Vietnam ETFs: Investing In a Frontier Market

America’s economy shrank about 3.5% in 2020 due to the pandemic.

It’s only natural for investors to consider exposure to stocks outside the U.S. to tap into higher potential growth. Believe it or not, one of the hottest global economies right now is the small Southeast Asian nation of Vietnam.

Vietnam was one of the rare regions to post growth last year. What’s more, the country’s growth rate was red-hot with a 2.9% expansion. That topped even the consistently growing economy of China — which only posted a 2.3% growth rate last year.

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Something for investors to note, however, is that the region is admittedly a bit quirky. In Vietnam, there are a small number of massive state-owned enterprises, including the Agribank financial institution, but outside of that the vast majority of companies are small or medium-sized ventures. This includes agricultural concerns as well as high-end tourism companies catering to wealthy international travelers.

Investing directly in Vietnamese companies isn’t particularly easy given this makeup. That said, for those who want to buy into a fast-growing region, there are a couple exchange-traded funds, or ETFs, available to U.S. investors that offer some exposure to Vietnam stocks:

— The only “pure play” Vietnam ETF.

— A creative way to invest in Vietnam.

— The bottom line: Vietnamese investments.

The Only ‘Pure Play’ Vietnam ETF

The most obvious option in the small world of Vietnam ETFs is the VanEck Vectors Vietnam ETF (ticker: VNM) — the first and only ETF exclusively focused on Vietnam.

Though its list of holdings is very slim, at less than 30 companies, the fund’s portfolio is directly focused on publicly traded Vietnamese companies and corporations with at least 50% of their revenues and related assets in Vietnam.

VNM’s top holdings include commercial real estate developer Vinhomes and agribusiness Vietnam Dairy Products.

[See: 9 Global Growth ETFs to Diversify Your Portfolio.]

This Vietnam ETF isn’t gigantic, boasts nearly $500 million in assets under management and has an inception date going way back to 2009. That makes it a direct but established play on the region. The fund returned roughly 10% to shareholders last year. It also comes with an annual expense ratio of 0.66%, or $66 for every $10,000 invested.

Unfortunately, aside from investing in a handful of thinly traded over-the-counter stocks headquartered in Vietnam, U.S. investors have few other good options to get direct exposure to this fast-growing nation.

But there is one more creative way to play Vietnam stocks via a diversified international ETF.

A Creative Way to Invest In Vietnam

Vietnam is classified as a “frontier market” — that is, not a “developed market” like the U.S. or Europe, but also not large enough to be considered one of the popular ” emerging markets” like China, Brazil or India.

There are a handful of ETFs that play this specific subsection of the international stock market, and unsurprisingly, Vietnam is well represented in these funds.

Nearly as large as the Vietnam ETF offering from VanEck is the iShares MSCI Frontier and Select EM ETF ( FM), which boasts more than $400 million in net assets. This fund is comprised of about 150 established companies in frontier markets — and Vietnam represents the second-largest geographic share of the portfolio at 15%, with Vietnam Dairy Products and real estate, retail and services conglomerate Vingroup among the top holdings at present. FM has a slightly higher expense ratio of 0.79%.

[SEE: 7 Emerging-Market Funds to Buy and Hold.]

Of course, FM is not a pure-play on the region, as other stocks like the National Bank of Kuwait and Kenya’s Safaricom mobile network operator are on this list of promising stocks in frontier markets.

If the VanEck Vectors Vietnam ETF or the iShares MSCI Frontier and Select EM ETF don’t appeal to you, sadly there are no other well-established Vietnam funds out there. A few other frontier market ETFs do exist for public trading, but they have less than 100 million in assets and are very thinly traded, which means they can carry significant risks to individual investors.

Besides, even if they are out there at this moment that is no guarantee they will be around tomorrow as issuers need a critical mass of investor interest to bother with maintaining these sophisticated frontier market funds. A recent example comes from Invesco, which closed its frontier markets ETF last year.

Bottom Line: Vietnamese Investments

It may not be a big surprise to see very few Vietnamese options for exchange-traded funds, as this far-flung region carries big potential but also high risk.

The bottom line is that even institutional investors in the U.S can have trouble digging into Vietnam stocks to properly assess their business, and structural problems make it difficult for smaller traders to get their money into an opportunity even when they identify one.

It’s undeniable that Vietnam holds big potential after its recent GDP performance during a brutal year for the rest of the world. And with reasonable fee structures and significant assets under management, both the VanEck Vectors Vietnam ETF and the iShares MSCI Frontier and Select EM ETF could be viable options for investors who are willing to take on the risks of an investment in this region.

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