Profit Hunter “Slingshot Opportunity in Vietnam”

By Travis Johnson, Stock Gumshoe, March 19, 2008

This one comes in from our dear friends in the land of tea and crumpets, but this time it is for an investment that is relatively easy to buy either in the UK or the US (unlike that last UK-listed teaser company we looked at that owns the “torpedo technique”)

The teaser is for the Profit Hunter newsletter service from Manraaj Singh, which costs a whopping 396 Pounds Sterling — at the discount rate they’re selling it for today. Normally 495. For the non-forex aware, that’s about $800 if you’d like to subscribe.

Or, if you’d just like their best idea, read on!

The teaser is for a country that matches their five “slingshot” criteria for a market that’s going to go up rapidly in the near future — and they show plenty of little charts of the Chinese and Russian markets to prove that yes, sometimes these countries’ markets do go up remarkably quickly and almost exponentially. Taiwan, the Philippines, and South Korea are also mentioned as showing these same “slingshot” tendencies before their economies and markets took off in the fairly recent past.

The slingshot criteria are fairly comprehensible things that make sense: big infrastructure spending; “HUGE” foreign direct investment; young, educated, cheap workers; growing foreign trade; and “cheap but rapidly growing stock market.”

They take credit for recommending Wynn Resorts back in 2004 as a play on China, which certainly would have worked out pretty well for them.

And of course, “promises” abound: “forecasts aren’t a reliable indicator of future results, but if you get in before this country “slingshots”, I believe it could easily double your money within 12 months… and realistically soar to THREE times its current level by the end of 2009!”

Sounds good, right?

Well, the “mystery place that can return three times your money” is Vietnam, which they do eventually reveal in the ad.

But what they don’t reveal is the best way to play Vietnam’s emerging economy and stock market (which has, like the other emerging markets, had it’s ups and downs in the last few months).

For that, we get one clue:

It trades in London, but is denominated in dollars.

That’s it.

Thankfully, the mighty Gumshoe is on your side, and the powerful thinkolator is rejuvenated after getting several days off for a bout with the flu … so I can tell you that this “best way to play Vietnam” is almost certainly …

The Vietnam Opportunity Fund (VOF in London, VTOPF on the pink sheets)

I say “almost” just because they gave so few clues, but I cannot imagine that they would be recommending something other than this investment fund that trades on the AIM market in London. Any other investment in Vietnam would be fairly indirect, like the banks that have invested there, but foreign ownership of Vietnamese companies is capped so none of the foreign companies investing there get to control their local counterparts. And it is a relatively odd bird in that it trades in dollars on the UK’s AIM exchange.

(There have been several other closed end investment vehicles and mutual funds for investing in Vietnam, but many of them have disappeared in recent years or broadened their focus, and none are as liquid or easy to trade as this one, or with as long a track record.)

And the Vietnamese stock market, though it was the darling of the emerging markets last year, is still teensy compared to what most of us are used to. There are fewer than 200 public companies, and a few large firms make up almost the entire market. I would not personally try to pick individual stocks in Vietnam, at least not now (and probably not for years to come) — their system just isn’t transparent enough, nor do I necessarily trust the government to cut back on bureaucracy, support private ownership over the long term, etc. etc. That’s why it’s “emerging,” of course.

It does make sense to me that an investment fund with expertise in the area is a good way to invest in Vietnam, should you feel the need to focus your energies on that one market. Do keep in mind that Vietnam has “opened” to investment before, only to crash and burn and disappoint everyone (and it wasn’t all that long ago). So this is a far different cry from investing in the multinational powerhouses of South Korea or Taiwan, certainly, and I’d think that any investment in Vietnam should certainly be considered “risk capital” in the strongest sense of the term.

But that said, they are growing fast, their labor is even cheaper than China’s, they have good models to follow in China for the opening of their markets and the benefits that brings, and perhaps they will eventually get a handle on their wildly inefficient infrastructure and bureaucracy. Certainly there’s a huge potential, the question is whether it will be realized, and who will realize it (outside investors? The government? Future generations?)

This is essentially set up like a hedge fund — the fund charges a 2% management fee, which is pretty high but certainly not outlandish for a country-specific investment fund. They also take their 20% incentive fee from profits that exceed 8% in a year. So if the underlying fund gets a 20% return, your actual return would be about 16%. All of these fees are based on the Net Asset Value, not the trading value (think of this like a closed end fund — the net asset value is the worth of the holdings, the actual trading price on the exchange will be either at a premium or discount to the NAV).

As of the end of January, the shares were trading pretty close to their net asset value, at a small discount, but historically it has usually traded at a significant premium due to the fact that there are few competitors or other ways for US and UK investors to get into the Vietnamese market.

Details about the fund can be found at their adviser’s website if you’re interested in researching further. Their mandate is to invest at least 70% in Vietnam, and they’re allowed to spread 30% to any combination of China, Cambodia and Laos if they wish.

The fund has been around for a while, and writers were urging caution and reminding about the volatility in Vietnam the last time Vietnam was on every investor’s lips — here’s a 2005 Business Week article about them, and a Roger Nussbaum article about VOF from 2006.

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This one holds some interest for me, and maybe I’ll end up buying in at some point (though not for three days at least, per my disclosure rules) — but I haven’t looked at it in any detail for several months … I like that it’s trading more in line with the Net Asset Value than it was in past years, but unfortunately that’s largely because the market has come down a bit. If you’re convinced that Vietnam will “slingshot” this might be the easiest way to play that directly … but, as always with these volatile little markets, caution, caution, caution.

The big risks to this fund, other than the fact that it’s tied to such a volatile, tiny market, are a few as I see it: First, that the fund (and probably the market) plods along for several years with middling returns in the single digits, and your returns are eaten up by fees; Second, that competition brings cheaper entries, maybe even ETFs, that will allow you to trade Vietnam much more easily and inexpensively (doesn’t seem all that imminent given the limited size and liquidity of the Vietnamese exchange, but with the ETF boom you never know); and Third, that the managers will stink and underperform the Vietnamese market overall.

I’d actually be inclined to give VOF the benefit of the doubt at this point and say that the real overriding risk is simply the market itself, since they fund has tracked fairly closely to the market over time. Over the past year it has moved up and down roughly between $3 and $4, with the current price at the low end of the range, and that downturn that brought us here is recent — it went from $3 to $4 pretty quickly at the end of last summer, and spent much of the fall coming back down to three bucks. So Singh is at least right in saying that the market has had a nice pullback … whether or not it’s going to recover and become a growth darling again is anyone’s guess (yours?)

If you’ve got Vietnamese thoughts to share, or anything else, please feel free to add your two cents. Happy Investing!



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