In March 2023, as the VN-Index hovered around 1,050, foreign capital injected over VND 3 trillion ($120 million) into the market, providing much-needed support. During this period, Taiwanese ETF giant Fubon FTSE Vietnam began actively deploying capital. At the same time, VanEck’s ETF switched its benchmark index from the MVIS Vietnam Index to the MarketVector Vietnam Local Index. History shows that during rebalancing periods or when ETFs change their benchmark index, the market often experiences significant trading volume.
Vietnam’s ETF market has seen notable shifts recently, especially with the entrance of two major players: VanEck and Fubon. Together, these foreign ETFs, with total assets exceeding $1.3 billion, have become key indicators of foreign investor sentiment. ETFs are an efficient and easy tool for foreign investors looking to tap into Vietnam’s market. How do these two giants differ in their strategies, and what drives their presence in Vietnam?
ETFs have been present in the Vietnamese stock market for nearly 17 years, though they were largely under the radar for much of that time. More than a year after Vietnam’s first ETF was launched, VanEck established its VanEck Vietnam ETF in August 2009, initially tracking the MVIS Vietnam Index. Starting with just $2.6 million in assets, the fund has grown more than 210 times over the past 15 years. “That’s a long time for an ETF, even in the U.S.,” says William Sokol, Vice President of Product Management at VanEck.
The growth of VanEck Vietnam stems from the unique strategy of this 69-year-old New York-based investment firm. In 2009, when the VN-Index was around 500 points, VanEck’s fund managers saw an opportunity in emerging markets with strong growth potential and chose a benchmark that was unconventional at the time. This made VanEck the first U.S. ETF offering access to the Vietnamese market.
In contrast to the U.S.-based fund, Fubon’s fund managers, after successful entries in Europe, India, China, and Japan, were seeking a “promising market with a stable political environment, and most importantly, a name familiar to Taiwanese investors,” explains Yang Yi-Ning, manager of Fubon FTSE Vietnam. Fubon’s strategy was planned in 2019, and the fund was launched in March 2021. Today, Fubon FTSE Vietnam is the largest ETF in Vietnam, with $857 million in assets.
Fubon’s ETF tracks the FTSE Vietnam 30 Index, which includes 30 stocks listed on the HoSE. “Our strategy is simple: buy stocks in proportion to the index,” says a representative of the fund. Fubon works closely with local brokers to stay in tune with market news, mainly holding and purchasing stocks unless there’s a significant market adjustment or company movement. “We don’t change the portfolio easily,” says Yang Yi-Ning.
Unlike VanEck, Fubon did not face the challenges of entering a young, evolving market like Vietnam. VanEck went through two benchmark changes, initially tracking the MVIS Vietnam Index, which excluded some Vietnamese stocks, allowing those with at least 50% of their revenue or assets derived from Vietnam to be included. This was partly due to the limited liquidity of local stocks at the time, as well as U.S. investors needing to comply with Vietnam’s foreign ownership laws. “But that was also the best way for U.S. investors to access Vietnam’s equity market transparently and at a low cost,” a VanEck representative said. The fund switched to a benchmark with 100% Vietnamese stocks with high liquidity only in the past year.
From a trading perspective, both ETFs buy and sell baskets of securities daily as investors seek to swap in and out of the fund. VanEck and Fubon’s fund shares trade on U.S. and Taiwanese markets, so their daily impact on Vietnam’s trading volumes is typically minimal. “However, during rebalancing periods, transactions can reach up to 20% of the fund’s total assets, which can significantly impact the market, especially for stocks with lower liquidity,” says Lê Huyền Trang, Senior Data Analyst at SSI Research.
VanEck has seen a relatively positive annual performance, with a 1-year return of 24.7% as of February 29, 2024, compared to a 2.7% tracking error relative to its benchmark. “We closely monitor our benchmark index and are quite satisfied with this performance,” says the fund manager. Over the past year, VanEck has consistently been net sellers in the market, with sales peaking between April and May 2023, and again in the final quarter of the year, just before the quarterly evaluation results for the MarketVector Vietnam Local Index were published.
On the other hand, Fubon’s trading activity was more active, with net selling in the third quarter of 2023 before shifting back to net buying when the VN-Index hit its low. Despite this, Fubon’s 1-year performance as of February 29, 2024, was 7.47%, while the VN-Index gained approximately 20.7% in the same period. “One reason for this is that retail investors account for around 80% of total market trading volume in Vietnam,” says Yang Yi-Ning. “This presents a challenge for us.”
Despite the market challenges, both ETFs share a common goal: to see Vietnam’s stock market upgraded from frontier to emerging market status. According to Fubon, once the market is upgraded, many foreign investors will look for stocks with foreign ownership limits, further enhancing the potential of the fund in the coming years. A VanEck representative compares this event to China’s market upgrade in 2017. “The most important thing is the level of investor readiness when the market is upgraded,” says Sokol.
Globally, the number and size of ETFs in Vietnam have grown rapidly, especially since 2020. While domestic ETFs provide additional product choices, foreign ETFs play a key role as funding channels due to their easy accessibility for investors. Moreover, the capital flows from Fubon and VanEck help reflect investor sentiment from Taiwan and the U.S. towards Vietnamese stocks, according to Lê Huyền Trang of SSI.
Although VanEck and Fubon’s portfolios are relatively similar in terms of sector weightings, with over 50% allocated to financials, followed by industrials and materials, their benchmark indices and strategies have led to differing performance results. As 2024 progresses, VanEck remains optimistic about the long-term investment outlook, having focused 100% of its portfolio on Vietnamese companies. For Fubon, the fund expects performance improvements driven by recovery in exports, domestic consumption, and the real estate market. “Vietnam’s market is very similar to Taiwan’s in the 1980s. In 1986, the TWSE index was just 1,400, and now it’s over 18,000. I believe Vietnam will follow a similar path in the next 30 years,” says Yang Yi-Ning.
*Published in the March 2024 issue of Bloomberg Businessweek Vietnam