HCM CITY (VNS) — Fund manager VietFund Management is planning an initial public offering for the country's first domestic exchange-traded fund early in the third quarter, providing investors with a low-cost investment channel to expose to the attractive Vietnamese equity market.
An ETF is a fund traded on the stock market. And most ETFs track an index like stock and bond indexes, a commodity, or a basket of assets like an index fund.
They are an attractive investment because of their benefits like market exposure, low costs, high transparency, no foreign ownership limit, and trading like a single listed stock, Nguyen Thi Viet Ha, head of research and development at the HCM Stock Exchange, said.
Tran Thanh Tan, CEO of VietFund Management (VFM), said he had applied for setting up the first local ETF.
"Our fund, the ETF VFMVN30, will track the VN30 Index, which consists of 30 companies listed on HOSE in terms of market capitalisation, free float, and liquidity."
The VN30 index constituency currently represents around 55 per cent of the market cap and 50-70 per cent of daily trading value. The list includes blue chips such as Vietcombank (VCB), Military Bank (MBB), Vinamilk (VNM) Kinh Do Corp. (KDC), and the Financing and Promoting Technology Corp (FPT). About half of its tradable market cap is at or near the foreign ownership limit.
"The investment strategy of ETF VFMVN30 is to replicate the performance of VN30 as closely as possible." Tan said, explaining that in the year-to-date the VN30 Index has risen 18 per cent.
The ETF will trade as a listed security on the HCM City Stock Exchange and investors could opt to exchange the ETF units for component securities or vice versa.
Its indicative net asset value (iNAV) will be calculated every 15 seconds during trading hours (in developed markets it is done in real time). This iNAV will be listed on the websites of HOSE, the fund management company, and securities companies.
Transparency requirements for ETF listings ensure investors get easy access to information like the number of units issued, portfolio companies, NAV, and its assets structure.
According to the HOSE research and development head, the ETF's cost is expected to be lower than that of mutual funds - around 1 per cent compared to 2-2.5 per cent for the latter.
Domestic ETFs are allowed to invest in all kinds of shares while foreign ones are constrained by foreign ownership limits. An investor with a modest sum of money can still diversify their portfolio by acquiring ETF certificates.
Speaking to Viet Nam News at a recent event in HCM City, Vu Bang, the chairman of the State Securities Commission of Vietnam, said the SSC is considering applications for two ETFs and the soonest it might issue a licence is this month.
"Once ETFs are put in operation they will help diversify the products available on Viet Nam's stock market, increase liquidity, and attract more capital flow thanks to its advantages like low costs.
"Preparations for the trading of ETF units have been carefully made at the Ha Noi and HCM City exchanges. The legal work has been basically completed as well."
However, it would take several years for ETFs to attain large size and liquidity, he said.
But he promised that related authorities would improve policies and regulations to ensure sustainable growth of the funds as well as the stock market.
VFM's CEO said the ETF VFMVN30 would be listed after its IPO.
The fund's initial chartered capital will be at least VND50 billion (US$2.35 million) raised from authorised participants, local and foreign investors.
VietFund Management, established in 2003, was the first fund management company to be set up in Viet Nam. It offers diversified financial products and services to local and international investors through investment funds and portfolio management services.
The HCM City-headquartered company currently manages four funds - Vietnam Securities Investment Fund (VF1), Vietnam Blue-chips Investment Fund (VF4), Vietnam Active Fund (VFA), and Vietnam Bond Fund (VFB) with total asset of US$95 million under its management.
Four foreign ETFs have invested almost US$1 billion in equities in Viet Nam. They are DB X-trackers FTSE Vietnam, Market Vectors Vietnam Index, MSCI Frontier Markets Index, and IShares MSCI Frontier 100 Index ETFs.
ETFs had their genesis in 1989 with Index Participation Shares, an S&P 500 proxy that traded on the American Stock Exchange and the Philadelphia Stock Exchange, and have since witnessed a global boom. —VNS