broader market returned around 10%.
Speaker: WoW did not hold WinGroup during the last financial year, um but has invested for the past eight years in a significant part of its ecosystem, that is, WinHomes, the country's largest real real estate developer.
Speaker: So, ah you know, the gap to the headline index looks much less dramatic once that concentration is recognized. And what does the market look like underneath that headline?
Speaker: I would say that valuations remain quite bifurcated. um The VN index was on roughly 11.6 times forward earnings at the end of July, but below 10 times when we exclude outliers.
Speaker: um These valuation levels seem, well, detached from the robust underlying corporate performance, ah with Vina Capital estimating a 22.3% earnings growth across the broader market this year, or around 16% excluding Vingroup.
Speaker: And valuations are actually closer to level-signory market downturns. Vogue's own portfolio was valued at about 8.6 times the 2026 earnings, with some expected TPS growth of 23.5% at the end of July.
Speaker: um That combination of value and earnings growth is one of the manager's main arguments for the opportunity today. Woff highlighted that many of its high conviction holdings were oversold in the recent July sell-off, and with an 8% cash level, it intends to add to several positions at attractive prices.
Speaker: Now, the macro picture is much stronger than current valuations might imply. um Vietnam's GDP grew 8.2% year-on-year in the first half of the year, ah which is the strongest first-half growth in more than 20 years, um while listed company earnings grew by over 40% year-over-year the first half, according to Vina Capital.
Speaker: i think it's worth I think it's worth noting though that market liquidity weakened maturely during the year as foreign investors continue to sell, i'm bringing foreign ownership to a historically low level of around 13.5%, which compares before um And I will also note the higher local deposit rates, which drew retail money away from equities. And this is important because retail investors account for around 80% to 85% of daily trading volumes.
Speaker: Has the investment team changed the portfolio significantly to capture that opportunity? Yes. Vina Capital reorganized the investment team around four core areas. That is financials, real estate, consumers, and industrials.
Speaker: with um each sector team covering both public and private opportunities. FOA26 was also one of the most active years in WoW's history um as it transacted $843 million dollars of investments, including $472 million dollars of disposals and $371 million dollars of new investments.
Speaker: um As a result, portfolio turnover reached 39%, which compares with a historical single-digit average. um The manager is very clear that this was a deliberate repositioning rather than a change in philosophy.
Speaker: um And the aim was to move capital towards businesses with um stronger earnings quality, better valuations or more attractive structural growth drivers as so Vietnam enters its next phase of development.
Speaker: can you give us some examples of what changed? Yes, financials were the busiest area. Both trimmed long-held positions in Asia Commercial Bank and the VP Bank and increased exposure to banks including MB Bank, Vietin Bank, BIDV and Vietcom Bank, where the team sees stronger deposit franchises, lower funding costs and attractive returns on equity.
Speaker: um It also increased exposure to securities companies, which could benefit from higher trading activity and capital market issuance as Vietnam moves into emerging market indices.
Speaker: Several of those positions came through proprietary transactions, um including private placements and pre-IPO investments. Industrious provides another good illustration. Volf exited airport cooperation of Vietnam after a successful 10-year investment that generated an 18% dollar IRR.
Speaker: um and That was because the manager was concerned that heavy capital expenditure on long-term international airport could depress returns for a period. It's ah redeployed into Gemadept, the deep sea port operator, and into the pre-IPO of GALAX infrastructure, both of which are more directly linked to Vietnam's infrastructure build-out and supply chain integration.
Speaker: What about the consumers and real estate, where the picture has been more mixed? Yes, well, consumer demand was subdued for March of FY26 as households rebuild savings depleted during the pandemic and higher rates and energy costs weighed on spending.
Speaker: Avov increased its conviction in mobile world, which delivered strong earnings growth while ah continuing to reduce FPT cooperation after a very successful nine-year investment, ah because the manager believes AI is changing the competitive dynamics of IT services.
Speaker: The more recent macro data are a little more encouraging. um real Real retail sales growth growth accelerated to 73% in the first half, despite high petrol prices and interest rates, and as well as but normalization of tourist traffic.
Speaker: um So the consumer recovery is not straightforward, but there are signs that um domestic demand could become more resilient. In real estate, Winhomes was the largest contributor to to fund performance and rose 91% during FI26.
Speaker: Vow also trimmed Kandian House and added to NAMM Loan Group, whose affordable housing focus fits the structural demand story. Just as importantly, there was progress on the legacy private investments affected by the 2022 property financing crisis. Datksan services was restructured into listed Datksan group shares, fourth received partial proceeds from a novel land collateral asset after year-end, and um the Hungtin land's exposure was restructured with stronger security and a clearer repayment path.
Speaker: um The manager has said it will keep less liquid private exposure around current levels until it has demonstrated further recovery and returns from that part of the portfolio. I understand that Vena Capital also provided an update on performance in July 2026, which was more challenging.
Speaker: That's correct. Vox's NAB declined by 8.6% in US dollar terms in July, which Vina Capital highlighted was in line with a broader market sell-off, um despite better-than-expected corporate earnings in Q2.
Speaker: Main detractors were Fung Nguyen Jewelry, so P&J, whose share price declined by 51% due to market scrutiny following a police investigation at its wholly owned subsidiary, as well as Kang Yen House and Mobile World's. Vogue reduced its position in P&J half to limit downside risk. um this This particular company made up 5.6% of in June NAV. Taking a step back, what are the main reasons to remain constructive on Vietnam itself in the long run?
Speaker: I would highlight three. First, the structural growth drivers are still powerful um for indirect investments, the relocation of manufacturing supply chains, a young workforce, rising incomes and a major infrastructure program.
Speaker: High-tech exports, in particular computers and electronics, were especially strong in the first half of 2026, while ah infrastructure spending remains an important support to growth and stood around 6% of GDP in the first half of the year.
Speaker: Second, Vietnam's capital market is approaching a major milestone, as Futsi Russell has confirmed that Vietnam will move from frontier to secondary emerging market status from the 21st of September, 2026, with um inclusion through
Speaker: Estimates differ, but around $2 billion dollars of passive inflows is i would say a common estimate, while FTSE Russell has indicated that passive and active flows together could reach up to about $6 billion. dollars I would say that a future MSCI upgrade would be a bigger step again, um although it requires further reforms around market access, foreign ownership and currency infrastructure.
Speaker: Third, there is the sovereign credit rating story. um Vietnam is one notch below investment grade at S&P and Fitch and two notches below at Moody's. An eventual upgrade could so lower the country's cost of capital and broaden the pool of international investors able to invest in Vietnamese debt and other assets.
Speaker: I would say that ah that is a less visible catalyst than the FTSE reclassification, but potentially an important one over the medium term. Let's bring the discussion back to VWOF, so in valuation and shareholder returns. Sure. um At the 30th of June, Vov had net assets of $927 million, all around £700 million, pounds and its shares stood at 20.6% discount to NAB.
Speaker: um That was a wide discount and partly reflected the difficult backdrop for loan-to-list investment companies, as well as weak foreign demand for Vietnamese equities, as I've just discussed.
Speaker: The current discount to NAV stands at around 17-18%. Now, the board has been active on capital returns. VOLF targets dividends of around 2% of NAV per year through two inter interim payments. And so among the London-listed Vietnam funds, it is the only one paying a regular dividend.
Speaker: ah The last 12 months' distributions amounted to 11 pence per share, equivalent to a yield of um about 2.4% at the end of June. Buybacks have been the larger lever as the fund repurchased more than $90 million dollars of shares during the financial year 2026, which is equivalent to around 11% of shares outstanding. um And I would note that total capital return through dividends and buybacks since 2011 reached almost $900
Speaker: The fee structure has changed as well, hasn't it? ah Yes, and I think that is an important shareholder alignment point. From the 1st of July, 2026, the management fee became tiered. the first million dollars of net assets, between million and billion,
Speaker: and all point five percent about that um at At the end-June asset level, the long-term effective base fee is about 1%, which is roughly 30 basis points below the previous arrangement.
Speaker: um ah Transitional arrangements are in place to help the manager move to the new fee structure. The performance fee is now based on rolling five-year performance versus the FTSE Vietnam Allsha Index at the three basis points of fee for every one percentage point of relative performance.
Speaker: with a clawback for underperformance, no carry forward of performance fees and a lower total fee cap of 2.5% of net assets. The manager must also use 25% of any incentive fee to buy Vox shares and hold them for at least five years.
Speaker: um Overall, the new structure makes the benchmark more relevant and strengthens a long-term alignment. Before we wrap up, how would you summarize the investment case today? I would put it in the three parts.
Speaker: First, Vietnam still combines high economic growth with long-term structural drivers such as industrialization, infrastructure investment, rising domestic incomes and growing participation in global supply chains.
Speaker: The FTSE emerging market upgrades provides an additional capital markets catalyst. um Second, VOLF offers a differentiated way to access that story. It combines listed and private equity, and much of its deal sourcing comes through negotiated transactions that can offer better entry terms than the public market.
Speaker: The recent portfolio repositioning gives us useful evidence of how that model is being applied the Kanvu's leadership, while the manager is also addressing the legacy private real estate issues rather than ignoring them.
Speaker: And third, the underlying portfolio is on a relatively low earnings multiple with double-digit expected earnings growth, while the shares are still on a substantial discount. um Add in buybacks, regular dividend, at the cheaper, more performance-aligned fee structure, and, well the valuation case is quite interesting.
Speaker: The main risks remain the you know the usual emerging market ones, so higher interest rates, currency and geopolitical shocks, um and the execution risk around private investments. But the long-term Vietnam opportunity remains compelling. Milos, thanks for your comprehensive overview.
Speaker: My pleasure, Chloe. You've been listening to Uncovering Trust, a podcast by Edison Group. To find out more about Vof and other investment companies we cover, please visit www.edisongroup.com.
