To The Moon

Summary

• I maintain a hold rating on the VanEck Vietnam ETF due to its low valuation but weak momentum and technicals.
• VNM has significant exposure to Real Estate and Financials, sectors sensitive to interest rate changes, and lacks Information Technology exposure.
• The ETF's concentrated portfolio and high historical volatility present elevated risks, despite a low price-to-earnings ratio and high long-term EPS growth rate.
• Technical analysis shows VNM struggling near multi-year lows with potential support between $11 and $12, but overall weak technical indicators.

Khoa Nguyen/E+ via Getty Images

Global stocks are broadly higher in the past year. The S&P 500 is up about 30% total return over the last 12 months, while the all-country world ex-US index has returned more than 18%. But there have been a handful of big losers, many of which are small emerging-market country stock markets.

I’m revisiting the VanEck Vietnam ETF (BATS:VNM). It is the second-worst country fund tracked by Seeking Alpha’s country ETF page. Shares are lower by more than 13% from this time in 2023. The reason? Major losses in its two biggest positions, Vinhomes JSC and Vingroup JSC. The Financials and Real Estate heavy product features a low valuation and a precarious technical situation.

I reiterate a hold rating on VNM. While I like the valuation, weak momentum remains a concern. I issued a hold on the ETF in October 2023, and shares are up just 4% total return, compared with a 33% gain in the S&P 500 Total Return Index.

Vietnam Is the Second-Weakest Country ETF YoY

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According to the issuer, VNM seeks to track the price and yield performance of the MarketVector Vietnam Local Index, which tracks shares of Vietnamese companies. VanEck notes that Vietnam is among the world's most populous nations where 58% of the population is working age with an average age of 32 and that VNM is the largest and most liquid U.S. ETF offering exposure to Vietnamese companies, providing a convenient way to customize international exposure.

VNM remains a small ETF and has lost assets under management in the past 10 months. Total AUM is now $505 million. Its annual expense ratio is elevated at 0.70% while VNM’s trailing 12-month dividend yield is very high at 6.1%. But with poor share-price momentum, I see the yield as a bit of a value trap indicator rather than a compelling value signal.

What’s more, the ETF’s Grade on Risk is weak given high historical volatility trends and a concentrated portfolio. Liquidity is healthy, however, given average daily volume of more than 600,000 shares and a median 30-day bid/ask spread of eight basis points – that's high enough to where using limit orders, particularly around the market open, is a smart move in my opinion.

VNM’s portfolio has shifted somewhat since Q4 of 2023. Looking closer at the allocation, there’s a mixture of sizes and styles across the Morningstar style box. The plurality of positioning is seen in large-cap blend, but with more than half of the ETF invested in small- and mid-cap stocks, there are significant cyclical risks. Of course, currency plays a pivotal role, and Vietnam’s frontier-market categorization means there’s an elevated macroeconomic risk too.

But with a low 12.7 price-to-earnings ratio, there’s a bargain case to be made, particularly considering that its long-term EPS growth rate is high, near 17%. The resulting PEG ratio is well under one. I encourage investors to weigh momentum trends before diving into this value idea.

VNM: Portfolio & Factor Profiles

Morningstar

We also find areas of concern from a risk management perspective when dissecting VNM’s sector breakdown. More than half of the fund is invested in Real Estate and Financials – two spots where interest rate changes can have a big impact. Also, growth in demand for and the availability of credit is key.

There’s no exposure to Information Technology either, further distancing VNM from performance trends of the S&P 500.

VNM: High Allocation to Local Real Estate and Financials Stocks

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Seasonality is another problem spot. September and October have historically been VNM’s worst two-month stretch on the calendar. Thus, being very cautious with an entry now through early Q4 is prudent.

VNM: Weak September-October Seasonal Trends

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The Technical Take

VNM never rallied through the $15 to $16 range I noted last year. Notice in the chart below that shares are barely off multi-year lows, still in a heavy drawdown off the late 2021 peak above $21. There’s support, however, between $11 and $12, and it’s encouraging to see the ETF hold that level as recently as a few weeks ago. But with a falling long-term 200-day moving average, suggesting that bears control the primary trend, there’s work cut out for the bulls.

But take a look at the RSI momentum oscillator at the top of the graph. It is now hovering at fresh highs going back to late March. That momentum upswing could portend a rise in the share price. If we see VNM rise through $13, then a measured move upside price objective to about $17.50 would be in play based on the range height from the descending triangle pattern that has been ongoing since Q3 of 2023.

Overall, with a high amount of volume by price up to $13, shares remain in a tough technical spot overall.

VNM: Descending Triangle, Support Near $11, Momentum Bumps Up

Stockcharts.com

The Bottom Line

I reiterate a hold rating on VNM. I see the country ETF as cheap on valuation but with a risky and concentrated allocation. Moreover, the technicals are broadly weak, and the fund is among the worst-performing areas of the global stock market in the past 12 months.