NEW YORK (
) -- Three years ago, I suggested that investors consider Vietnam because of its business-friendly attitude and large, young workforce. That argument still stands and here's a new exchange traded fund that aims to tap the market.
Van Eck Global's Market Vectors Vietnam ETF
, which started trading on Aug. 14, follows a four-year bull market in the Southeast Asian nation that ended in 2008. The
Vietnam Stock Index
has gained 61% this year, outperforming the 11% advance of the
S&P 500 Index
Frontier markets are very volatile, with their boom and bust cycles. The Vietnam Stock Index more than doubled in 2007 and then fell 66% last year. Growing pains have also contributed to an inflation problem the country has been trying to address.
Still, I think investors should consider building a small position in the fund because of its well-balanced sector allocation.
Only two-thirds of the ETF's assets are invested in Vietnamese companies. Singaporean companies comprise 7.5% of the fund. Another 6% is in U.K. stocks and 5.1% is in Malaysia. Non-Vietnamese stocks must generate at least half of their revenue from Vietnam.
Finance is the largest sector with 37% of the fund, followed by energy at 19%, materials at 13%, industrials at 12% and consumer staples at 11%. Despite the heavy weighting in financials, the fund is more diversified than I expected.
One might expect the fund to take advantage of its ability to invest in companies outside the country, but the largest of its 28 holdings are Vietnamese stocks. The largest individual holding is
Vietnam Dairy Products
at 10% of the fund, followed by
with 7.4%. The rest include conglomerate
, steel and cement maker
Hoa Phat Group
Petrovietnam Fertilizer and Chemical
PetroVietnam Drilling & Well Services
The fund's expense ratio will be capped at 0.99%. Its underlying index yields 2.66%, which suggests the fund will yield 1.67%. But that remains to be seen.
Van Eck recently issued a six-page report called
The Investment Case for Vietnam
. The company cites the nation's fast-growing economy, stabilizing politics and young population as reasons to invest. But Van Eck also cautions that corruption and a lack of infrastructure could hamper its ability to grow.
Van Eck's investment rationale is very similar to one I laid out three years ago. Hopefully, that underscores the importance of having a longtime frame in mind if you build a position in Vietnam.
Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback;
to send him an email.