NEW YORK (
) -- Don Dion posts his current insights on the stock, bond, commodity and currency markets in his
blog, anticipating which ETFs will be in play next.
Here are three of his blog posts from the past week:
Vietnam ETF Shows a Strange Divergence
Published 5/26/2011 4:46 p.m. EDT
Time differences and trading hours often affect the performance of international equity ETFs, in which the underlying components are traded in markets overseas. But when it comes to the
Market Vectors Vietnam ETF
, the dislocation between the ETF's market price and underlying value is cause for concern. Why has VNM skipped the rails? What is so unusual about its current composition?
Yesterday afternoon, I first noticed that VNM was trading at a premium, and I have kept a close eye on the fund since. Today, VNM closed 4.56% higher and had an unusually high average daily trading volume of 410,000 shares. VNM's three-month average daily trading volume is 200,000. More importantly, VNM's underlying value, or NAV, advanced just 2.4%.
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As I mentioned before, the market price of international ETFs will often drift away from underlying value, but the gap between VNM's market price and the net asset value of its components is highly unusual in a fund with this much liquidity. I began to look for news and then looked at the fund's holdings. Here's the biggest thing that stood out: VNM's sixth-largest holding is listed as "other assets/cash." According to Van Eck's information, "other assets/cash" constituted more than 5% of the fund's portfolio.
All funds have some portion of the portfolio in cash, but VNM's high cash percentage is a red flag. It likely indicates that there have been some unanticipated restrictions in creating new shares of VNM or that a component has been removed unexpectedly. In the financial news, several stories note that Vietnam's bonds have been making significant gains due to speculation.
It looks like speculators are pouring into VNM as well, and that they don't seem to mind paying a premium for access to Vietnamese equities. The influx of funds seems to be big enough that VNM managers have not invested all the new cash yet, so it is sitting in the portfolio marked as cash.
While I don't suggest chasing VNM, it should be an interesting fund to keep an eye on in the days ahead. There certainly seems to be something strange going on with this fund, and the heightened investor interest could be indicative of a larger market trend. I will update readers when I learn more.
At the time of publication, Dion Money Management had no positions in stocks mentioned.