First Vietnam-Focused ETF In U.S. Launches

August 14, 2009

Van Eck launches first dedicated Vietnam ETF for U.S. investors.

 

One of the hottest frontier markets in recent years has been Vietnam. Now, there’s an exchange-traded fund dedicated just to companies based in or generating at least 50% of their revenues from operations in that country.

The Market Vectors Vietnam ETF (NYSEArca: VNM) launched on Friday. It tracks an index developed by Van Eck Global, which sponsors the fund and serves as its portfolio adviser.

“VNM offers a broad representation of the country’s market. Nearly 70% of the companies in the ETF are domiciled in Vietnam and the rest have at least 50% of their business coming within its borders,” said Derek Van Eck, the firm’s chief investment officer, during a presentation about the ETF before markets opened for analysts and investors.

The fund opens with 28 companies. Heading into Friday, the Ho Chi Minh Stock Exchange—the country’s main stock exchange—had gained more than 60% so far this year. The ETF will charge a net expense ratio of 0.99%.

While VNM represents the first pure Vietnam ETF in the U.S., in the past year, fund companies have been rushing into the frontiers market space.

Last year, a unit of Deutsche Bank launched across Europe the first set of dedicated frontier-focused exchange-traded products. That included one devoted to Vietnam. (See related story here.)

Later in 2008, Claymore launched the first U.S.-based ETF devoted to frontier markets, the Claymore/BNY Mellon Frontier Markets ETF (NYSEArca: FRN). But that fund’s benchmark doesn’t include Vietnam. (See related story here.)

Shortly after FRN’s debut, a second dedicated frontiers ETF came out, the PowerShares MENA Frontier Countries Portfolio (NASDAQ: PMNA). But it also doesn’t provide exposure to Vietnam. (See related story here.)

Van Eck actually entered the frontier markets ETF field last year as well with the introduction of the Market Vectors Africa Index ETF (NYSEArca: AFK). Again, it also doesn’t provide access to Vietnam. (See related story here.)

Why go with a dedicated Vietnam ETF for a market whose main exchange has a market cap of only about US$30 billion?

Vietnam is one of the world’s largest exporters of rice and rubber. It has also become a darling of many on Wall Street for an aggressive push to attract foreign investment by making its economy more open to private business, both locally and abroad. It has also been pushing advantages of a young and relatively low-cost workforce, winning some big manufacturers away from other growing areas in Asia, including China. (Van Eck actually has a nice summary of Vietnam’s investment prospects—both pro and con—on its site.)

The index for VNM will be rebalanced quarterly.  At the end of July, its largest sectors were: financials (36.7%); energy (19.1%); materials (12.3%); industrials (12.2%) and consumer staples (10.8%). Not surprisingly, the ETF is skewed heavily toward smaller companies—some 86% of its benchmark is represented by small- and mid-cap sized companies.

While Vietnam represented nearly 68% of the fund’s index, other markets with big investments in Vietnam are included in VNM’s portfolio. Its country makeup includes some 7.5% in Singapore and 6% in the U.K. Also, Malaysia, India, Canada and South Korea are included in the fund in slices of 3-5% each.

 

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