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i
DEVELOPING THE PETROVIETNAM GROWTH
OPEN-ENDED FUND (PVGF) -
CHALLENGES AND OPPORTUNITIES
(PVFC Capital)
by
Duy Khanh Nguyen
A project study submitted in partial fulfillment of the requirements for the
degree of International Executive EMBA Program (AIT)
Examination Committee Dr Fredric William Swierczek
Nationality Vietnamese
Previous Degree Bachelor of Commerce amp Administration
Victoria University of Wellington (VUW)
New Zealand
Scholarship Donor Petrovietnam Oil amp Gas Group (PVN)
Asian Institute of Technology
School of Management
Thailand
December 2014
ii
ACKNOWLEDGMENT
Foremost I would like to express my sincere gratitude to my advisor Dr Fredric William
Swierczek for the support of my study and research His guidance helped me in all the time
of research and writing of this thesis
My sincere thanks also goes to Petrovietnam Oil amp Gas Group (PVN) for offering me the
full scholarship and giving me chance to contribute further to the development of the
Vietnam oil amp gas sector
Last but not the least I would like to thank my family my parents and my wife for always
supporting me spiritually throughout my academic life
iii
ABSTRACT
Open-ended fund is a new form of fund in Vietnam In the world more than 90 of the
funds are established in this form of open-ended funds The legal basis of open-ended
funds in Vietnam is Circular 1832011TT-BTC from Ministry of Finance which provides
regulation on establishment and management of open-ended funds effect from March 1st
2012 Since then many funds set up in Vietnam are in the form of open-ended funds
In early 2013 only 03 open-ended funds were established However by the end of the
year there were 08 open-ended funds have been established (in which 03 closed funds
converted to open-end funds) Currently there are 8 (eight) out of 46 (forty-six) fund
management companies established open-end funds and at least two companies are in the
process of raising capital
Petrovienam Finance Fund Incorporation (PVFC Capital) is establishing an open-ended
fund to build the image of a fund management company that can manage various types
and diversified funds
The Petrovietnam Growth Open-ended fund (PVGF) will invest stocks in oil amp gas sector
in Vietnam (the stocks in the basket of PVN-Index) in order to make a difference in the
market take advantage of industry and help promote the PVN-Index of Petrovietnam Oil
amp Gas Group (PVN) which developed by Petrovienam Securities Incorporation (PSI)
iv
Table of Contents
Chap I Introduction 1
11Rationale 1
12Problem statement 2
13Objective of the research 3
14Conceptual framework of the research 3
15 Scope of the research and data collection 4
16Organization of the research study 4
Chap II Best practice A case study of Profunds Ultrasector Oil amp Gas Svc 6
21 Introduction 6
22 Index Benchmark Dow Jones US Oil amp Gas Index 6
23 Investment strategy of Oil amp Gas UltraSector ProFund 7
24 Performance amp return of Oil amp Gas UltraSector ProFund 8
25 Summary of the chapter 10
Chap III Situational Analysis 11
31 Status of fund management companies and Open-ended funds in Vietnam market 11
32 Oil amp gas sector in Vietnam 11
33 Simulation and performance of PVN Index 13
34 PVN Index performance compared to other indexes 14
35 Impact model 15
36 Financial Market Condition 16
37 Confidence of investors 17
38 Legal Framework - Circular 1832011Circular 19
39 Revenue Structure 19
310 Support from shareholders 20
Chap IV Developing the PVGF 21
41 Introduction new form of fund (PVGF) 21
42 Investment objective amp strategy 22
43 Characteristics of listed companies in PVN-10 Index 23
v
Chap V Fund Development Alternative 25
51 Small Scale Start Up 25
52 Support from shareholders 25
53 Advantages of Open-ended Fund 26
54 Expected performance 27
55 PVN-10 exchange-traded fund 28
56 Evaluation of Alternative 28
57 Comparison 31
Chap VI Conclusion amp Recommendation 33
61 Conclusion 33
62 Action Plan 1 Open-ended Fund 34
63 Action Plan 2 Exchange Traded Fund 35
64 Recommendations 37
Appendix 1 39
Appendix 2 40
Appendix 3 41
Appendix 4 42
Appendix 5 43
Appendix 6 44
Appendix 7 45
Appendix 8 46
Reference 47
vi
LIST OF TABLE
Table 11 Asset under management 1
Table 21 Average Annual Total Returns as of December 31 2012 6
Table 22 Index Sector Weightings 6
Table 23 Top 10 Index Companies 7
Table 24 Average Annual Total Returns as of December 31 2012 9
Table 25 Annual Total Returns Summary 9
Table 31 Revenue Structure 19
Table 32 Summarized factors affecting business 20
Table 41 PetroVietnam Growth Open-ended Fund 21
Table 42 PVN-10 Index 23
Table 43 PVN-10 Dividend 24
Table 51 Advantages of Open-ended Fund 26
Table 52 Comparing open-ended fund (PVGF) with PVN-Index ETF 29
Table 53 Disadvantages of ETF 30
Table 54 Conditions for ETF to develop and operate effectively 30
Table 55 Evaluation Summary 32
Table 61 Fund structures of Open-ended fund (Plan 1) 34
Table 62 Fund Raising Plan of Open-ended fund (Plan 1) 35
Table 63 Fund structures of Exchange Traded Fund (Plan 2) 36
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2) 37
Table 65 Process of investment management control and coordinate 38
vii
LIST OF FIGURE
Figure 11 Conceptual Framework of the Study 3
Figure 21 Average Annual Total Returns as of December 31 2012 8
Figure 31 The importance of oil and gas sector 12
Figure 32 PVN-Index component by sector 12
Figure 34 PVN Index vs VNIndex amp HNIndex 14
Figure 35 PVN Index vs VN30 amp HNX10 14
Figure 36 Conception of PVGF 15
Figure 37 Market players 16
Figure 38 VNIndex movements in 2013 16
Figure 39 GDP and GDP Growth 17
Figure 310 Trade Balance 17
Figure 311 FDI inflows 18
Figure 312 Interest rates 18
Figure 41 Asset allocation 23
Figure 42 Subsidiaries of PVN 24
Figure 51 Operation of Open-ended Fund 27
Figure 52 Regulation of establishment and management of ETFs 28
viii
LIST OF ABBREVIATIONS
ETF Exchange ndash Traded Fund
FC Fund Certificate
HNX Hanoi Stock Exchange
NAV Net Asset Value
VN30 30 biggest companies in the Vietnam Stock market
VEFF Vietnam Equitization Focused Fund
VIP LLC Vietnam Investment Platform
PVN Petrovietnam Oil amp Gas Group
PVcomBank Vietnam Public Bank
PVFC Capital Petrovietnam Finance Fund Incorporation
PVGF PetroVietnam Growth Open-ended Fund
PVN-Index 32 listed companies of PetroVietnam on two stock
exchanges of Vietnam
PVN-10 Index 10 biggest share of PVN in the Vietnam Stock market
1
CHAPTER 1
INTRODUCTION
11Rationale
PVFC Capital is the exclusive fund management company within PetroVietnam
Oil amp Gas Group (PVN) Established at the very early stage of the fund
management industry of Vietnam PVFC Capital serves as the fund raising and
fund management arm of the Group With expertise in oil and energy sector our
funds and portfolios have unique advantages in addition to wide range of selected
equities
Background of PVFC Capital
The exclusive fund management company within PetroVietnam Group
Establishment 14 December 2007
Chartered capital VND 100 billion (US$5million)
Shareholders
- PVcomBank (merger between Petrovietnam Finance Corporation
amp Western Bank)
- SOVICO (leading Investment Group)
Number of Employees 33
Assets under management US$490 million (~10 trillion VND)
Table 11 Asset under management
Local fund Offshore fund Portfolio management
Size of assets US$ 35
million
US$ 7 million US$ 480 million
Establishment Nov 2011 Aug 2008 2008
Accumulated
NAV growth
+113 +27 13year for FY2012
Source PVFC Capital
In a typical fund management company there are normally two main
departments Business Development Department and Investment Department I
have chance to apply the knowledge acquired and enhance my experience in both
fields here Particularly my main responsibilities as an associate including
operations for investment promotion market researching and customer
relationship development I also participate assist and support investment team in
analysis of investment opportunities daily work of fund management and
portfolio management
2
As an exclusive fund management company of PetroVietnam and a dynamic
member of PVcomBank PVFC Capital receives continued support as well as
inherits significant experience from PVcombank in terms of financial
management and investment and advantages in oil and gas sector
Funds and entrusted assets managed by PVFC Capital are from both foreign and
domestic investors PVFC Capital possesses a proven track record in asset
management and invaluable experience in the oil and energy sector with the total
value of successfully managed assets of more than VND 10000 billion
The company is managing two funds (one local fund and one offshore fund) with
net asset of 105 million US dollars and eleven investment portfolios with total
net value of 480 million US dollars (Source PVFC Capital) We have to deliver
the report monthly quarterly yearly to investors who are very interested in the
updated information of ther net asset value in the fund Beside the macro-
economic and stock market scanning we have to make recommendation to them
in which stock bonds or financial assets should be bought sold or hold
12Problem statement
The biggest problem of PVFC Capital at the moment is difficulties in establishing
a new fund given current situation of the economy Over the last few years after
the booming period Vietnam encounter the stabilization of the macroeconomic
Compare to the previous time investors are more conservative in their invesment
decisions
Based on market conditions and the current activities of PVFC Capital we realize
it is a critical task to raise fund as well as demand for new potential partners in
local and overseas It is our challenges to expand new customer network to
access and exploit more opportunities from potential partners to establish a new
fund
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (8645227 USD out of total 1435655 USD revenue) As
of 31122013 the company has been managing 11 (eleven) portfolios in
domestic trusts and two foreign investment portfolio with total Net asset value of
about 450000000 USD (Source PVFC Capital)
Currently only two active funds are under our management which are Vietnam
Equitization Focused Fund (VEFF) amp Vietnam Investment Platform (VIP LLC)
both raising from Japanese investors Revenue from fund management in FY
2013 is 130000 USD contributed only 88 of total revenue (Source PVFC
Capital) For a fund management company this revenue structure needs to be
adjusted in the direction that increasing revenue from fund management
activities besides extremely well-managed and active portfolio management
activities
In addition since 2011 the company has not mobilized new funds after the
success of the fund establishment of VEFF Hence there is urgent need now to
establish new funds making revenue from this activity access to new capital
3
flow from investors in order to invest in opportunities within and outside the
petroleum industry
13Objective of the research
This research has the following objectives
o Review current situation of fund management companies and open-ended
funds in Vietnam market
o Identify the main causative factors of PVFC Capital lsquos unbalanced
revenue structure and difficulties in fund raising
o Evaluate the advantages and out-perform characteristics of PVGF in
compare to other form of fund
o Identify solution for PVFC Capital lsquos top management to raising capital
for this new type of fund
14Conceptual framework of the study
Figure 11 shows the approach to the research Firstly overview of PVFC Capital
and through impact model the main issues was defined Before analyzing the
prospects of PVGF the case study of ProFunds UltraSector Oil amp Gas Svc was
introduced as an example of the best practice of an open-ended fund investing in
oil amp gas index
Figure 11 Conceptual Framework of the Study
PROBLEM DEFINITION
BEST PRACTICE OF PROFUNDS
SITUATIONAL ANALYSIS
IMPACT MODEL
DEVELOPING PVGF
ALTERNATIVE SOLUTIONS amp EVALUATION
RECOMMENDATIONS amp CONCLUSION
4
15Scope of the research and data collection
To get the thorough understanding of the opportunities as well as challenges
investing in PVGF the information was retrieved from top management level
(Head of Department) to each associate in different unit in the organization
The primary information was collected though the questionnaires though internal
meeting and internal seminar with all the staff in the company and though the in-
depth interview with head of three most important department in PVFC Capital
which are Business Development Department Investment Department and
Internal Control Department
The secondary data were collected from
o Company profile
o Annual reports
o MonthlyAnnual Investment Report to investors
o Offering Letter to potential investor
o Updated data of PVN-Index from PSI
o PVFC Capitalrsquos Brochure
o Internal seminar Presentation on PVGF
o Other PVGF-related documents
o Public media (newspaper website magazineshellip)
16Organization of the research study
The research includes 7 chapters and its structure is as follows
Chapter 1 Introduction
This chapter provides a brief introduction the research rationales the main issue
research approach and the research structure
Chapter 2 Best Practice
Case of best practice on investing with open-ended fund in oil amp gas index was
used as examples to illustrate the theory and justification of the researcher
Chapter 3 Situational analysis
Chapter 3 provides a status of fund management companies and open-ended fund
in Vietnam market The chapter also discusses the main causative agents and the
result in the need to mobilize and establish a new fund of PVFC Capital
Chapter 4 Developing PVGF
Chapter 4 introduces the PVGF its investment objective strategy and its
advantages compared to other type of funds
5
Chapter 5 Fund development alternative
Chapter 5 provides solution for introduces the new fund of PVGF into the
Vietnam market such as small-scale starting with utilization of the capital from
shareholder as well as enhancing networking activities
The chapter provides alternative solution for introduces exchange-traded fund as
another effective investment tool for PVFC Capital It also compares and
contrasts between the two solutions and evaluates which solution is the most
appropriate one
Chapter 6 Recommendation and conclusion
Chapter 6 wraps up the above chapters conducts two action plans to raising
capital for PVFG as well as recommendations to PVFC Capitallsquos top
management board and strategic shareholders
6
CHAPTER 2
BEST PRACTICE A CASE STUDY OF PROFUNDS ULTRASECTOR
OIL amp GAS SVC
21Introduction
Oil amp Gas UltraSector ProFund is an open-end fund incorporated in the USA
The Fund is advised by ProFund Advisors since October 2013
The Fund invests in securities and derivatives that ProFund Advisors believes in
combination should have similar daily return characteristics as one and one-half
times (15x) the daily return of the Index
22Index Benchmark Dow Jones US Oil amp Gas Index
The Index measures the performance of the oil and gas sector of the US equity
market Component companies include among others exploration and
production integrated oil and gas oil equipment and services pipelines
renewable energy equipment companies and alternative fuel producers As of
September 30 2013 the Index included companies with capitalizations between
$9090 million and $3787 billion The average capitalization of the companies
comprising the Index was approximately $212 billion (Source Profund) The
Index is published under the Bloomberg ticker symbol ldquoDJUSENrdquo
Table 21 Average Annual Total Returns as of December 31 2012
Total Index Companies 84 PriceEarnings Ratio 1634 PriceBook Ratio 225 Dividend Yield 205 Average Index Market Capitalization 2486 billion
(Source httpwwwprofundscom)
Table 22 Index Sector Weightings
Index Sector Weightings Weight Oil amp Gas Producers 7196 Oil Equipment Services amp Distribution 2780 Alternative Energy 024
(Source httpwwwprofundscom)
7
Table 23 Top 10 Index Companies
Top 10 Index Companies Weight Exxon Mobil Corp 2070 Chevron Corp 1190 Schlumberger Ltd 735 ConocoPhillips Co 504 Occidental Petroleum Corp 386 EOG Resources Inc 306 Halliburton Co 287 Anadarko Petroleum Corp 265 Phillips 66 Co 218 The Williams Cos Inc 206
(Source httpwwwprofundscom)
23Investment strategy of Oil amp Gas UltraSector ProFund
ProFund Advisors uses a mathematical approach to investing Using this
approach ProFund Advisors determines the type quantity and mix of investment
positions that the Fund should hold to approximate on a daily basis the
performance of one and one-half times (15x) the Index
The Fund may invest in or gain exposure to only a representative sample of the
securities in the Index or to securities or financial instruments not contained in
the Index with the intent of obtaining exposure with aggregate characteristics
similar to those of a multiple of the Index
The Fund seeks to remain fully invested at all times in securities andor financial
instruments that in combination provide leveraged exposure to the Index
without regard to market conditions trends or direction
At the close of the US securities markets on each trading day the Fund will seek
to position its portfolio so that its exposure to the Index is consistent with the
Fundrsquos investment objective The Indexrsquos movements during the day will affect
whether the Fundrsquos portfolio needs to be re-positioned For example if the Index
has risen on a given day net assets of the Fund should rise As a result the
Fundrsquos exposure will need to be increased Conversely if the Index has fallen on
a given day net assets of the Fund should fall As a result the Fundrsquos exposure
will need to be decreased
Because of daily rebalancing and the compounding of each dayrsquos return over
time the return of the Fund for periods longer than a single day will be the result
of each dayrsquos returns compounded over the period which will very likely differ
from one and one-half times (15x) the return of the Index over the same period
(Source Profund) The Fund will lose money if the level of the Index is flat over
time and it is possible that the Fund will lose money over time even if the level
8
of the Index rises as a result of daily rebalancing the Indexrsquos volatility and the
effects of compounding
The Fund will concentrate its investments in a particular industry or group of
industries to approximately the same extent as the Index is so concentrated
As of the close of business on September 30 2013 the Index was concentrated in
the oil and gas industry group which comprised approximately 100 of the
market capitalization of the Index
24Performance amp return of Oil amp Gas UltraSector ProFund
Portfolio Turnover
The Fund pays transaction costs such as commissions when it buys and sells
securities (or ldquoturns overrdquo its portfolio) A higher portfolio turnover may indicate
higher transaction costs and may result in higher taxes when the Fundrsquos shares
are held in a taxable account These costs affect the Fundrsquos performance During
the most recent fiscal year the Fundrsquos annual portfolio turnover rate was 4 of
the average value of its entire portfolio This portfolio turnover rate is calculated
without regard to cash instrument or derivatives transactions If such transactions
were included the Fundrsquos portfolio turnover rate would be significantly higher
Investment Results
The bar chart below shows how the Fundrsquos investment results for Investor Class
shares have varied from year to year and the table shows how the Fundrsquos average
annual total returns for various periods compare with two broad measures of
market performance
Figure 21 Average Annual Total Returns as of December 31 2012
Source ProFunds
Best Quarter (ended 12312010) 3220
Worst Quarter (ended 12312008) -3833
The year-to-date return as of the most recent quarter which ended September 30
2013 was 2387 (Source Profund)
33
46 46
27
46
-56
19 26
0 4
-80
-60
-40
-20
0
20
40
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Annual Returns of Investor Class Shares as of December 31 each year
9
Table 24 Average Annual Total Returns as of December 31 2012
One Year Five Years Ten Years Inception
Date
Investor Class Shares 1 -753 1361 061900
Before Taxes
After Texas on
Distributions
361 -753 1342
After Texas on
Distributions and
Sales of Shares
235 -624 1221
Service Class Shares 260 -845 1221 061900
SampP 500 1600 166 710
Down Jones US Oil
amp Gas Index
471 -035 1377
Source ProFunds
Fund Return
The Indexrsquos annualized historical volatility rate for the five-year period ended
September 30 2013 was 3299 The Indexrsquos highest September to September
volatility rate during the five-year period was 5803 (September 30 2009)
The Indexrsquos annualized performance for the five-year period ended September
30 2013 was 1450 (Source Profund)
The table below represents performance and returns of the fund as of 13102014
The investment return and principal value of an investment will fluctuate so that
an investors shares when redeemed may be worth more or less than the original
cost Returns include the reinvestment of dividends and capital gains
Table 25 Annual Total Returns Summary
YTD (as of 10132014) -1264
Average Annual One Year 1518
Average Annual Three Year 2305
Average Annual Five Year 1450
Average Annual Ten Year 1083
Average Annual Since Inception 803
Cumulative Since Inception 20143
Gross Expense Ratio 183
Net Expense Ratio 178
(Source httpwwwprofundscom)
10
25 Summary of this chapter
The success of Oil amp Gas UltraSector Profund has brought huge amount of profit
to Profund Company The investment in the energy index helps Profund having
an operation mechanism as an open-end fund with more diversified product as
well as better risk diversification
In Vietnams stock market there are three exchange-traded funds operating and
simulate Vietnamlsquos stock market index Except Ishare Frontier Market has the
low proportion of asset invested in Vietnam the other two funds are familiar to
investors The Market Vectors Vietnam ETF and DB X-Tracker FTSE Vietnam
have continuously dominated the market over the years As of mid-September
2014 the total assets of The Market Vectors Vietnam ETF reached nearly 630
million USD an increase of 270 times in the last 5 years Similarly X-Tracker
DB FTSE Vietnam has managed 400 million USD assets up 82-times since
2008 (Source Cafef)
Since 2011 Intelligent Financial Research amp Consulting (IFRC) and the
Petrovietnam Securities Incorporation (PSI) ndash a subsidiary of PVN have
collaborated building a PVN-Index which composing of all listed companies in
Vietnamese oil amp gas industry PVN-Index is an index consisting of two groups
of representatives and investment indicators starting year 2008 Representative
groups have again been divided into market index (PVNAllshare PVNAllshare
Continuous PVNAllshare HOSE PVNAllshare HNX) and the sector index (oil
and gas basic materials financial industrial and consumers service) Investment
index which also known as PVN10 including 10 stocks with largest market
capitalization and trading value on Ho Chi Minh Stock Exchange (HOSE) and
Hanoi Stock Exchange (HNX) (Sources wwwpvnindexvn)
PVN-Index appeared on the market since May 82012 but so far there are none
of fund management companies in Vietnam have applied this index The best
practice case of Oil amp Gas UltraSector ProFund indicates that there are many
opportunities and long-term benefits (in term of return and performance) for a
fund management company to establish a open-ended fund which imitates an oil
amp gas sector index (in this case PVN-Index) This type of new fund will
overcome the problem of low liquidity which is inherent disadvantage of open-
ended funds at the same time solve the problematic ldquohigh discount raterdquo of
closed-end funds With this new type of fund which imitates energy sector index
the investor will invest in a basket of index easy to follow and suitable for small
investors non-professional investors or foreign institutional investors (pension
funds insurance funds) Also investing in a basket of securities also limit the
market abuse and manipulation
PVFC Capital could apply the practical case of ProFund to create transparent
investment product flexible trading mechanisms risk diversification and
professional management The application of this fund type also help to attract
new investors new capital flows making it easier to attract more capital sources
from the economy through the primary market In addition if PVFC Capital
could establish a similar successful index fund it also leads to positive behavioral
changes in term of investment culture Rather than investing in individual stocks
separately requires more time to analyze the market and transaction time This is
becoming more difficult as the number of shares listed have increased even up to
thousands of stocks
11
CHAPTER 3
SITUATIONAL ANALYSIS
31 Status of fund management companies and Open-ended funds in
Vietnam market
Open-ended Fund is a new type of fund in Vietnam But in the world over 90
of the fund established in the form of open-ended funds The legal basis of the
fund is 1832011TT-BTC Circular - Ministry of Finance which provides the
framework for establishment and management of Open-ended Fund effectively
from 132012 Since then some new fund was established in Vietnam under the
form of Open-ended funds
In the beginning of 2013 only 03 open-end funds were established By the end of
the year there were 08 open-end fund was established (03 of them are former
Closed-end fund and just converted to Open-end funds) Currently there are only
546 fund management companies in the market successfully established Open-
ended fund and 02 companies are in the process of raising capital (See Appendix
1)
General characteristics of the Open-end funds were established as follows
Small scale the Open-ended funds have been established in Vietnam are in small
scale from 50-70 billion VND (minimum size prescribed by the State Security
Commission (SSC) is 50 billion)
The investment objectives to invest primarily in bonds and securities that
generate fixed -income and have low-risk This is consistent with the prudent
investors who aim to preserve capital and investment return just higher than
saving rate Only 2 Open-ended fund invest in listed stocks
32 Oil amp gas sector in Vietnam
PetroVietnam Group (PVN) is the biggest group of Vietnam and it contributes
20 of the countryrsquos annual GDP PVNrsquos annual revenue reached VND 773
trillion (or US$ 37 billion) in 2013
PVN plays a very important part in contributing to Vietnamrsquos state budget In
2013 it contributed VND 195 trillion to the total state budget an increase of
45 compared with 2012 For the first 9 months of 2014 PVN contributed
Oil and Gas sector in general and its exploration and services sector in particular
have robustly developed in the past years and are expected to continue its strong
growth to meet the demand of the socio-economic development of Vietnam
According the master plan of oil and gas sector development for the period of
2006-2025 capital demand to meet with the sector development will be about
US$ 1275 - 1335 billion accounting for 20-22 of the total investment demand
of the whole economy (Source PVN)
PVN has 32 companies (as its subsidiaries) listing on Ho Chi Minh Stock
Exchange and Hanoi Stock Exchange of Vietnam PetroVietnam Securities
Incorporation (PSI) started developing PVN-Index reflecting the performance of
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
ii
ACKNOWLEDGMENT
Foremost I would like to express my sincere gratitude to my advisor Dr Fredric William
Swierczek for the support of my study and research His guidance helped me in all the time
of research and writing of this thesis
My sincere thanks also goes to Petrovietnam Oil amp Gas Group (PVN) for offering me the
full scholarship and giving me chance to contribute further to the development of the
Vietnam oil amp gas sector
Last but not the least I would like to thank my family my parents and my wife for always
supporting me spiritually throughout my academic life
iii
ABSTRACT
Open-ended fund is a new form of fund in Vietnam In the world more than 90 of the
funds are established in this form of open-ended funds The legal basis of open-ended
funds in Vietnam is Circular 1832011TT-BTC from Ministry of Finance which provides
regulation on establishment and management of open-ended funds effect from March 1st
2012 Since then many funds set up in Vietnam are in the form of open-ended funds
In early 2013 only 03 open-ended funds were established However by the end of the
year there were 08 open-ended funds have been established (in which 03 closed funds
converted to open-end funds) Currently there are 8 (eight) out of 46 (forty-six) fund
management companies established open-end funds and at least two companies are in the
process of raising capital
Petrovienam Finance Fund Incorporation (PVFC Capital) is establishing an open-ended
fund to build the image of a fund management company that can manage various types
and diversified funds
The Petrovietnam Growth Open-ended fund (PVGF) will invest stocks in oil amp gas sector
in Vietnam (the stocks in the basket of PVN-Index) in order to make a difference in the
market take advantage of industry and help promote the PVN-Index of Petrovietnam Oil
amp Gas Group (PVN) which developed by Petrovienam Securities Incorporation (PSI)
iv
Table of Contents
Chap I Introduction 1
11Rationale 1
12Problem statement 2
13Objective of the research 3
14Conceptual framework of the research 3
15 Scope of the research and data collection 4
16Organization of the research study 4
Chap II Best practice A case study of Profunds Ultrasector Oil amp Gas Svc 6
21 Introduction 6
22 Index Benchmark Dow Jones US Oil amp Gas Index 6
23 Investment strategy of Oil amp Gas UltraSector ProFund 7
24 Performance amp return of Oil amp Gas UltraSector ProFund 8
25 Summary of the chapter 10
Chap III Situational Analysis 11
31 Status of fund management companies and Open-ended funds in Vietnam market 11
32 Oil amp gas sector in Vietnam 11
33 Simulation and performance of PVN Index 13
34 PVN Index performance compared to other indexes 14
35 Impact model 15
36 Financial Market Condition 16
37 Confidence of investors 17
38 Legal Framework - Circular 1832011Circular 19
39 Revenue Structure 19
310 Support from shareholders 20
Chap IV Developing the PVGF 21
41 Introduction new form of fund (PVGF) 21
42 Investment objective amp strategy 22
43 Characteristics of listed companies in PVN-10 Index 23
v
Chap V Fund Development Alternative 25
51 Small Scale Start Up 25
52 Support from shareholders 25
53 Advantages of Open-ended Fund 26
54 Expected performance 27
55 PVN-10 exchange-traded fund 28
56 Evaluation of Alternative 28
57 Comparison 31
Chap VI Conclusion amp Recommendation 33
61 Conclusion 33
62 Action Plan 1 Open-ended Fund 34
63 Action Plan 2 Exchange Traded Fund 35
64 Recommendations 37
Appendix 1 39
Appendix 2 40
Appendix 3 41
Appendix 4 42
Appendix 5 43
Appendix 6 44
Appendix 7 45
Appendix 8 46
Reference 47
vi
LIST OF TABLE
Table 11 Asset under management 1
Table 21 Average Annual Total Returns as of December 31 2012 6
Table 22 Index Sector Weightings 6
Table 23 Top 10 Index Companies 7
Table 24 Average Annual Total Returns as of December 31 2012 9
Table 25 Annual Total Returns Summary 9
Table 31 Revenue Structure 19
Table 32 Summarized factors affecting business 20
Table 41 PetroVietnam Growth Open-ended Fund 21
Table 42 PVN-10 Index 23
Table 43 PVN-10 Dividend 24
Table 51 Advantages of Open-ended Fund 26
Table 52 Comparing open-ended fund (PVGF) with PVN-Index ETF 29
Table 53 Disadvantages of ETF 30
Table 54 Conditions for ETF to develop and operate effectively 30
Table 55 Evaluation Summary 32
Table 61 Fund structures of Open-ended fund (Plan 1) 34
Table 62 Fund Raising Plan of Open-ended fund (Plan 1) 35
Table 63 Fund structures of Exchange Traded Fund (Plan 2) 36
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2) 37
Table 65 Process of investment management control and coordinate 38
vii
LIST OF FIGURE
Figure 11 Conceptual Framework of the Study 3
Figure 21 Average Annual Total Returns as of December 31 2012 8
Figure 31 The importance of oil and gas sector 12
Figure 32 PVN-Index component by sector 12
Figure 34 PVN Index vs VNIndex amp HNIndex 14
Figure 35 PVN Index vs VN30 amp HNX10 14
Figure 36 Conception of PVGF 15
Figure 37 Market players 16
Figure 38 VNIndex movements in 2013 16
Figure 39 GDP and GDP Growth 17
Figure 310 Trade Balance 17
Figure 311 FDI inflows 18
Figure 312 Interest rates 18
Figure 41 Asset allocation 23
Figure 42 Subsidiaries of PVN 24
Figure 51 Operation of Open-ended Fund 27
Figure 52 Regulation of establishment and management of ETFs 28
viii
LIST OF ABBREVIATIONS
ETF Exchange ndash Traded Fund
FC Fund Certificate
HNX Hanoi Stock Exchange
NAV Net Asset Value
VN30 30 biggest companies in the Vietnam Stock market
VEFF Vietnam Equitization Focused Fund
VIP LLC Vietnam Investment Platform
PVN Petrovietnam Oil amp Gas Group
PVcomBank Vietnam Public Bank
PVFC Capital Petrovietnam Finance Fund Incorporation
PVGF PetroVietnam Growth Open-ended Fund
PVN-Index 32 listed companies of PetroVietnam on two stock
exchanges of Vietnam
PVN-10 Index 10 biggest share of PVN in the Vietnam Stock market
1
CHAPTER 1
INTRODUCTION
11Rationale
PVFC Capital is the exclusive fund management company within PetroVietnam
Oil amp Gas Group (PVN) Established at the very early stage of the fund
management industry of Vietnam PVFC Capital serves as the fund raising and
fund management arm of the Group With expertise in oil and energy sector our
funds and portfolios have unique advantages in addition to wide range of selected
equities
Background of PVFC Capital
The exclusive fund management company within PetroVietnam Group
Establishment 14 December 2007
Chartered capital VND 100 billion (US$5million)
Shareholders
- PVcomBank (merger between Petrovietnam Finance Corporation
amp Western Bank)
- SOVICO (leading Investment Group)
Number of Employees 33
Assets under management US$490 million (~10 trillion VND)
Table 11 Asset under management
Local fund Offshore fund Portfolio management
Size of assets US$ 35
million
US$ 7 million US$ 480 million
Establishment Nov 2011 Aug 2008 2008
Accumulated
NAV growth
+113 +27 13year for FY2012
Source PVFC Capital
In a typical fund management company there are normally two main
departments Business Development Department and Investment Department I
have chance to apply the knowledge acquired and enhance my experience in both
fields here Particularly my main responsibilities as an associate including
operations for investment promotion market researching and customer
relationship development I also participate assist and support investment team in
analysis of investment opportunities daily work of fund management and
portfolio management
2
As an exclusive fund management company of PetroVietnam and a dynamic
member of PVcomBank PVFC Capital receives continued support as well as
inherits significant experience from PVcombank in terms of financial
management and investment and advantages in oil and gas sector
Funds and entrusted assets managed by PVFC Capital are from both foreign and
domestic investors PVFC Capital possesses a proven track record in asset
management and invaluable experience in the oil and energy sector with the total
value of successfully managed assets of more than VND 10000 billion
The company is managing two funds (one local fund and one offshore fund) with
net asset of 105 million US dollars and eleven investment portfolios with total
net value of 480 million US dollars (Source PVFC Capital) We have to deliver
the report monthly quarterly yearly to investors who are very interested in the
updated information of ther net asset value in the fund Beside the macro-
economic and stock market scanning we have to make recommendation to them
in which stock bonds or financial assets should be bought sold or hold
12Problem statement
The biggest problem of PVFC Capital at the moment is difficulties in establishing
a new fund given current situation of the economy Over the last few years after
the booming period Vietnam encounter the stabilization of the macroeconomic
Compare to the previous time investors are more conservative in their invesment
decisions
Based on market conditions and the current activities of PVFC Capital we realize
it is a critical task to raise fund as well as demand for new potential partners in
local and overseas It is our challenges to expand new customer network to
access and exploit more opportunities from potential partners to establish a new
fund
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (8645227 USD out of total 1435655 USD revenue) As
of 31122013 the company has been managing 11 (eleven) portfolios in
domestic trusts and two foreign investment portfolio with total Net asset value of
about 450000000 USD (Source PVFC Capital)
Currently only two active funds are under our management which are Vietnam
Equitization Focused Fund (VEFF) amp Vietnam Investment Platform (VIP LLC)
both raising from Japanese investors Revenue from fund management in FY
2013 is 130000 USD contributed only 88 of total revenue (Source PVFC
Capital) For a fund management company this revenue structure needs to be
adjusted in the direction that increasing revenue from fund management
activities besides extremely well-managed and active portfolio management
activities
In addition since 2011 the company has not mobilized new funds after the
success of the fund establishment of VEFF Hence there is urgent need now to
establish new funds making revenue from this activity access to new capital
3
flow from investors in order to invest in opportunities within and outside the
petroleum industry
13Objective of the research
This research has the following objectives
o Review current situation of fund management companies and open-ended
funds in Vietnam market
o Identify the main causative factors of PVFC Capital lsquos unbalanced
revenue structure and difficulties in fund raising
o Evaluate the advantages and out-perform characteristics of PVGF in
compare to other form of fund
o Identify solution for PVFC Capital lsquos top management to raising capital
for this new type of fund
14Conceptual framework of the study
Figure 11 shows the approach to the research Firstly overview of PVFC Capital
and through impact model the main issues was defined Before analyzing the
prospects of PVGF the case study of ProFunds UltraSector Oil amp Gas Svc was
introduced as an example of the best practice of an open-ended fund investing in
oil amp gas index
Figure 11 Conceptual Framework of the Study
PROBLEM DEFINITION
BEST PRACTICE OF PROFUNDS
SITUATIONAL ANALYSIS
IMPACT MODEL
DEVELOPING PVGF
ALTERNATIVE SOLUTIONS amp EVALUATION
RECOMMENDATIONS amp CONCLUSION
4
15Scope of the research and data collection
To get the thorough understanding of the opportunities as well as challenges
investing in PVGF the information was retrieved from top management level
(Head of Department) to each associate in different unit in the organization
The primary information was collected though the questionnaires though internal
meeting and internal seminar with all the staff in the company and though the in-
depth interview with head of three most important department in PVFC Capital
which are Business Development Department Investment Department and
Internal Control Department
The secondary data were collected from
o Company profile
o Annual reports
o MonthlyAnnual Investment Report to investors
o Offering Letter to potential investor
o Updated data of PVN-Index from PSI
o PVFC Capitalrsquos Brochure
o Internal seminar Presentation on PVGF
o Other PVGF-related documents
o Public media (newspaper website magazineshellip)
16Organization of the research study
The research includes 7 chapters and its structure is as follows
Chapter 1 Introduction
This chapter provides a brief introduction the research rationales the main issue
research approach and the research structure
Chapter 2 Best Practice
Case of best practice on investing with open-ended fund in oil amp gas index was
used as examples to illustrate the theory and justification of the researcher
Chapter 3 Situational analysis
Chapter 3 provides a status of fund management companies and open-ended fund
in Vietnam market The chapter also discusses the main causative agents and the
result in the need to mobilize and establish a new fund of PVFC Capital
Chapter 4 Developing PVGF
Chapter 4 introduces the PVGF its investment objective strategy and its
advantages compared to other type of funds
5
Chapter 5 Fund development alternative
Chapter 5 provides solution for introduces the new fund of PVGF into the
Vietnam market such as small-scale starting with utilization of the capital from
shareholder as well as enhancing networking activities
The chapter provides alternative solution for introduces exchange-traded fund as
another effective investment tool for PVFC Capital It also compares and
contrasts between the two solutions and evaluates which solution is the most
appropriate one
Chapter 6 Recommendation and conclusion
Chapter 6 wraps up the above chapters conducts two action plans to raising
capital for PVFG as well as recommendations to PVFC Capitallsquos top
management board and strategic shareholders
6
CHAPTER 2
BEST PRACTICE A CASE STUDY OF PROFUNDS ULTRASECTOR
OIL amp GAS SVC
21Introduction
Oil amp Gas UltraSector ProFund is an open-end fund incorporated in the USA
The Fund is advised by ProFund Advisors since October 2013
The Fund invests in securities and derivatives that ProFund Advisors believes in
combination should have similar daily return characteristics as one and one-half
times (15x) the daily return of the Index
22Index Benchmark Dow Jones US Oil amp Gas Index
The Index measures the performance of the oil and gas sector of the US equity
market Component companies include among others exploration and
production integrated oil and gas oil equipment and services pipelines
renewable energy equipment companies and alternative fuel producers As of
September 30 2013 the Index included companies with capitalizations between
$9090 million and $3787 billion The average capitalization of the companies
comprising the Index was approximately $212 billion (Source Profund) The
Index is published under the Bloomberg ticker symbol ldquoDJUSENrdquo
Table 21 Average Annual Total Returns as of December 31 2012
Total Index Companies 84 PriceEarnings Ratio 1634 PriceBook Ratio 225 Dividend Yield 205 Average Index Market Capitalization 2486 billion
(Source httpwwwprofundscom)
Table 22 Index Sector Weightings
Index Sector Weightings Weight Oil amp Gas Producers 7196 Oil Equipment Services amp Distribution 2780 Alternative Energy 024
(Source httpwwwprofundscom)
7
Table 23 Top 10 Index Companies
Top 10 Index Companies Weight Exxon Mobil Corp 2070 Chevron Corp 1190 Schlumberger Ltd 735 ConocoPhillips Co 504 Occidental Petroleum Corp 386 EOG Resources Inc 306 Halliburton Co 287 Anadarko Petroleum Corp 265 Phillips 66 Co 218 The Williams Cos Inc 206
(Source httpwwwprofundscom)
23Investment strategy of Oil amp Gas UltraSector ProFund
ProFund Advisors uses a mathematical approach to investing Using this
approach ProFund Advisors determines the type quantity and mix of investment
positions that the Fund should hold to approximate on a daily basis the
performance of one and one-half times (15x) the Index
The Fund may invest in or gain exposure to only a representative sample of the
securities in the Index or to securities or financial instruments not contained in
the Index with the intent of obtaining exposure with aggregate characteristics
similar to those of a multiple of the Index
The Fund seeks to remain fully invested at all times in securities andor financial
instruments that in combination provide leveraged exposure to the Index
without regard to market conditions trends or direction
At the close of the US securities markets on each trading day the Fund will seek
to position its portfolio so that its exposure to the Index is consistent with the
Fundrsquos investment objective The Indexrsquos movements during the day will affect
whether the Fundrsquos portfolio needs to be re-positioned For example if the Index
has risen on a given day net assets of the Fund should rise As a result the
Fundrsquos exposure will need to be increased Conversely if the Index has fallen on
a given day net assets of the Fund should fall As a result the Fundrsquos exposure
will need to be decreased
Because of daily rebalancing and the compounding of each dayrsquos return over
time the return of the Fund for periods longer than a single day will be the result
of each dayrsquos returns compounded over the period which will very likely differ
from one and one-half times (15x) the return of the Index over the same period
(Source Profund) The Fund will lose money if the level of the Index is flat over
time and it is possible that the Fund will lose money over time even if the level
8
of the Index rises as a result of daily rebalancing the Indexrsquos volatility and the
effects of compounding
The Fund will concentrate its investments in a particular industry or group of
industries to approximately the same extent as the Index is so concentrated
As of the close of business on September 30 2013 the Index was concentrated in
the oil and gas industry group which comprised approximately 100 of the
market capitalization of the Index
24Performance amp return of Oil amp Gas UltraSector ProFund
Portfolio Turnover
The Fund pays transaction costs such as commissions when it buys and sells
securities (or ldquoturns overrdquo its portfolio) A higher portfolio turnover may indicate
higher transaction costs and may result in higher taxes when the Fundrsquos shares
are held in a taxable account These costs affect the Fundrsquos performance During
the most recent fiscal year the Fundrsquos annual portfolio turnover rate was 4 of
the average value of its entire portfolio This portfolio turnover rate is calculated
without regard to cash instrument or derivatives transactions If such transactions
were included the Fundrsquos portfolio turnover rate would be significantly higher
Investment Results
The bar chart below shows how the Fundrsquos investment results for Investor Class
shares have varied from year to year and the table shows how the Fundrsquos average
annual total returns for various periods compare with two broad measures of
market performance
Figure 21 Average Annual Total Returns as of December 31 2012
Source ProFunds
Best Quarter (ended 12312010) 3220
Worst Quarter (ended 12312008) -3833
The year-to-date return as of the most recent quarter which ended September 30
2013 was 2387 (Source Profund)
33
46 46
27
46
-56
19 26
0 4
-80
-60
-40
-20
0
20
40
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Annual Returns of Investor Class Shares as of December 31 each year
9
Table 24 Average Annual Total Returns as of December 31 2012
One Year Five Years Ten Years Inception
Date
Investor Class Shares 1 -753 1361 061900
Before Taxes
After Texas on
Distributions
361 -753 1342
After Texas on
Distributions and
Sales of Shares
235 -624 1221
Service Class Shares 260 -845 1221 061900
SampP 500 1600 166 710
Down Jones US Oil
amp Gas Index
471 -035 1377
Source ProFunds
Fund Return
The Indexrsquos annualized historical volatility rate for the five-year period ended
September 30 2013 was 3299 The Indexrsquos highest September to September
volatility rate during the five-year period was 5803 (September 30 2009)
The Indexrsquos annualized performance for the five-year period ended September
30 2013 was 1450 (Source Profund)
The table below represents performance and returns of the fund as of 13102014
The investment return and principal value of an investment will fluctuate so that
an investors shares when redeemed may be worth more or less than the original
cost Returns include the reinvestment of dividends and capital gains
Table 25 Annual Total Returns Summary
YTD (as of 10132014) -1264
Average Annual One Year 1518
Average Annual Three Year 2305
Average Annual Five Year 1450
Average Annual Ten Year 1083
Average Annual Since Inception 803
Cumulative Since Inception 20143
Gross Expense Ratio 183
Net Expense Ratio 178
(Source httpwwwprofundscom)
10
25 Summary of this chapter
The success of Oil amp Gas UltraSector Profund has brought huge amount of profit
to Profund Company The investment in the energy index helps Profund having
an operation mechanism as an open-end fund with more diversified product as
well as better risk diversification
In Vietnams stock market there are three exchange-traded funds operating and
simulate Vietnamlsquos stock market index Except Ishare Frontier Market has the
low proportion of asset invested in Vietnam the other two funds are familiar to
investors The Market Vectors Vietnam ETF and DB X-Tracker FTSE Vietnam
have continuously dominated the market over the years As of mid-September
2014 the total assets of The Market Vectors Vietnam ETF reached nearly 630
million USD an increase of 270 times in the last 5 years Similarly X-Tracker
DB FTSE Vietnam has managed 400 million USD assets up 82-times since
2008 (Source Cafef)
Since 2011 Intelligent Financial Research amp Consulting (IFRC) and the
Petrovietnam Securities Incorporation (PSI) ndash a subsidiary of PVN have
collaborated building a PVN-Index which composing of all listed companies in
Vietnamese oil amp gas industry PVN-Index is an index consisting of two groups
of representatives and investment indicators starting year 2008 Representative
groups have again been divided into market index (PVNAllshare PVNAllshare
Continuous PVNAllshare HOSE PVNAllshare HNX) and the sector index (oil
and gas basic materials financial industrial and consumers service) Investment
index which also known as PVN10 including 10 stocks with largest market
capitalization and trading value on Ho Chi Minh Stock Exchange (HOSE) and
Hanoi Stock Exchange (HNX) (Sources wwwpvnindexvn)
PVN-Index appeared on the market since May 82012 but so far there are none
of fund management companies in Vietnam have applied this index The best
practice case of Oil amp Gas UltraSector ProFund indicates that there are many
opportunities and long-term benefits (in term of return and performance) for a
fund management company to establish a open-ended fund which imitates an oil
amp gas sector index (in this case PVN-Index) This type of new fund will
overcome the problem of low liquidity which is inherent disadvantage of open-
ended funds at the same time solve the problematic ldquohigh discount raterdquo of
closed-end funds With this new type of fund which imitates energy sector index
the investor will invest in a basket of index easy to follow and suitable for small
investors non-professional investors or foreign institutional investors (pension
funds insurance funds) Also investing in a basket of securities also limit the
market abuse and manipulation
PVFC Capital could apply the practical case of ProFund to create transparent
investment product flexible trading mechanisms risk diversification and
professional management The application of this fund type also help to attract
new investors new capital flows making it easier to attract more capital sources
from the economy through the primary market In addition if PVFC Capital
could establish a similar successful index fund it also leads to positive behavioral
changes in term of investment culture Rather than investing in individual stocks
separately requires more time to analyze the market and transaction time This is
becoming more difficult as the number of shares listed have increased even up to
thousands of stocks
11
CHAPTER 3
SITUATIONAL ANALYSIS
31 Status of fund management companies and Open-ended funds in
Vietnam market
Open-ended Fund is a new type of fund in Vietnam But in the world over 90
of the fund established in the form of open-ended funds The legal basis of the
fund is 1832011TT-BTC Circular - Ministry of Finance which provides the
framework for establishment and management of Open-ended Fund effectively
from 132012 Since then some new fund was established in Vietnam under the
form of Open-ended funds
In the beginning of 2013 only 03 open-end funds were established By the end of
the year there were 08 open-end fund was established (03 of them are former
Closed-end fund and just converted to Open-end funds) Currently there are only
546 fund management companies in the market successfully established Open-
ended fund and 02 companies are in the process of raising capital (See Appendix
1)
General characteristics of the Open-end funds were established as follows
Small scale the Open-ended funds have been established in Vietnam are in small
scale from 50-70 billion VND (minimum size prescribed by the State Security
Commission (SSC) is 50 billion)
The investment objectives to invest primarily in bonds and securities that
generate fixed -income and have low-risk This is consistent with the prudent
investors who aim to preserve capital and investment return just higher than
saving rate Only 2 Open-ended fund invest in listed stocks
32 Oil amp gas sector in Vietnam
PetroVietnam Group (PVN) is the biggest group of Vietnam and it contributes
20 of the countryrsquos annual GDP PVNrsquos annual revenue reached VND 773
trillion (or US$ 37 billion) in 2013
PVN plays a very important part in contributing to Vietnamrsquos state budget In
2013 it contributed VND 195 trillion to the total state budget an increase of
45 compared with 2012 For the first 9 months of 2014 PVN contributed
Oil and Gas sector in general and its exploration and services sector in particular
have robustly developed in the past years and are expected to continue its strong
growth to meet the demand of the socio-economic development of Vietnam
According the master plan of oil and gas sector development for the period of
2006-2025 capital demand to meet with the sector development will be about
US$ 1275 - 1335 billion accounting for 20-22 of the total investment demand
of the whole economy (Source PVN)
PVN has 32 companies (as its subsidiaries) listing on Ho Chi Minh Stock
Exchange and Hanoi Stock Exchange of Vietnam PetroVietnam Securities
Incorporation (PSI) started developing PVN-Index reflecting the performance of
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
iii
ABSTRACT
Open-ended fund is a new form of fund in Vietnam In the world more than 90 of the
funds are established in this form of open-ended funds The legal basis of open-ended
funds in Vietnam is Circular 1832011TT-BTC from Ministry of Finance which provides
regulation on establishment and management of open-ended funds effect from March 1st
2012 Since then many funds set up in Vietnam are in the form of open-ended funds
In early 2013 only 03 open-ended funds were established However by the end of the
year there were 08 open-ended funds have been established (in which 03 closed funds
converted to open-end funds) Currently there are 8 (eight) out of 46 (forty-six) fund
management companies established open-end funds and at least two companies are in the
process of raising capital
Petrovienam Finance Fund Incorporation (PVFC Capital) is establishing an open-ended
fund to build the image of a fund management company that can manage various types
and diversified funds
The Petrovietnam Growth Open-ended fund (PVGF) will invest stocks in oil amp gas sector
in Vietnam (the stocks in the basket of PVN-Index) in order to make a difference in the
market take advantage of industry and help promote the PVN-Index of Petrovietnam Oil
amp Gas Group (PVN) which developed by Petrovienam Securities Incorporation (PSI)
iv
Table of Contents
Chap I Introduction 1
11Rationale 1
12Problem statement 2
13Objective of the research 3
14Conceptual framework of the research 3
15 Scope of the research and data collection 4
16Organization of the research study 4
Chap II Best practice A case study of Profunds Ultrasector Oil amp Gas Svc 6
21 Introduction 6
22 Index Benchmark Dow Jones US Oil amp Gas Index 6
23 Investment strategy of Oil amp Gas UltraSector ProFund 7
24 Performance amp return of Oil amp Gas UltraSector ProFund 8
25 Summary of the chapter 10
Chap III Situational Analysis 11
31 Status of fund management companies and Open-ended funds in Vietnam market 11
32 Oil amp gas sector in Vietnam 11
33 Simulation and performance of PVN Index 13
34 PVN Index performance compared to other indexes 14
35 Impact model 15
36 Financial Market Condition 16
37 Confidence of investors 17
38 Legal Framework - Circular 1832011Circular 19
39 Revenue Structure 19
310 Support from shareholders 20
Chap IV Developing the PVGF 21
41 Introduction new form of fund (PVGF) 21
42 Investment objective amp strategy 22
43 Characteristics of listed companies in PVN-10 Index 23
v
Chap V Fund Development Alternative 25
51 Small Scale Start Up 25
52 Support from shareholders 25
53 Advantages of Open-ended Fund 26
54 Expected performance 27
55 PVN-10 exchange-traded fund 28
56 Evaluation of Alternative 28
57 Comparison 31
Chap VI Conclusion amp Recommendation 33
61 Conclusion 33
62 Action Plan 1 Open-ended Fund 34
63 Action Plan 2 Exchange Traded Fund 35
64 Recommendations 37
Appendix 1 39
Appendix 2 40
Appendix 3 41
Appendix 4 42
Appendix 5 43
Appendix 6 44
Appendix 7 45
Appendix 8 46
Reference 47
vi
LIST OF TABLE
Table 11 Asset under management 1
Table 21 Average Annual Total Returns as of December 31 2012 6
Table 22 Index Sector Weightings 6
Table 23 Top 10 Index Companies 7
Table 24 Average Annual Total Returns as of December 31 2012 9
Table 25 Annual Total Returns Summary 9
Table 31 Revenue Structure 19
Table 32 Summarized factors affecting business 20
Table 41 PetroVietnam Growth Open-ended Fund 21
Table 42 PVN-10 Index 23
Table 43 PVN-10 Dividend 24
Table 51 Advantages of Open-ended Fund 26
Table 52 Comparing open-ended fund (PVGF) with PVN-Index ETF 29
Table 53 Disadvantages of ETF 30
Table 54 Conditions for ETF to develop and operate effectively 30
Table 55 Evaluation Summary 32
Table 61 Fund structures of Open-ended fund (Plan 1) 34
Table 62 Fund Raising Plan of Open-ended fund (Plan 1) 35
Table 63 Fund structures of Exchange Traded Fund (Plan 2) 36
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2) 37
Table 65 Process of investment management control and coordinate 38
vii
LIST OF FIGURE
Figure 11 Conceptual Framework of the Study 3
Figure 21 Average Annual Total Returns as of December 31 2012 8
Figure 31 The importance of oil and gas sector 12
Figure 32 PVN-Index component by sector 12
Figure 34 PVN Index vs VNIndex amp HNIndex 14
Figure 35 PVN Index vs VN30 amp HNX10 14
Figure 36 Conception of PVGF 15
Figure 37 Market players 16
Figure 38 VNIndex movements in 2013 16
Figure 39 GDP and GDP Growth 17
Figure 310 Trade Balance 17
Figure 311 FDI inflows 18
Figure 312 Interest rates 18
Figure 41 Asset allocation 23
Figure 42 Subsidiaries of PVN 24
Figure 51 Operation of Open-ended Fund 27
Figure 52 Regulation of establishment and management of ETFs 28
viii
LIST OF ABBREVIATIONS
ETF Exchange ndash Traded Fund
FC Fund Certificate
HNX Hanoi Stock Exchange
NAV Net Asset Value
VN30 30 biggest companies in the Vietnam Stock market
VEFF Vietnam Equitization Focused Fund
VIP LLC Vietnam Investment Platform
PVN Petrovietnam Oil amp Gas Group
PVcomBank Vietnam Public Bank
PVFC Capital Petrovietnam Finance Fund Incorporation
PVGF PetroVietnam Growth Open-ended Fund
PVN-Index 32 listed companies of PetroVietnam on two stock
exchanges of Vietnam
PVN-10 Index 10 biggest share of PVN in the Vietnam Stock market
1
CHAPTER 1
INTRODUCTION
11Rationale
PVFC Capital is the exclusive fund management company within PetroVietnam
Oil amp Gas Group (PVN) Established at the very early stage of the fund
management industry of Vietnam PVFC Capital serves as the fund raising and
fund management arm of the Group With expertise in oil and energy sector our
funds and portfolios have unique advantages in addition to wide range of selected
equities
Background of PVFC Capital
The exclusive fund management company within PetroVietnam Group
Establishment 14 December 2007
Chartered capital VND 100 billion (US$5million)
Shareholders
- PVcomBank (merger between Petrovietnam Finance Corporation
amp Western Bank)
- SOVICO (leading Investment Group)
Number of Employees 33
Assets under management US$490 million (~10 trillion VND)
Table 11 Asset under management
Local fund Offshore fund Portfolio management
Size of assets US$ 35
million
US$ 7 million US$ 480 million
Establishment Nov 2011 Aug 2008 2008
Accumulated
NAV growth
+113 +27 13year for FY2012
Source PVFC Capital
In a typical fund management company there are normally two main
departments Business Development Department and Investment Department I
have chance to apply the knowledge acquired and enhance my experience in both
fields here Particularly my main responsibilities as an associate including
operations for investment promotion market researching and customer
relationship development I also participate assist and support investment team in
analysis of investment opportunities daily work of fund management and
portfolio management
2
As an exclusive fund management company of PetroVietnam and a dynamic
member of PVcomBank PVFC Capital receives continued support as well as
inherits significant experience from PVcombank in terms of financial
management and investment and advantages in oil and gas sector
Funds and entrusted assets managed by PVFC Capital are from both foreign and
domestic investors PVFC Capital possesses a proven track record in asset
management and invaluable experience in the oil and energy sector with the total
value of successfully managed assets of more than VND 10000 billion
The company is managing two funds (one local fund and one offshore fund) with
net asset of 105 million US dollars and eleven investment portfolios with total
net value of 480 million US dollars (Source PVFC Capital) We have to deliver
the report monthly quarterly yearly to investors who are very interested in the
updated information of ther net asset value in the fund Beside the macro-
economic and stock market scanning we have to make recommendation to them
in which stock bonds or financial assets should be bought sold or hold
12Problem statement
The biggest problem of PVFC Capital at the moment is difficulties in establishing
a new fund given current situation of the economy Over the last few years after
the booming period Vietnam encounter the stabilization of the macroeconomic
Compare to the previous time investors are more conservative in their invesment
decisions
Based on market conditions and the current activities of PVFC Capital we realize
it is a critical task to raise fund as well as demand for new potential partners in
local and overseas It is our challenges to expand new customer network to
access and exploit more opportunities from potential partners to establish a new
fund
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (8645227 USD out of total 1435655 USD revenue) As
of 31122013 the company has been managing 11 (eleven) portfolios in
domestic trusts and two foreign investment portfolio with total Net asset value of
about 450000000 USD (Source PVFC Capital)
Currently only two active funds are under our management which are Vietnam
Equitization Focused Fund (VEFF) amp Vietnam Investment Platform (VIP LLC)
both raising from Japanese investors Revenue from fund management in FY
2013 is 130000 USD contributed only 88 of total revenue (Source PVFC
Capital) For a fund management company this revenue structure needs to be
adjusted in the direction that increasing revenue from fund management
activities besides extremely well-managed and active portfolio management
activities
In addition since 2011 the company has not mobilized new funds after the
success of the fund establishment of VEFF Hence there is urgent need now to
establish new funds making revenue from this activity access to new capital
3
flow from investors in order to invest in opportunities within and outside the
petroleum industry
13Objective of the research
This research has the following objectives
o Review current situation of fund management companies and open-ended
funds in Vietnam market
o Identify the main causative factors of PVFC Capital lsquos unbalanced
revenue structure and difficulties in fund raising
o Evaluate the advantages and out-perform characteristics of PVGF in
compare to other form of fund
o Identify solution for PVFC Capital lsquos top management to raising capital
for this new type of fund
14Conceptual framework of the study
Figure 11 shows the approach to the research Firstly overview of PVFC Capital
and through impact model the main issues was defined Before analyzing the
prospects of PVGF the case study of ProFunds UltraSector Oil amp Gas Svc was
introduced as an example of the best practice of an open-ended fund investing in
oil amp gas index
Figure 11 Conceptual Framework of the Study
PROBLEM DEFINITION
BEST PRACTICE OF PROFUNDS
SITUATIONAL ANALYSIS
IMPACT MODEL
DEVELOPING PVGF
ALTERNATIVE SOLUTIONS amp EVALUATION
RECOMMENDATIONS amp CONCLUSION
4
15Scope of the research and data collection
To get the thorough understanding of the opportunities as well as challenges
investing in PVGF the information was retrieved from top management level
(Head of Department) to each associate in different unit in the organization
The primary information was collected though the questionnaires though internal
meeting and internal seminar with all the staff in the company and though the in-
depth interview with head of three most important department in PVFC Capital
which are Business Development Department Investment Department and
Internal Control Department
The secondary data were collected from
o Company profile
o Annual reports
o MonthlyAnnual Investment Report to investors
o Offering Letter to potential investor
o Updated data of PVN-Index from PSI
o PVFC Capitalrsquos Brochure
o Internal seminar Presentation on PVGF
o Other PVGF-related documents
o Public media (newspaper website magazineshellip)
16Organization of the research study
The research includes 7 chapters and its structure is as follows
Chapter 1 Introduction
This chapter provides a brief introduction the research rationales the main issue
research approach and the research structure
Chapter 2 Best Practice
Case of best practice on investing with open-ended fund in oil amp gas index was
used as examples to illustrate the theory and justification of the researcher
Chapter 3 Situational analysis
Chapter 3 provides a status of fund management companies and open-ended fund
in Vietnam market The chapter also discusses the main causative agents and the
result in the need to mobilize and establish a new fund of PVFC Capital
Chapter 4 Developing PVGF
Chapter 4 introduces the PVGF its investment objective strategy and its
advantages compared to other type of funds
5
Chapter 5 Fund development alternative
Chapter 5 provides solution for introduces the new fund of PVGF into the
Vietnam market such as small-scale starting with utilization of the capital from
shareholder as well as enhancing networking activities
The chapter provides alternative solution for introduces exchange-traded fund as
another effective investment tool for PVFC Capital It also compares and
contrasts between the two solutions and evaluates which solution is the most
appropriate one
Chapter 6 Recommendation and conclusion
Chapter 6 wraps up the above chapters conducts two action plans to raising
capital for PVFG as well as recommendations to PVFC Capitallsquos top
management board and strategic shareholders
6
CHAPTER 2
BEST PRACTICE A CASE STUDY OF PROFUNDS ULTRASECTOR
OIL amp GAS SVC
21Introduction
Oil amp Gas UltraSector ProFund is an open-end fund incorporated in the USA
The Fund is advised by ProFund Advisors since October 2013
The Fund invests in securities and derivatives that ProFund Advisors believes in
combination should have similar daily return characteristics as one and one-half
times (15x) the daily return of the Index
22Index Benchmark Dow Jones US Oil amp Gas Index
The Index measures the performance of the oil and gas sector of the US equity
market Component companies include among others exploration and
production integrated oil and gas oil equipment and services pipelines
renewable energy equipment companies and alternative fuel producers As of
September 30 2013 the Index included companies with capitalizations between
$9090 million and $3787 billion The average capitalization of the companies
comprising the Index was approximately $212 billion (Source Profund) The
Index is published under the Bloomberg ticker symbol ldquoDJUSENrdquo
Table 21 Average Annual Total Returns as of December 31 2012
Total Index Companies 84 PriceEarnings Ratio 1634 PriceBook Ratio 225 Dividend Yield 205 Average Index Market Capitalization 2486 billion
(Source httpwwwprofundscom)
Table 22 Index Sector Weightings
Index Sector Weightings Weight Oil amp Gas Producers 7196 Oil Equipment Services amp Distribution 2780 Alternative Energy 024
(Source httpwwwprofundscom)
7
Table 23 Top 10 Index Companies
Top 10 Index Companies Weight Exxon Mobil Corp 2070 Chevron Corp 1190 Schlumberger Ltd 735 ConocoPhillips Co 504 Occidental Petroleum Corp 386 EOG Resources Inc 306 Halliburton Co 287 Anadarko Petroleum Corp 265 Phillips 66 Co 218 The Williams Cos Inc 206
(Source httpwwwprofundscom)
23Investment strategy of Oil amp Gas UltraSector ProFund
ProFund Advisors uses a mathematical approach to investing Using this
approach ProFund Advisors determines the type quantity and mix of investment
positions that the Fund should hold to approximate on a daily basis the
performance of one and one-half times (15x) the Index
The Fund may invest in or gain exposure to only a representative sample of the
securities in the Index or to securities or financial instruments not contained in
the Index with the intent of obtaining exposure with aggregate characteristics
similar to those of a multiple of the Index
The Fund seeks to remain fully invested at all times in securities andor financial
instruments that in combination provide leveraged exposure to the Index
without regard to market conditions trends or direction
At the close of the US securities markets on each trading day the Fund will seek
to position its portfolio so that its exposure to the Index is consistent with the
Fundrsquos investment objective The Indexrsquos movements during the day will affect
whether the Fundrsquos portfolio needs to be re-positioned For example if the Index
has risen on a given day net assets of the Fund should rise As a result the
Fundrsquos exposure will need to be increased Conversely if the Index has fallen on
a given day net assets of the Fund should fall As a result the Fundrsquos exposure
will need to be decreased
Because of daily rebalancing and the compounding of each dayrsquos return over
time the return of the Fund for periods longer than a single day will be the result
of each dayrsquos returns compounded over the period which will very likely differ
from one and one-half times (15x) the return of the Index over the same period
(Source Profund) The Fund will lose money if the level of the Index is flat over
time and it is possible that the Fund will lose money over time even if the level
8
of the Index rises as a result of daily rebalancing the Indexrsquos volatility and the
effects of compounding
The Fund will concentrate its investments in a particular industry or group of
industries to approximately the same extent as the Index is so concentrated
As of the close of business on September 30 2013 the Index was concentrated in
the oil and gas industry group which comprised approximately 100 of the
market capitalization of the Index
24Performance amp return of Oil amp Gas UltraSector ProFund
Portfolio Turnover
The Fund pays transaction costs such as commissions when it buys and sells
securities (or ldquoturns overrdquo its portfolio) A higher portfolio turnover may indicate
higher transaction costs and may result in higher taxes when the Fundrsquos shares
are held in a taxable account These costs affect the Fundrsquos performance During
the most recent fiscal year the Fundrsquos annual portfolio turnover rate was 4 of
the average value of its entire portfolio This portfolio turnover rate is calculated
without regard to cash instrument or derivatives transactions If such transactions
were included the Fundrsquos portfolio turnover rate would be significantly higher
Investment Results
The bar chart below shows how the Fundrsquos investment results for Investor Class
shares have varied from year to year and the table shows how the Fundrsquos average
annual total returns for various periods compare with two broad measures of
market performance
Figure 21 Average Annual Total Returns as of December 31 2012
Source ProFunds
Best Quarter (ended 12312010) 3220
Worst Quarter (ended 12312008) -3833
The year-to-date return as of the most recent quarter which ended September 30
2013 was 2387 (Source Profund)
33
46 46
27
46
-56
19 26
0 4
-80
-60
-40
-20
0
20
40
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Annual Returns of Investor Class Shares as of December 31 each year
9
Table 24 Average Annual Total Returns as of December 31 2012
One Year Five Years Ten Years Inception
Date
Investor Class Shares 1 -753 1361 061900
Before Taxes
After Texas on
Distributions
361 -753 1342
After Texas on
Distributions and
Sales of Shares
235 -624 1221
Service Class Shares 260 -845 1221 061900
SampP 500 1600 166 710
Down Jones US Oil
amp Gas Index
471 -035 1377
Source ProFunds
Fund Return
The Indexrsquos annualized historical volatility rate for the five-year period ended
September 30 2013 was 3299 The Indexrsquos highest September to September
volatility rate during the five-year period was 5803 (September 30 2009)
The Indexrsquos annualized performance for the five-year period ended September
30 2013 was 1450 (Source Profund)
The table below represents performance and returns of the fund as of 13102014
The investment return and principal value of an investment will fluctuate so that
an investors shares when redeemed may be worth more or less than the original
cost Returns include the reinvestment of dividends and capital gains
Table 25 Annual Total Returns Summary
YTD (as of 10132014) -1264
Average Annual One Year 1518
Average Annual Three Year 2305
Average Annual Five Year 1450
Average Annual Ten Year 1083
Average Annual Since Inception 803
Cumulative Since Inception 20143
Gross Expense Ratio 183
Net Expense Ratio 178
(Source httpwwwprofundscom)
10
25 Summary of this chapter
The success of Oil amp Gas UltraSector Profund has brought huge amount of profit
to Profund Company The investment in the energy index helps Profund having
an operation mechanism as an open-end fund with more diversified product as
well as better risk diversification
In Vietnams stock market there are three exchange-traded funds operating and
simulate Vietnamlsquos stock market index Except Ishare Frontier Market has the
low proportion of asset invested in Vietnam the other two funds are familiar to
investors The Market Vectors Vietnam ETF and DB X-Tracker FTSE Vietnam
have continuously dominated the market over the years As of mid-September
2014 the total assets of The Market Vectors Vietnam ETF reached nearly 630
million USD an increase of 270 times in the last 5 years Similarly X-Tracker
DB FTSE Vietnam has managed 400 million USD assets up 82-times since
2008 (Source Cafef)
Since 2011 Intelligent Financial Research amp Consulting (IFRC) and the
Petrovietnam Securities Incorporation (PSI) ndash a subsidiary of PVN have
collaborated building a PVN-Index which composing of all listed companies in
Vietnamese oil amp gas industry PVN-Index is an index consisting of two groups
of representatives and investment indicators starting year 2008 Representative
groups have again been divided into market index (PVNAllshare PVNAllshare
Continuous PVNAllshare HOSE PVNAllshare HNX) and the sector index (oil
and gas basic materials financial industrial and consumers service) Investment
index which also known as PVN10 including 10 stocks with largest market
capitalization and trading value on Ho Chi Minh Stock Exchange (HOSE) and
Hanoi Stock Exchange (HNX) (Sources wwwpvnindexvn)
PVN-Index appeared on the market since May 82012 but so far there are none
of fund management companies in Vietnam have applied this index The best
practice case of Oil amp Gas UltraSector ProFund indicates that there are many
opportunities and long-term benefits (in term of return and performance) for a
fund management company to establish a open-ended fund which imitates an oil
amp gas sector index (in this case PVN-Index) This type of new fund will
overcome the problem of low liquidity which is inherent disadvantage of open-
ended funds at the same time solve the problematic ldquohigh discount raterdquo of
closed-end funds With this new type of fund which imitates energy sector index
the investor will invest in a basket of index easy to follow and suitable for small
investors non-professional investors or foreign institutional investors (pension
funds insurance funds) Also investing in a basket of securities also limit the
market abuse and manipulation
PVFC Capital could apply the practical case of ProFund to create transparent
investment product flexible trading mechanisms risk diversification and
professional management The application of this fund type also help to attract
new investors new capital flows making it easier to attract more capital sources
from the economy through the primary market In addition if PVFC Capital
could establish a similar successful index fund it also leads to positive behavioral
changes in term of investment culture Rather than investing in individual stocks
separately requires more time to analyze the market and transaction time This is
becoming more difficult as the number of shares listed have increased even up to
thousands of stocks
11
CHAPTER 3
SITUATIONAL ANALYSIS
31 Status of fund management companies and Open-ended funds in
Vietnam market
Open-ended Fund is a new type of fund in Vietnam But in the world over 90
of the fund established in the form of open-ended funds The legal basis of the
fund is 1832011TT-BTC Circular - Ministry of Finance which provides the
framework for establishment and management of Open-ended Fund effectively
from 132012 Since then some new fund was established in Vietnam under the
form of Open-ended funds
In the beginning of 2013 only 03 open-end funds were established By the end of
the year there were 08 open-end fund was established (03 of them are former
Closed-end fund and just converted to Open-end funds) Currently there are only
546 fund management companies in the market successfully established Open-
ended fund and 02 companies are in the process of raising capital (See Appendix
1)
General characteristics of the Open-end funds were established as follows
Small scale the Open-ended funds have been established in Vietnam are in small
scale from 50-70 billion VND (minimum size prescribed by the State Security
Commission (SSC) is 50 billion)
The investment objectives to invest primarily in bonds and securities that
generate fixed -income and have low-risk This is consistent with the prudent
investors who aim to preserve capital and investment return just higher than
saving rate Only 2 Open-ended fund invest in listed stocks
32 Oil amp gas sector in Vietnam
PetroVietnam Group (PVN) is the biggest group of Vietnam and it contributes
20 of the countryrsquos annual GDP PVNrsquos annual revenue reached VND 773
trillion (or US$ 37 billion) in 2013
PVN plays a very important part in contributing to Vietnamrsquos state budget In
2013 it contributed VND 195 trillion to the total state budget an increase of
45 compared with 2012 For the first 9 months of 2014 PVN contributed
Oil and Gas sector in general and its exploration and services sector in particular
have robustly developed in the past years and are expected to continue its strong
growth to meet the demand of the socio-economic development of Vietnam
According the master plan of oil and gas sector development for the period of
2006-2025 capital demand to meet with the sector development will be about
US$ 1275 - 1335 billion accounting for 20-22 of the total investment demand
of the whole economy (Source PVN)
PVN has 32 companies (as its subsidiaries) listing on Ho Chi Minh Stock
Exchange and Hanoi Stock Exchange of Vietnam PetroVietnam Securities
Incorporation (PSI) started developing PVN-Index reflecting the performance of
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
iv
Table of Contents
Chap I Introduction 1
11Rationale 1
12Problem statement 2
13Objective of the research 3
14Conceptual framework of the research 3
15 Scope of the research and data collection 4
16Organization of the research study 4
Chap II Best practice A case study of Profunds Ultrasector Oil amp Gas Svc 6
21 Introduction 6
22 Index Benchmark Dow Jones US Oil amp Gas Index 6
23 Investment strategy of Oil amp Gas UltraSector ProFund 7
24 Performance amp return of Oil amp Gas UltraSector ProFund 8
25 Summary of the chapter 10
Chap III Situational Analysis 11
31 Status of fund management companies and Open-ended funds in Vietnam market 11
32 Oil amp gas sector in Vietnam 11
33 Simulation and performance of PVN Index 13
34 PVN Index performance compared to other indexes 14
35 Impact model 15
36 Financial Market Condition 16
37 Confidence of investors 17
38 Legal Framework - Circular 1832011Circular 19
39 Revenue Structure 19
310 Support from shareholders 20
Chap IV Developing the PVGF 21
41 Introduction new form of fund (PVGF) 21
42 Investment objective amp strategy 22
43 Characteristics of listed companies in PVN-10 Index 23
v
Chap V Fund Development Alternative 25
51 Small Scale Start Up 25
52 Support from shareholders 25
53 Advantages of Open-ended Fund 26
54 Expected performance 27
55 PVN-10 exchange-traded fund 28
56 Evaluation of Alternative 28
57 Comparison 31
Chap VI Conclusion amp Recommendation 33
61 Conclusion 33
62 Action Plan 1 Open-ended Fund 34
63 Action Plan 2 Exchange Traded Fund 35
64 Recommendations 37
Appendix 1 39
Appendix 2 40
Appendix 3 41
Appendix 4 42
Appendix 5 43
Appendix 6 44
Appendix 7 45
Appendix 8 46
Reference 47
vi
LIST OF TABLE
Table 11 Asset under management 1
Table 21 Average Annual Total Returns as of December 31 2012 6
Table 22 Index Sector Weightings 6
Table 23 Top 10 Index Companies 7
Table 24 Average Annual Total Returns as of December 31 2012 9
Table 25 Annual Total Returns Summary 9
Table 31 Revenue Structure 19
Table 32 Summarized factors affecting business 20
Table 41 PetroVietnam Growth Open-ended Fund 21
Table 42 PVN-10 Index 23
Table 43 PVN-10 Dividend 24
Table 51 Advantages of Open-ended Fund 26
Table 52 Comparing open-ended fund (PVGF) with PVN-Index ETF 29
Table 53 Disadvantages of ETF 30
Table 54 Conditions for ETF to develop and operate effectively 30
Table 55 Evaluation Summary 32
Table 61 Fund structures of Open-ended fund (Plan 1) 34
Table 62 Fund Raising Plan of Open-ended fund (Plan 1) 35
Table 63 Fund structures of Exchange Traded Fund (Plan 2) 36
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2) 37
Table 65 Process of investment management control and coordinate 38
vii
LIST OF FIGURE
Figure 11 Conceptual Framework of the Study 3
Figure 21 Average Annual Total Returns as of December 31 2012 8
Figure 31 The importance of oil and gas sector 12
Figure 32 PVN-Index component by sector 12
Figure 34 PVN Index vs VNIndex amp HNIndex 14
Figure 35 PVN Index vs VN30 amp HNX10 14
Figure 36 Conception of PVGF 15
Figure 37 Market players 16
Figure 38 VNIndex movements in 2013 16
Figure 39 GDP and GDP Growth 17
Figure 310 Trade Balance 17
Figure 311 FDI inflows 18
Figure 312 Interest rates 18
Figure 41 Asset allocation 23
Figure 42 Subsidiaries of PVN 24
Figure 51 Operation of Open-ended Fund 27
Figure 52 Regulation of establishment and management of ETFs 28
viii
LIST OF ABBREVIATIONS
ETF Exchange ndash Traded Fund
FC Fund Certificate
HNX Hanoi Stock Exchange
NAV Net Asset Value
VN30 30 biggest companies in the Vietnam Stock market
VEFF Vietnam Equitization Focused Fund
VIP LLC Vietnam Investment Platform
PVN Petrovietnam Oil amp Gas Group
PVcomBank Vietnam Public Bank
PVFC Capital Petrovietnam Finance Fund Incorporation
PVGF PetroVietnam Growth Open-ended Fund
PVN-Index 32 listed companies of PetroVietnam on two stock
exchanges of Vietnam
PVN-10 Index 10 biggest share of PVN in the Vietnam Stock market
1
CHAPTER 1
INTRODUCTION
11Rationale
PVFC Capital is the exclusive fund management company within PetroVietnam
Oil amp Gas Group (PVN) Established at the very early stage of the fund
management industry of Vietnam PVFC Capital serves as the fund raising and
fund management arm of the Group With expertise in oil and energy sector our
funds and portfolios have unique advantages in addition to wide range of selected
equities
Background of PVFC Capital
The exclusive fund management company within PetroVietnam Group
Establishment 14 December 2007
Chartered capital VND 100 billion (US$5million)
Shareholders
- PVcomBank (merger between Petrovietnam Finance Corporation
amp Western Bank)
- SOVICO (leading Investment Group)
Number of Employees 33
Assets under management US$490 million (~10 trillion VND)
Table 11 Asset under management
Local fund Offshore fund Portfolio management
Size of assets US$ 35
million
US$ 7 million US$ 480 million
Establishment Nov 2011 Aug 2008 2008
Accumulated
NAV growth
+113 +27 13year for FY2012
Source PVFC Capital
In a typical fund management company there are normally two main
departments Business Development Department and Investment Department I
have chance to apply the knowledge acquired and enhance my experience in both
fields here Particularly my main responsibilities as an associate including
operations for investment promotion market researching and customer
relationship development I also participate assist and support investment team in
analysis of investment opportunities daily work of fund management and
portfolio management
2
As an exclusive fund management company of PetroVietnam and a dynamic
member of PVcomBank PVFC Capital receives continued support as well as
inherits significant experience from PVcombank in terms of financial
management and investment and advantages in oil and gas sector
Funds and entrusted assets managed by PVFC Capital are from both foreign and
domestic investors PVFC Capital possesses a proven track record in asset
management and invaluable experience in the oil and energy sector with the total
value of successfully managed assets of more than VND 10000 billion
The company is managing two funds (one local fund and one offshore fund) with
net asset of 105 million US dollars and eleven investment portfolios with total
net value of 480 million US dollars (Source PVFC Capital) We have to deliver
the report monthly quarterly yearly to investors who are very interested in the
updated information of ther net asset value in the fund Beside the macro-
economic and stock market scanning we have to make recommendation to them
in which stock bonds or financial assets should be bought sold or hold
12Problem statement
The biggest problem of PVFC Capital at the moment is difficulties in establishing
a new fund given current situation of the economy Over the last few years after
the booming period Vietnam encounter the stabilization of the macroeconomic
Compare to the previous time investors are more conservative in their invesment
decisions
Based on market conditions and the current activities of PVFC Capital we realize
it is a critical task to raise fund as well as demand for new potential partners in
local and overseas It is our challenges to expand new customer network to
access and exploit more opportunities from potential partners to establish a new
fund
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (8645227 USD out of total 1435655 USD revenue) As
of 31122013 the company has been managing 11 (eleven) portfolios in
domestic trusts and two foreign investment portfolio with total Net asset value of
about 450000000 USD (Source PVFC Capital)
Currently only two active funds are under our management which are Vietnam
Equitization Focused Fund (VEFF) amp Vietnam Investment Platform (VIP LLC)
both raising from Japanese investors Revenue from fund management in FY
2013 is 130000 USD contributed only 88 of total revenue (Source PVFC
Capital) For a fund management company this revenue structure needs to be
adjusted in the direction that increasing revenue from fund management
activities besides extremely well-managed and active portfolio management
activities
In addition since 2011 the company has not mobilized new funds after the
success of the fund establishment of VEFF Hence there is urgent need now to
establish new funds making revenue from this activity access to new capital
3
flow from investors in order to invest in opportunities within and outside the
petroleum industry
13Objective of the research
This research has the following objectives
o Review current situation of fund management companies and open-ended
funds in Vietnam market
o Identify the main causative factors of PVFC Capital lsquos unbalanced
revenue structure and difficulties in fund raising
o Evaluate the advantages and out-perform characteristics of PVGF in
compare to other form of fund
o Identify solution for PVFC Capital lsquos top management to raising capital
for this new type of fund
14Conceptual framework of the study
Figure 11 shows the approach to the research Firstly overview of PVFC Capital
and through impact model the main issues was defined Before analyzing the
prospects of PVGF the case study of ProFunds UltraSector Oil amp Gas Svc was
introduced as an example of the best practice of an open-ended fund investing in
oil amp gas index
Figure 11 Conceptual Framework of the Study
PROBLEM DEFINITION
BEST PRACTICE OF PROFUNDS
SITUATIONAL ANALYSIS
IMPACT MODEL
DEVELOPING PVGF
ALTERNATIVE SOLUTIONS amp EVALUATION
RECOMMENDATIONS amp CONCLUSION
4
15Scope of the research and data collection
To get the thorough understanding of the opportunities as well as challenges
investing in PVGF the information was retrieved from top management level
(Head of Department) to each associate in different unit in the organization
The primary information was collected though the questionnaires though internal
meeting and internal seminar with all the staff in the company and though the in-
depth interview with head of three most important department in PVFC Capital
which are Business Development Department Investment Department and
Internal Control Department
The secondary data were collected from
o Company profile
o Annual reports
o MonthlyAnnual Investment Report to investors
o Offering Letter to potential investor
o Updated data of PVN-Index from PSI
o PVFC Capitalrsquos Brochure
o Internal seminar Presentation on PVGF
o Other PVGF-related documents
o Public media (newspaper website magazineshellip)
16Organization of the research study
The research includes 7 chapters and its structure is as follows
Chapter 1 Introduction
This chapter provides a brief introduction the research rationales the main issue
research approach and the research structure
Chapter 2 Best Practice
Case of best practice on investing with open-ended fund in oil amp gas index was
used as examples to illustrate the theory and justification of the researcher
Chapter 3 Situational analysis
Chapter 3 provides a status of fund management companies and open-ended fund
in Vietnam market The chapter also discusses the main causative agents and the
result in the need to mobilize and establish a new fund of PVFC Capital
Chapter 4 Developing PVGF
Chapter 4 introduces the PVGF its investment objective strategy and its
advantages compared to other type of funds
5
Chapter 5 Fund development alternative
Chapter 5 provides solution for introduces the new fund of PVGF into the
Vietnam market such as small-scale starting with utilization of the capital from
shareholder as well as enhancing networking activities
The chapter provides alternative solution for introduces exchange-traded fund as
another effective investment tool for PVFC Capital It also compares and
contrasts between the two solutions and evaluates which solution is the most
appropriate one
Chapter 6 Recommendation and conclusion
Chapter 6 wraps up the above chapters conducts two action plans to raising
capital for PVFG as well as recommendations to PVFC Capitallsquos top
management board and strategic shareholders
6
CHAPTER 2
BEST PRACTICE A CASE STUDY OF PROFUNDS ULTRASECTOR
OIL amp GAS SVC
21Introduction
Oil amp Gas UltraSector ProFund is an open-end fund incorporated in the USA
The Fund is advised by ProFund Advisors since October 2013
The Fund invests in securities and derivatives that ProFund Advisors believes in
combination should have similar daily return characteristics as one and one-half
times (15x) the daily return of the Index
22Index Benchmark Dow Jones US Oil amp Gas Index
The Index measures the performance of the oil and gas sector of the US equity
market Component companies include among others exploration and
production integrated oil and gas oil equipment and services pipelines
renewable energy equipment companies and alternative fuel producers As of
September 30 2013 the Index included companies with capitalizations between
$9090 million and $3787 billion The average capitalization of the companies
comprising the Index was approximately $212 billion (Source Profund) The
Index is published under the Bloomberg ticker symbol ldquoDJUSENrdquo
Table 21 Average Annual Total Returns as of December 31 2012
Total Index Companies 84 PriceEarnings Ratio 1634 PriceBook Ratio 225 Dividend Yield 205 Average Index Market Capitalization 2486 billion
(Source httpwwwprofundscom)
Table 22 Index Sector Weightings
Index Sector Weightings Weight Oil amp Gas Producers 7196 Oil Equipment Services amp Distribution 2780 Alternative Energy 024
(Source httpwwwprofundscom)
7
Table 23 Top 10 Index Companies
Top 10 Index Companies Weight Exxon Mobil Corp 2070 Chevron Corp 1190 Schlumberger Ltd 735 ConocoPhillips Co 504 Occidental Petroleum Corp 386 EOG Resources Inc 306 Halliburton Co 287 Anadarko Petroleum Corp 265 Phillips 66 Co 218 The Williams Cos Inc 206
(Source httpwwwprofundscom)
23Investment strategy of Oil amp Gas UltraSector ProFund
ProFund Advisors uses a mathematical approach to investing Using this
approach ProFund Advisors determines the type quantity and mix of investment
positions that the Fund should hold to approximate on a daily basis the
performance of one and one-half times (15x) the Index
The Fund may invest in or gain exposure to only a representative sample of the
securities in the Index or to securities or financial instruments not contained in
the Index with the intent of obtaining exposure with aggregate characteristics
similar to those of a multiple of the Index
The Fund seeks to remain fully invested at all times in securities andor financial
instruments that in combination provide leveraged exposure to the Index
without regard to market conditions trends or direction
At the close of the US securities markets on each trading day the Fund will seek
to position its portfolio so that its exposure to the Index is consistent with the
Fundrsquos investment objective The Indexrsquos movements during the day will affect
whether the Fundrsquos portfolio needs to be re-positioned For example if the Index
has risen on a given day net assets of the Fund should rise As a result the
Fundrsquos exposure will need to be increased Conversely if the Index has fallen on
a given day net assets of the Fund should fall As a result the Fundrsquos exposure
will need to be decreased
Because of daily rebalancing and the compounding of each dayrsquos return over
time the return of the Fund for periods longer than a single day will be the result
of each dayrsquos returns compounded over the period which will very likely differ
from one and one-half times (15x) the return of the Index over the same period
(Source Profund) The Fund will lose money if the level of the Index is flat over
time and it is possible that the Fund will lose money over time even if the level
8
of the Index rises as a result of daily rebalancing the Indexrsquos volatility and the
effects of compounding
The Fund will concentrate its investments in a particular industry or group of
industries to approximately the same extent as the Index is so concentrated
As of the close of business on September 30 2013 the Index was concentrated in
the oil and gas industry group which comprised approximately 100 of the
market capitalization of the Index
24Performance amp return of Oil amp Gas UltraSector ProFund
Portfolio Turnover
The Fund pays transaction costs such as commissions when it buys and sells
securities (or ldquoturns overrdquo its portfolio) A higher portfolio turnover may indicate
higher transaction costs and may result in higher taxes when the Fundrsquos shares
are held in a taxable account These costs affect the Fundrsquos performance During
the most recent fiscal year the Fundrsquos annual portfolio turnover rate was 4 of
the average value of its entire portfolio This portfolio turnover rate is calculated
without regard to cash instrument or derivatives transactions If such transactions
were included the Fundrsquos portfolio turnover rate would be significantly higher
Investment Results
The bar chart below shows how the Fundrsquos investment results for Investor Class
shares have varied from year to year and the table shows how the Fundrsquos average
annual total returns for various periods compare with two broad measures of
market performance
Figure 21 Average Annual Total Returns as of December 31 2012
Source ProFunds
Best Quarter (ended 12312010) 3220
Worst Quarter (ended 12312008) -3833
The year-to-date return as of the most recent quarter which ended September 30
2013 was 2387 (Source Profund)
33
46 46
27
46
-56
19 26
0 4
-80
-60
-40
-20
0
20
40
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Annual Returns of Investor Class Shares as of December 31 each year
9
Table 24 Average Annual Total Returns as of December 31 2012
One Year Five Years Ten Years Inception
Date
Investor Class Shares 1 -753 1361 061900
Before Taxes
After Texas on
Distributions
361 -753 1342
After Texas on
Distributions and
Sales of Shares
235 -624 1221
Service Class Shares 260 -845 1221 061900
SampP 500 1600 166 710
Down Jones US Oil
amp Gas Index
471 -035 1377
Source ProFunds
Fund Return
The Indexrsquos annualized historical volatility rate for the five-year period ended
September 30 2013 was 3299 The Indexrsquos highest September to September
volatility rate during the five-year period was 5803 (September 30 2009)
The Indexrsquos annualized performance for the five-year period ended September
30 2013 was 1450 (Source Profund)
The table below represents performance and returns of the fund as of 13102014
The investment return and principal value of an investment will fluctuate so that
an investors shares when redeemed may be worth more or less than the original
cost Returns include the reinvestment of dividends and capital gains
Table 25 Annual Total Returns Summary
YTD (as of 10132014) -1264
Average Annual One Year 1518
Average Annual Three Year 2305
Average Annual Five Year 1450
Average Annual Ten Year 1083
Average Annual Since Inception 803
Cumulative Since Inception 20143
Gross Expense Ratio 183
Net Expense Ratio 178
(Source httpwwwprofundscom)
10
25 Summary of this chapter
The success of Oil amp Gas UltraSector Profund has brought huge amount of profit
to Profund Company The investment in the energy index helps Profund having
an operation mechanism as an open-end fund with more diversified product as
well as better risk diversification
In Vietnams stock market there are three exchange-traded funds operating and
simulate Vietnamlsquos stock market index Except Ishare Frontier Market has the
low proportion of asset invested in Vietnam the other two funds are familiar to
investors The Market Vectors Vietnam ETF and DB X-Tracker FTSE Vietnam
have continuously dominated the market over the years As of mid-September
2014 the total assets of The Market Vectors Vietnam ETF reached nearly 630
million USD an increase of 270 times in the last 5 years Similarly X-Tracker
DB FTSE Vietnam has managed 400 million USD assets up 82-times since
2008 (Source Cafef)
Since 2011 Intelligent Financial Research amp Consulting (IFRC) and the
Petrovietnam Securities Incorporation (PSI) ndash a subsidiary of PVN have
collaborated building a PVN-Index which composing of all listed companies in
Vietnamese oil amp gas industry PVN-Index is an index consisting of two groups
of representatives and investment indicators starting year 2008 Representative
groups have again been divided into market index (PVNAllshare PVNAllshare
Continuous PVNAllshare HOSE PVNAllshare HNX) and the sector index (oil
and gas basic materials financial industrial and consumers service) Investment
index which also known as PVN10 including 10 stocks with largest market
capitalization and trading value on Ho Chi Minh Stock Exchange (HOSE) and
Hanoi Stock Exchange (HNX) (Sources wwwpvnindexvn)
PVN-Index appeared on the market since May 82012 but so far there are none
of fund management companies in Vietnam have applied this index The best
practice case of Oil amp Gas UltraSector ProFund indicates that there are many
opportunities and long-term benefits (in term of return and performance) for a
fund management company to establish a open-ended fund which imitates an oil
amp gas sector index (in this case PVN-Index) This type of new fund will
overcome the problem of low liquidity which is inherent disadvantage of open-
ended funds at the same time solve the problematic ldquohigh discount raterdquo of
closed-end funds With this new type of fund which imitates energy sector index
the investor will invest in a basket of index easy to follow and suitable for small
investors non-professional investors or foreign institutional investors (pension
funds insurance funds) Also investing in a basket of securities also limit the
market abuse and manipulation
PVFC Capital could apply the practical case of ProFund to create transparent
investment product flexible trading mechanisms risk diversification and
professional management The application of this fund type also help to attract
new investors new capital flows making it easier to attract more capital sources
from the economy through the primary market In addition if PVFC Capital
could establish a similar successful index fund it also leads to positive behavioral
changes in term of investment culture Rather than investing in individual stocks
separately requires more time to analyze the market and transaction time This is
becoming more difficult as the number of shares listed have increased even up to
thousands of stocks
11
CHAPTER 3
SITUATIONAL ANALYSIS
31 Status of fund management companies and Open-ended funds in
Vietnam market
Open-ended Fund is a new type of fund in Vietnam But in the world over 90
of the fund established in the form of open-ended funds The legal basis of the
fund is 1832011TT-BTC Circular - Ministry of Finance which provides the
framework for establishment and management of Open-ended Fund effectively
from 132012 Since then some new fund was established in Vietnam under the
form of Open-ended funds
In the beginning of 2013 only 03 open-end funds were established By the end of
the year there were 08 open-end fund was established (03 of them are former
Closed-end fund and just converted to Open-end funds) Currently there are only
546 fund management companies in the market successfully established Open-
ended fund and 02 companies are in the process of raising capital (See Appendix
1)
General characteristics of the Open-end funds were established as follows
Small scale the Open-ended funds have been established in Vietnam are in small
scale from 50-70 billion VND (minimum size prescribed by the State Security
Commission (SSC) is 50 billion)
The investment objectives to invest primarily in bonds and securities that
generate fixed -income and have low-risk This is consistent with the prudent
investors who aim to preserve capital and investment return just higher than
saving rate Only 2 Open-ended fund invest in listed stocks
32 Oil amp gas sector in Vietnam
PetroVietnam Group (PVN) is the biggest group of Vietnam and it contributes
20 of the countryrsquos annual GDP PVNrsquos annual revenue reached VND 773
trillion (or US$ 37 billion) in 2013
PVN plays a very important part in contributing to Vietnamrsquos state budget In
2013 it contributed VND 195 trillion to the total state budget an increase of
45 compared with 2012 For the first 9 months of 2014 PVN contributed
Oil and Gas sector in general and its exploration and services sector in particular
have robustly developed in the past years and are expected to continue its strong
growth to meet the demand of the socio-economic development of Vietnam
According the master plan of oil and gas sector development for the period of
2006-2025 capital demand to meet with the sector development will be about
US$ 1275 - 1335 billion accounting for 20-22 of the total investment demand
of the whole economy (Source PVN)
PVN has 32 companies (as its subsidiaries) listing on Ho Chi Minh Stock
Exchange and Hanoi Stock Exchange of Vietnam PetroVietnam Securities
Incorporation (PSI) started developing PVN-Index reflecting the performance of
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
v
Chap V Fund Development Alternative 25
51 Small Scale Start Up 25
52 Support from shareholders 25
53 Advantages of Open-ended Fund 26
54 Expected performance 27
55 PVN-10 exchange-traded fund 28
56 Evaluation of Alternative 28
57 Comparison 31
Chap VI Conclusion amp Recommendation 33
61 Conclusion 33
62 Action Plan 1 Open-ended Fund 34
63 Action Plan 2 Exchange Traded Fund 35
64 Recommendations 37
Appendix 1 39
Appendix 2 40
Appendix 3 41
Appendix 4 42
Appendix 5 43
Appendix 6 44
Appendix 7 45
Appendix 8 46
Reference 47
vi
LIST OF TABLE
Table 11 Asset under management 1
Table 21 Average Annual Total Returns as of December 31 2012 6
Table 22 Index Sector Weightings 6
Table 23 Top 10 Index Companies 7
Table 24 Average Annual Total Returns as of December 31 2012 9
Table 25 Annual Total Returns Summary 9
Table 31 Revenue Structure 19
Table 32 Summarized factors affecting business 20
Table 41 PetroVietnam Growth Open-ended Fund 21
Table 42 PVN-10 Index 23
Table 43 PVN-10 Dividend 24
Table 51 Advantages of Open-ended Fund 26
Table 52 Comparing open-ended fund (PVGF) with PVN-Index ETF 29
Table 53 Disadvantages of ETF 30
Table 54 Conditions for ETF to develop and operate effectively 30
Table 55 Evaluation Summary 32
Table 61 Fund structures of Open-ended fund (Plan 1) 34
Table 62 Fund Raising Plan of Open-ended fund (Plan 1) 35
Table 63 Fund structures of Exchange Traded Fund (Plan 2) 36
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2) 37
Table 65 Process of investment management control and coordinate 38
vii
LIST OF FIGURE
Figure 11 Conceptual Framework of the Study 3
Figure 21 Average Annual Total Returns as of December 31 2012 8
Figure 31 The importance of oil and gas sector 12
Figure 32 PVN-Index component by sector 12
Figure 34 PVN Index vs VNIndex amp HNIndex 14
Figure 35 PVN Index vs VN30 amp HNX10 14
Figure 36 Conception of PVGF 15
Figure 37 Market players 16
Figure 38 VNIndex movements in 2013 16
Figure 39 GDP and GDP Growth 17
Figure 310 Trade Balance 17
Figure 311 FDI inflows 18
Figure 312 Interest rates 18
Figure 41 Asset allocation 23
Figure 42 Subsidiaries of PVN 24
Figure 51 Operation of Open-ended Fund 27
Figure 52 Regulation of establishment and management of ETFs 28
viii
LIST OF ABBREVIATIONS
ETF Exchange ndash Traded Fund
FC Fund Certificate
HNX Hanoi Stock Exchange
NAV Net Asset Value
VN30 30 biggest companies in the Vietnam Stock market
VEFF Vietnam Equitization Focused Fund
VIP LLC Vietnam Investment Platform
PVN Petrovietnam Oil amp Gas Group
PVcomBank Vietnam Public Bank
PVFC Capital Petrovietnam Finance Fund Incorporation
PVGF PetroVietnam Growth Open-ended Fund
PVN-Index 32 listed companies of PetroVietnam on two stock
exchanges of Vietnam
PVN-10 Index 10 biggest share of PVN in the Vietnam Stock market
1
CHAPTER 1
INTRODUCTION
11Rationale
PVFC Capital is the exclusive fund management company within PetroVietnam
Oil amp Gas Group (PVN) Established at the very early stage of the fund
management industry of Vietnam PVFC Capital serves as the fund raising and
fund management arm of the Group With expertise in oil and energy sector our
funds and portfolios have unique advantages in addition to wide range of selected
equities
Background of PVFC Capital
The exclusive fund management company within PetroVietnam Group
Establishment 14 December 2007
Chartered capital VND 100 billion (US$5million)
Shareholders
- PVcomBank (merger between Petrovietnam Finance Corporation
amp Western Bank)
- SOVICO (leading Investment Group)
Number of Employees 33
Assets under management US$490 million (~10 trillion VND)
Table 11 Asset under management
Local fund Offshore fund Portfolio management
Size of assets US$ 35
million
US$ 7 million US$ 480 million
Establishment Nov 2011 Aug 2008 2008
Accumulated
NAV growth
+113 +27 13year for FY2012
Source PVFC Capital
In a typical fund management company there are normally two main
departments Business Development Department and Investment Department I
have chance to apply the knowledge acquired and enhance my experience in both
fields here Particularly my main responsibilities as an associate including
operations for investment promotion market researching and customer
relationship development I also participate assist and support investment team in
analysis of investment opportunities daily work of fund management and
portfolio management
2
As an exclusive fund management company of PetroVietnam and a dynamic
member of PVcomBank PVFC Capital receives continued support as well as
inherits significant experience from PVcombank in terms of financial
management and investment and advantages in oil and gas sector
Funds and entrusted assets managed by PVFC Capital are from both foreign and
domestic investors PVFC Capital possesses a proven track record in asset
management and invaluable experience in the oil and energy sector with the total
value of successfully managed assets of more than VND 10000 billion
The company is managing two funds (one local fund and one offshore fund) with
net asset of 105 million US dollars and eleven investment portfolios with total
net value of 480 million US dollars (Source PVFC Capital) We have to deliver
the report monthly quarterly yearly to investors who are very interested in the
updated information of ther net asset value in the fund Beside the macro-
economic and stock market scanning we have to make recommendation to them
in which stock bonds or financial assets should be bought sold or hold
12Problem statement
The biggest problem of PVFC Capital at the moment is difficulties in establishing
a new fund given current situation of the economy Over the last few years after
the booming period Vietnam encounter the stabilization of the macroeconomic
Compare to the previous time investors are more conservative in their invesment
decisions
Based on market conditions and the current activities of PVFC Capital we realize
it is a critical task to raise fund as well as demand for new potential partners in
local and overseas It is our challenges to expand new customer network to
access and exploit more opportunities from potential partners to establish a new
fund
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (8645227 USD out of total 1435655 USD revenue) As
of 31122013 the company has been managing 11 (eleven) portfolios in
domestic trusts and two foreign investment portfolio with total Net asset value of
about 450000000 USD (Source PVFC Capital)
Currently only two active funds are under our management which are Vietnam
Equitization Focused Fund (VEFF) amp Vietnam Investment Platform (VIP LLC)
both raising from Japanese investors Revenue from fund management in FY
2013 is 130000 USD contributed only 88 of total revenue (Source PVFC
Capital) For a fund management company this revenue structure needs to be
adjusted in the direction that increasing revenue from fund management
activities besides extremely well-managed and active portfolio management
activities
In addition since 2011 the company has not mobilized new funds after the
success of the fund establishment of VEFF Hence there is urgent need now to
establish new funds making revenue from this activity access to new capital
3
flow from investors in order to invest in opportunities within and outside the
petroleum industry
13Objective of the research
This research has the following objectives
o Review current situation of fund management companies and open-ended
funds in Vietnam market
o Identify the main causative factors of PVFC Capital lsquos unbalanced
revenue structure and difficulties in fund raising
o Evaluate the advantages and out-perform characteristics of PVGF in
compare to other form of fund
o Identify solution for PVFC Capital lsquos top management to raising capital
for this new type of fund
14Conceptual framework of the study
Figure 11 shows the approach to the research Firstly overview of PVFC Capital
and through impact model the main issues was defined Before analyzing the
prospects of PVGF the case study of ProFunds UltraSector Oil amp Gas Svc was
introduced as an example of the best practice of an open-ended fund investing in
oil amp gas index
Figure 11 Conceptual Framework of the Study
PROBLEM DEFINITION
BEST PRACTICE OF PROFUNDS
SITUATIONAL ANALYSIS
IMPACT MODEL
DEVELOPING PVGF
ALTERNATIVE SOLUTIONS amp EVALUATION
RECOMMENDATIONS amp CONCLUSION
4
15Scope of the research and data collection
To get the thorough understanding of the opportunities as well as challenges
investing in PVGF the information was retrieved from top management level
(Head of Department) to each associate in different unit in the organization
The primary information was collected though the questionnaires though internal
meeting and internal seminar with all the staff in the company and though the in-
depth interview with head of three most important department in PVFC Capital
which are Business Development Department Investment Department and
Internal Control Department
The secondary data were collected from
o Company profile
o Annual reports
o MonthlyAnnual Investment Report to investors
o Offering Letter to potential investor
o Updated data of PVN-Index from PSI
o PVFC Capitalrsquos Brochure
o Internal seminar Presentation on PVGF
o Other PVGF-related documents
o Public media (newspaper website magazineshellip)
16Organization of the research study
The research includes 7 chapters and its structure is as follows
Chapter 1 Introduction
This chapter provides a brief introduction the research rationales the main issue
research approach and the research structure
Chapter 2 Best Practice
Case of best practice on investing with open-ended fund in oil amp gas index was
used as examples to illustrate the theory and justification of the researcher
Chapter 3 Situational analysis
Chapter 3 provides a status of fund management companies and open-ended fund
in Vietnam market The chapter also discusses the main causative agents and the
result in the need to mobilize and establish a new fund of PVFC Capital
Chapter 4 Developing PVGF
Chapter 4 introduces the PVGF its investment objective strategy and its
advantages compared to other type of funds
5
Chapter 5 Fund development alternative
Chapter 5 provides solution for introduces the new fund of PVGF into the
Vietnam market such as small-scale starting with utilization of the capital from
shareholder as well as enhancing networking activities
The chapter provides alternative solution for introduces exchange-traded fund as
another effective investment tool for PVFC Capital It also compares and
contrasts between the two solutions and evaluates which solution is the most
appropriate one
Chapter 6 Recommendation and conclusion
Chapter 6 wraps up the above chapters conducts two action plans to raising
capital for PVFG as well as recommendations to PVFC Capitallsquos top
management board and strategic shareholders
6
CHAPTER 2
BEST PRACTICE A CASE STUDY OF PROFUNDS ULTRASECTOR
OIL amp GAS SVC
21Introduction
Oil amp Gas UltraSector ProFund is an open-end fund incorporated in the USA
The Fund is advised by ProFund Advisors since October 2013
The Fund invests in securities and derivatives that ProFund Advisors believes in
combination should have similar daily return characteristics as one and one-half
times (15x) the daily return of the Index
22Index Benchmark Dow Jones US Oil amp Gas Index
The Index measures the performance of the oil and gas sector of the US equity
market Component companies include among others exploration and
production integrated oil and gas oil equipment and services pipelines
renewable energy equipment companies and alternative fuel producers As of
September 30 2013 the Index included companies with capitalizations between
$9090 million and $3787 billion The average capitalization of the companies
comprising the Index was approximately $212 billion (Source Profund) The
Index is published under the Bloomberg ticker symbol ldquoDJUSENrdquo
Table 21 Average Annual Total Returns as of December 31 2012
Total Index Companies 84 PriceEarnings Ratio 1634 PriceBook Ratio 225 Dividend Yield 205 Average Index Market Capitalization 2486 billion
(Source httpwwwprofundscom)
Table 22 Index Sector Weightings
Index Sector Weightings Weight Oil amp Gas Producers 7196 Oil Equipment Services amp Distribution 2780 Alternative Energy 024
(Source httpwwwprofundscom)
7
Table 23 Top 10 Index Companies
Top 10 Index Companies Weight Exxon Mobil Corp 2070 Chevron Corp 1190 Schlumberger Ltd 735 ConocoPhillips Co 504 Occidental Petroleum Corp 386 EOG Resources Inc 306 Halliburton Co 287 Anadarko Petroleum Corp 265 Phillips 66 Co 218 The Williams Cos Inc 206
(Source httpwwwprofundscom)
23Investment strategy of Oil amp Gas UltraSector ProFund
ProFund Advisors uses a mathematical approach to investing Using this
approach ProFund Advisors determines the type quantity and mix of investment
positions that the Fund should hold to approximate on a daily basis the
performance of one and one-half times (15x) the Index
The Fund may invest in or gain exposure to only a representative sample of the
securities in the Index or to securities or financial instruments not contained in
the Index with the intent of obtaining exposure with aggregate characteristics
similar to those of a multiple of the Index
The Fund seeks to remain fully invested at all times in securities andor financial
instruments that in combination provide leveraged exposure to the Index
without regard to market conditions trends or direction
At the close of the US securities markets on each trading day the Fund will seek
to position its portfolio so that its exposure to the Index is consistent with the
Fundrsquos investment objective The Indexrsquos movements during the day will affect
whether the Fundrsquos portfolio needs to be re-positioned For example if the Index
has risen on a given day net assets of the Fund should rise As a result the
Fundrsquos exposure will need to be increased Conversely if the Index has fallen on
a given day net assets of the Fund should fall As a result the Fundrsquos exposure
will need to be decreased
Because of daily rebalancing and the compounding of each dayrsquos return over
time the return of the Fund for periods longer than a single day will be the result
of each dayrsquos returns compounded over the period which will very likely differ
from one and one-half times (15x) the return of the Index over the same period
(Source Profund) The Fund will lose money if the level of the Index is flat over
time and it is possible that the Fund will lose money over time even if the level
8
of the Index rises as a result of daily rebalancing the Indexrsquos volatility and the
effects of compounding
The Fund will concentrate its investments in a particular industry or group of
industries to approximately the same extent as the Index is so concentrated
As of the close of business on September 30 2013 the Index was concentrated in
the oil and gas industry group which comprised approximately 100 of the
market capitalization of the Index
24Performance amp return of Oil amp Gas UltraSector ProFund
Portfolio Turnover
The Fund pays transaction costs such as commissions when it buys and sells
securities (or ldquoturns overrdquo its portfolio) A higher portfolio turnover may indicate
higher transaction costs and may result in higher taxes when the Fundrsquos shares
are held in a taxable account These costs affect the Fundrsquos performance During
the most recent fiscal year the Fundrsquos annual portfolio turnover rate was 4 of
the average value of its entire portfolio This portfolio turnover rate is calculated
without regard to cash instrument or derivatives transactions If such transactions
were included the Fundrsquos portfolio turnover rate would be significantly higher
Investment Results
The bar chart below shows how the Fundrsquos investment results for Investor Class
shares have varied from year to year and the table shows how the Fundrsquos average
annual total returns for various periods compare with two broad measures of
market performance
Figure 21 Average Annual Total Returns as of December 31 2012
Source ProFunds
Best Quarter (ended 12312010) 3220
Worst Quarter (ended 12312008) -3833
The year-to-date return as of the most recent quarter which ended September 30
2013 was 2387 (Source Profund)
33
46 46
27
46
-56
19 26
0 4
-80
-60
-40
-20
0
20
40
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Annual Returns of Investor Class Shares as of December 31 each year
9
Table 24 Average Annual Total Returns as of December 31 2012
One Year Five Years Ten Years Inception
Date
Investor Class Shares 1 -753 1361 061900
Before Taxes
After Texas on
Distributions
361 -753 1342
After Texas on
Distributions and
Sales of Shares
235 -624 1221
Service Class Shares 260 -845 1221 061900
SampP 500 1600 166 710
Down Jones US Oil
amp Gas Index
471 -035 1377
Source ProFunds
Fund Return
The Indexrsquos annualized historical volatility rate for the five-year period ended
September 30 2013 was 3299 The Indexrsquos highest September to September
volatility rate during the five-year period was 5803 (September 30 2009)
The Indexrsquos annualized performance for the five-year period ended September
30 2013 was 1450 (Source Profund)
The table below represents performance and returns of the fund as of 13102014
The investment return and principal value of an investment will fluctuate so that
an investors shares when redeemed may be worth more or less than the original
cost Returns include the reinvestment of dividends and capital gains
Table 25 Annual Total Returns Summary
YTD (as of 10132014) -1264
Average Annual One Year 1518
Average Annual Three Year 2305
Average Annual Five Year 1450
Average Annual Ten Year 1083
Average Annual Since Inception 803
Cumulative Since Inception 20143
Gross Expense Ratio 183
Net Expense Ratio 178
(Source httpwwwprofundscom)
10
25 Summary of this chapter
The success of Oil amp Gas UltraSector Profund has brought huge amount of profit
to Profund Company The investment in the energy index helps Profund having
an operation mechanism as an open-end fund with more diversified product as
well as better risk diversification
In Vietnams stock market there are three exchange-traded funds operating and
simulate Vietnamlsquos stock market index Except Ishare Frontier Market has the
low proportion of asset invested in Vietnam the other two funds are familiar to
investors The Market Vectors Vietnam ETF and DB X-Tracker FTSE Vietnam
have continuously dominated the market over the years As of mid-September
2014 the total assets of The Market Vectors Vietnam ETF reached nearly 630
million USD an increase of 270 times in the last 5 years Similarly X-Tracker
DB FTSE Vietnam has managed 400 million USD assets up 82-times since
2008 (Source Cafef)
Since 2011 Intelligent Financial Research amp Consulting (IFRC) and the
Petrovietnam Securities Incorporation (PSI) ndash a subsidiary of PVN have
collaborated building a PVN-Index which composing of all listed companies in
Vietnamese oil amp gas industry PVN-Index is an index consisting of two groups
of representatives and investment indicators starting year 2008 Representative
groups have again been divided into market index (PVNAllshare PVNAllshare
Continuous PVNAllshare HOSE PVNAllshare HNX) and the sector index (oil
and gas basic materials financial industrial and consumers service) Investment
index which also known as PVN10 including 10 stocks with largest market
capitalization and trading value on Ho Chi Minh Stock Exchange (HOSE) and
Hanoi Stock Exchange (HNX) (Sources wwwpvnindexvn)
PVN-Index appeared on the market since May 82012 but so far there are none
of fund management companies in Vietnam have applied this index The best
practice case of Oil amp Gas UltraSector ProFund indicates that there are many
opportunities and long-term benefits (in term of return and performance) for a
fund management company to establish a open-ended fund which imitates an oil
amp gas sector index (in this case PVN-Index) This type of new fund will
overcome the problem of low liquidity which is inherent disadvantage of open-
ended funds at the same time solve the problematic ldquohigh discount raterdquo of
closed-end funds With this new type of fund which imitates energy sector index
the investor will invest in a basket of index easy to follow and suitable for small
investors non-professional investors or foreign institutional investors (pension
funds insurance funds) Also investing in a basket of securities also limit the
market abuse and manipulation
PVFC Capital could apply the practical case of ProFund to create transparent
investment product flexible trading mechanisms risk diversification and
professional management The application of this fund type also help to attract
new investors new capital flows making it easier to attract more capital sources
from the economy through the primary market In addition if PVFC Capital
could establish a similar successful index fund it also leads to positive behavioral
changes in term of investment culture Rather than investing in individual stocks
separately requires more time to analyze the market and transaction time This is
becoming more difficult as the number of shares listed have increased even up to
thousands of stocks
11
CHAPTER 3
SITUATIONAL ANALYSIS
31 Status of fund management companies and Open-ended funds in
Vietnam market
Open-ended Fund is a new type of fund in Vietnam But in the world over 90
of the fund established in the form of open-ended funds The legal basis of the
fund is 1832011TT-BTC Circular - Ministry of Finance which provides the
framework for establishment and management of Open-ended Fund effectively
from 132012 Since then some new fund was established in Vietnam under the
form of Open-ended funds
In the beginning of 2013 only 03 open-end funds were established By the end of
the year there were 08 open-end fund was established (03 of them are former
Closed-end fund and just converted to Open-end funds) Currently there are only
546 fund management companies in the market successfully established Open-
ended fund and 02 companies are in the process of raising capital (See Appendix
1)
General characteristics of the Open-end funds were established as follows
Small scale the Open-ended funds have been established in Vietnam are in small
scale from 50-70 billion VND (minimum size prescribed by the State Security
Commission (SSC) is 50 billion)
The investment objectives to invest primarily in bonds and securities that
generate fixed -income and have low-risk This is consistent with the prudent
investors who aim to preserve capital and investment return just higher than
saving rate Only 2 Open-ended fund invest in listed stocks
32 Oil amp gas sector in Vietnam
PetroVietnam Group (PVN) is the biggest group of Vietnam and it contributes
20 of the countryrsquos annual GDP PVNrsquos annual revenue reached VND 773
trillion (or US$ 37 billion) in 2013
PVN plays a very important part in contributing to Vietnamrsquos state budget In
2013 it contributed VND 195 trillion to the total state budget an increase of
45 compared with 2012 For the first 9 months of 2014 PVN contributed
Oil and Gas sector in general and its exploration and services sector in particular
have robustly developed in the past years and are expected to continue its strong
growth to meet the demand of the socio-economic development of Vietnam
According the master plan of oil and gas sector development for the period of
2006-2025 capital demand to meet with the sector development will be about
US$ 1275 - 1335 billion accounting for 20-22 of the total investment demand
of the whole economy (Source PVN)
PVN has 32 companies (as its subsidiaries) listing on Ho Chi Minh Stock
Exchange and Hanoi Stock Exchange of Vietnam PetroVietnam Securities
Incorporation (PSI) started developing PVN-Index reflecting the performance of
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
vi
LIST OF TABLE
Table 11 Asset under management 1
Table 21 Average Annual Total Returns as of December 31 2012 6
Table 22 Index Sector Weightings 6
Table 23 Top 10 Index Companies 7
Table 24 Average Annual Total Returns as of December 31 2012 9
Table 25 Annual Total Returns Summary 9
Table 31 Revenue Structure 19
Table 32 Summarized factors affecting business 20
Table 41 PetroVietnam Growth Open-ended Fund 21
Table 42 PVN-10 Index 23
Table 43 PVN-10 Dividend 24
Table 51 Advantages of Open-ended Fund 26
Table 52 Comparing open-ended fund (PVGF) with PVN-Index ETF 29
Table 53 Disadvantages of ETF 30
Table 54 Conditions for ETF to develop and operate effectively 30
Table 55 Evaluation Summary 32
Table 61 Fund structures of Open-ended fund (Plan 1) 34
Table 62 Fund Raising Plan of Open-ended fund (Plan 1) 35
Table 63 Fund structures of Exchange Traded Fund (Plan 2) 36
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2) 37
Table 65 Process of investment management control and coordinate 38
vii
LIST OF FIGURE
Figure 11 Conceptual Framework of the Study 3
Figure 21 Average Annual Total Returns as of December 31 2012 8
Figure 31 The importance of oil and gas sector 12
Figure 32 PVN-Index component by sector 12
Figure 34 PVN Index vs VNIndex amp HNIndex 14
Figure 35 PVN Index vs VN30 amp HNX10 14
Figure 36 Conception of PVGF 15
Figure 37 Market players 16
Figure 38 VNIndex movements in 2013 16
Figure 39 GDP and GDP Growth 17
Figure 310 Trade Balance 17
Figure 311 FDI inflows 18
Figure 312 Interest rates 18
Figure 41 Asset allocation 23
Figure 42 Subsidiaries of PVN 24
Figure 51 Operation of Open-ended Fund 27
Figure 52 Regulation of establishment and management of ETFs 28
viii
LIST OF ABBREVIATIONS
ETF Exchange ndash Traded Fund
FC Fund Certificate
HNX Hanoi Stock Exchange
NAV Net Asset Value
VN30 30 biggest companies in the Vietnam Stock market
VEFF Vietnam Equitization Focused Fund
VIP LLC Vietnam Investment Platform
PVN Petrovietnam Oil amp Gas Group
PVcomBank Vietnam Public Bank
PVFC Capital Petrovietnam Finance Fund Incorporation
PVGF PetroVietnam Growth Open-ended Fund
PVN-Index 32 listed companies of PetroVietnam on two stock
exchanges of Vietnam
PVN-10 Index 10 biggest share of PVN in the Vietnam Stock market
1
CHAPTER 1
INTRODUCTION
11Rationale
PVFC Capital is the exclusive fund management company within PetroVietnam
Oil amp Gas Group (PVN) Established at the very early stage of the fund
management industry of Vietnam PVFC Capital serves as the fund raising and
fund management arm of the Group With expertise in oil and energy sector our
funds and portfolios have unique advantages in addition to wide range of selected
equities
Background of PVFC Capital
The exclusive fund management company within PetroVietnam Group
Establishment 14 December 2007
Chartered capital VND 100 billion (US$5million)
Shareholders
- PVcomBank (merger between Petrovietnam Finance Corporation
amp Western Bank)
- SOVICO (leading Investment Group)
Number of Employees 33
Assets under management US$490 million (~10 trillion VND)
Table 11 Asset under management
Local fund Offshore fund Portfolio management
Size of assets US$ 35
million
US$ 7 million US$ 480 million
Establishment Nov 2011 Aug 2008 2008
Accumulated
NAV growth
+113 +27 13year for FY2012
Source PVFC Capital
In a typical fund management company there are normally two main
departments Business Development Department and Investment Department I
have chance to apply the knowledge acquired and enhance my experience in both
fields here Particularly my main responsibilities as an associate including
operations for investment promotion market researching and customer
relationship development I also participate assist and support investment team in
analysis of investment opportunities daily work of fund management and
portfolio management
2
As an exclusive fund management company of PetroVietnam and a dynamic
member of PVcomBank PVFC Capital receives continued support as well as
inherits significant experience from PVcombank in terms of financial
management and investment and advantages in oil and gas sector
Funds and entrusted assets managed by PVFC Capital are from both foreign and
domestic investors PVFC Capital possesses a proven track record in asset
management and invaluable experience in the oil and energy sector with the total
value of successfully managed assets of more than VND 10000 billion
The company is managing two funds (one local fund and one offshore fund) with
net asset of 105 million US dollars and eleven investment portfolios with total
net value of 480 million US dollars (Source PVFC Capital) We have to deliver
the report monthly quarterly yearly to investors who are very interested in the
updated information of ther net asset value in the fund Beside the macro-
economic and stock market scanning we have to make recommendation to them
in which stock bonds or financial assets should be bought sold or hold
12Problem statement
The biggest problem of PVFC Capital at the moment is difficulties in establishing
a new fund given current situation of the economy Over the last few years after
the booming period Vietnam encounter the stabilization of the macroeconomic
Compare to the previous time investors are more conservative in their invesment
decisions
Based on market conditions and the current activities of PVFC Capital we realize
it is a critical task to raise fund as well as demand for new potential partners in
local and overseas It is our challenges to expand new customer network to
access and exploit more opportunities from potential partners to establish a new
fund
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (8645227 USD out of total 1435655 USD revenue) As
of 31122013 the company has been managing 11 (eleven) portfolios in
domestic trusts and two foreign investment portfolio with total Net asset value of
about 450000000 USD (Source PVFC Capital)
Currently only two active funds are under our management which are Vietnam
Equitization Focused Fund (VEFF) amp Vietnam Investment Platform (VIP LLC)
both raising from Japanese investors Revenue from fund management in FY
2013 is 130000 USD contributed only 88 of total revenue (Source PVFC
Capital) For a fund management company this revenue structure needs to be
adjusted in the direction that increasing revenue from fund management
activities besides extremely well-managed and active portfolio management
activities
In addition since 2011 the company has not mobilized new funds after the
success of the fund establishment of VEFF Hence there is urgent need now to
establish new funds making revenue from this activity access to new capital
3
flow from investors in order to invest in opportunities within and outside the
petroleum industry
13Objective of the research
This research has the following objectives
o Review current situation of fund management companies and open-ended
funds in Vietnam market
o Identify the main causative factors of PVFC Capital lsquos unbalanced
revenue structure and difficulties in fund raising
o Evaluate the advantages and out-perform characteristics of PVGF in
compare to other form of fund
o Identify solution for PVFC Capital lsquos top management to raising capital
for this new type of fund
14Conceptual framework of the study
Figure 11 shows the approach to the research Firstly overview of PVFC Capital
and through impact model the main issues was defined Before analyzing the
prospects of PVGF the case study of ProFunds UltraSector Oil amp Gas Svc was
introduced as an example of the best practice of an open-ended fund investing in
oil amp gas index
Figure 11 Conceptual Framework of the Study
PROBLEM DEFINITION
BEST PRACTICE OF PROFUNDS
SITUATIONAL ANALYSIS
IMPACT MODEL
DEVELOPING PVGF
ALTERNATIVE SOLUTIONS amp EVALUATION
RECOMMENDATIONS amp CONCLUSION
4
15Scope of the research and data collection
To get the thorough understanding of the opportunities as well as challenges
investing in PVGF the information was retrieved from top management level
(Head of Department) to each associate in different unit in the organization
The primary information was collected though the questionnaires though internal
meeting and internal seminar with all the staff in the company and though the in-
depth interview with head of three most important department in PVFC Capital
which are Business Development Department Investment Department and
Internal Control Department
The secondary data were collected from
o Company profile
o Annual reports
o MonthlyAnnual Investment Report to investors
o Offering Letter to potential investor
o Updated data of PVN-Index from PSI
o PVFC Capitalrsquos Brochure
o Internal seminar Presentation on PVGF
o Other PVGF-related documents
o Public media (newspaper website magazineshellip)
16Organization of the research study
The research includes 7 chapters and its structure is as follows
Chapter 1 Introduction
This chapter provides a brief introduction the research rationales the main issue
research approach and the research structure
Chapter 2 Best Practice
Case of best practice on investing with open-ended fund in oil amp gas index was
used as examples to illustrate the theory and justification of the researcher
Chapter 3 Situational analysis
Chapter 3 provides a status of fund management companies and open-ended fund
in Vietnam market The chapter also discusses the main causative agents and the
result in the need to mobilize and establish a new fund of PVFC Capital
Chapter 4 Developing PVGF
Chapter 4 introduces the PVGF its investment objective strategy and its
advantages compared to other type of funds
5
Chapter 5 Fund development alternative
Chapter 5 provides solution for introduces the new fund of PVGF into the
Vietnam market such as small-scale starting with utilization of the capital from
shareholder as well as enhancing networking activities
The chapter provides alternative solution for introduces exchange-traded fund as
another effective investment tool for PVFC Capital It also compares and
contrasts between the two solutions and evaluates which solution is the most
appropriate one
Chapter 6 Recommendation and conclusion
Chapter 6 wraps up the above chapters conducts two action plans to raising
capital for PVFG as well as recommendations to PVFC Capitallsquos top
management board and strategic shareholders
6
CHAPTER 2
BEST PRACTICE A CASE STUDY OF PROFUNDS ULTRASECTOR
OIL amp GAS SVC
21Introduction
Oil amp Gas UltraSector ProFund is an open-end fund incorporated in the USA
The Fund is advised by ProFund Advisors since October 2013
The Fund invests in securities and derivatives that ProFund Advisors believes in
combination should have similar daily return characteristics as one and one-half
times (15x) the daily return of the Index
22Index Benchmark Dow Jones US Oil amp Gas Index
The Index measures the performance of the oil and gas sector of the US equity
market Component companies include among others exploration and
production integrated oil and gas oil equipment and services pipelines
renewable energy equipment companies and alternative fuel producers As of
September 30 2013 the Index included companies with capitalizations between
$9090 million and $3787 billion The average capitalization of the companies
comprising the Index was approximately $212 billion (Source Profund) The
Index is published under the Bloomberg ticker symbol ldquoDJUSENrdquo
Table 21 Average Annual Total Returns as of December 31 2012
Total Index Companies 84 PriceEarnings Ratio 1634 PriceBook Ratio 225 Dividend Yield 205 Average Index Market Capitalization 2486 billion
(Source httpwwwprofundscom)
Table 22 Index Sector Weightings
Index Sector Weightings Weight Oil amp Gas Producers 7196 Oil Equipment Services amp Distribution 2780 Alternative Energy 024
(Source httpwwwprofundscom)
7
Table 23 Top 10 Index Companies
Top 10 Index Companies Weight Exxon Mobil Corp 2070 Chevron Corp 1190 Schlumberger Ltd 735 ConocoPhillips Co 504 Occidental Petroleum Corp 386 EOG Resources Inc 306 Halliburton Co 287 Anadarko Petroleum Corp 265 Phillips 66 Co 218 The Williams Cos Inc 206
(Source httpwwwprofundscom)
23Investment strategy of Oil amp Gas UltraSector ProFund
ProFund Advisors uses a mathematical approach to investing Using this
approach ProFund Advisors determines the type quantity and mix of investment
positions that the Fund should hold to approximate on a daily basis the
performance of one and one-half times (15x) the Index
The Fund may invest in or gain exposure to only a representative sample of the
securities in the Index or to securities or financial instruments not contained in
the Index with the intent of obtaining exposure with aggregate characteristics
similar to those of a multiple of the Index
The Fund seeks to remain fully invested at all times in securities andor financial
instruments that in combination provide leveraged exposure to the Index
without regard to market conditions trends or direction
At the close of the US securities markets on each trading day the Fund will seek
to position its portfolio so that its exposure to the Index is consistent with the
Fundrsquos investment objective The Indexrsquos movements during the day will affect
whether the Fundrsquos portfolio needs to be re-positioned For example if the Index
has risen on a given day net assets of the Fund should rise As a result the
Fundrsquos exposure will need to be increased Conversely if the Index has fallen on
a given day net assets of the Fund should fall As a result the Fundrsquos exposure
will need to be decreased
Because of daily rebalancing and the compounding of each dayrsquos return over
time the return of the Fund for periods longer than a single day will be the result
of each dayrsquos returns compounded over the period which will very likely differ
from one and one-half times (15x) the return of the Index over the same period
(Source Profund) The Fund will lose money if the level of the Index is flat over
time and it is possible that the Fund will lose money over time even if the level
8
of the Index rises as a result of daily rebalancing the Indexrsquos volatility and the
effects of compounding
The Fund will concentrate its investments in a particular industry or group of
industries to approximately the same extent as the Index is so concentrated
As of the close of business on September 30 2013 the Index was concentrated in
the oil and gas industry group which comprised approximately 100 of the
market capitalization of the Index
24Performance amp return of Oil amp Gas UltraSector ProFund
Portfolio Turnover
The Fund pays transaction costs such as commissions when it buys and sells
securities (or ldquoturns overrdquo its portfolio) A higher portfolio turnover may indicate
higher transaction costs and may result in higher taxes when the Fundrsquos shares
are held in a taxable account These costs affect the Fundrsquos performance During
the most recent fiscal year the Fundrsquos annual portfolio turnover rate was 4 of
the average value of its entire portfolio This portfolio turnover rate is calculated
without regard to cash instrument or derivatives transactions If such transactions
were included the Fundrsquos portfolio turnover rate would be significantly higher
Investment Results
The bar chart below shows how the Fundrsquos investment results for Investor Class
shares have varied from year to year and the table shows how the Fundrsquos average
annual total returns for various periods compare with two broad measures of
market performance
Figure 21 Average Annual Total Returns as of December 31 2012
Source ProFunds
Best Quarter (ended 12312010) 3220
Worst Quarter (ended 12312008) -3833
The year-to-date return as of the most recent quarter which ended September 30
2013 was 2387 (Source Profund)
33
46 46
27
46
-56
19 26
0 4
-80
-60
-40
-20
0
20
40
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Annual Returns of Investor Class Shares as of December 31 each year
9
Table 24 Average Annual Total Returns as of December 31 2012
One Year Five Years Ten Years Inception
Date
Investor Class Shares 1 -753 1361 061900
Before Taxes
After Texas on
Distributions
361 -753 1342
After Texas on
Distributions and
Sales of Shares
235 -624 1221
Service Class Shares 260 -845 1221 061900
SampP 500 1600 166 710
Down Jones US Oil
amp Gas Index
471 -035 1377
Source ProFunds
Fund Return
The Indexrsquos annualized historical volatility rate for the five-year period ended
September 30 2013 was 3299 The Indexrsquos highest September to September
volatility rate during the five-year period was 5803 (September 30 2009)
The Indexrsquos annualized performance for the five-year period ended September
30 2013 was 1450 (Source Profund)
The table below represents performance and returns of the fund as of 13102014
The investment return and principal value of an investment will fluctuate so that
an investors shares when redeemed may be worth more or less than the original
cost Returns include the reinvestment of dividends and capital gains
Table 25 Annual Total Returns Summary
YTD (as of 10132014) -1264
Average Annual One Year 1518
Average Annual Three Year 2305
Average Annual Five Year 1450
Average Annual Ten Year 1083
Average Annual Since Inception 803
Cumulative Since Inception 20143
Gross Expense Ratio 183
Net Expense Ratio 178
(Source httpwwwprofundscom)
10
25 Summary of this chapter
The success of Oil amp Gas UltraSector Profund has brought huge amount of profit
to Profund Company The investment in the energy index helps Profund having
an operation mechanism as an open-end fund with more diversified product as
well as better risk diversification
In Vietnams stock market there are three exchange-traded funds operating and
simulate Vietnamlsquos stock market index Except Ishare Frontier Market has the
low proportion of asset invested in Vietnam the other two funds are familiar to
investors The Market Vectors Vietnam ETF and DB X-Tracker FTSE Vietnam
have continuously dominated the market over the years As of mid-September
2014 the total assets of The Market Vectors Vietnam ETF reached nearly 630
million USD an increase of 270 times in the last 5 years Similarly X-Tracker
DB FTSE Vietnam has managed 400 million USD assets up 82-times since
2008 (Source Cafef)
Since 2011 Intelligent Financial Research amp Consulting (IFRC) and the
Petrovietnam Securities Incorporation (PSI) ndash a subsidiary of PVN have
collaborated building a PVN-Index which composing of all listed companies in
Vietnamese oil amp gas industry PVN-Index is an index consisting of two groups
of representatives and investment indicators starting year 2008 Representative
groups have again been divided into market index (PVNAllshare PVNAllshare
Continuous PVNAllshare HOSE PVNAllshare HNX) and the sector index (oil
and gas basic materials financial industrial and consumers service) Investment
index which also known as PVN10 including 10 stocks with largest market
capitalization and trading value on Ho Chi Minh Stock Exchange (HOSE) and
Hanoi Stock Exchange (HNX) (Sources wwwpvnindexvn)
PVN-Index appeared on the market since May 82012 but so far there are none
of fund management companies in Vietnam have applied this index The best
practice case of Oil amp Gas UltraSector ProFund indicates that there are many
opportunities and long-term benefits (in term of return and performance) for a
fund management company to establish a open-ended fund which imitates an oil
amp gas sector index (in this case PVN-Index) This type of new fund will
overcome the problem of low liquidity which is inherent disadvantage of open-
ended funds at the same time solve the problematic ldquohigh discount raterdquo of
closed-end funds With this new type of fund which imitates energy sector index
the investor will invest in a basket of index easy to follow and suitable for small
investors non-professional investors or foreign institutional investors (pension
funds insurance funds) Also investing in a basket of securities also limit the
market abuse and manipulation
PVFC Capital could apply the practical case of ProFund to create transparent
investment product flexible trading mechanisms risk diversification and
professional management The application of this fund type also help to attract
new investors new capital flows making it easier to attract more capital sources
from the economy through the primary market In addition if PVFC Capital
could establish a similar successful index fund it also leads to positive behavioral
changes in term of investment culture Rather than investing in individual stocks
separately requires more time to analyze the market and transaction time This is
becoming more difficult as the number of shares listed have increased even up to
thousands of stocks
11
CHAPTER 3
SITUATIONAL ANALYSIS
31 Status of fund management companies and Open-ended funds in
Vietnam market
Open-ended Fund is a new type of fund in Vietnam But in the world over 90
of the fund established in the form of open-ended funds The legal basis of the
fund is 1832011TT-BTC Circular - Ministry of Finance which provides the
framework for establishment and management of Open-ended Fund effectively
from 132012 Since then some new fund was established in Vietnam under the
form of Open-ended funds
In the beginning of 2013 only 03 open-end funds were established By the end of
the year there were 08 open-end fund was established (03 of them are former
Closed-end fund and just converted to Open-end funds) Currently there are only
546 fund management companies in the market successfully established Open-
ended fund and 02 companies are in the process of raising capital (See Appendix
1)
General characteristics of the Open-end funds were established as follows
Small scale the Open-ended funds have been established in Vietnam are in small
scale from 50-70 billion VND (minimum size prescribed by the State Security
Commission (SSC) is 50 billion)
The investment objectives to invest primarily in bonds and securities that
generate fixed -income and have low-risk This is consistent with the prudent
investors who aim to preserve capital and investment return just higher than
saving rate Only 2 Open-ended fund invest in listed stocks
32 Oil amp gas sector in Vietnam
PetroVietnam Group (PVN) is the biggest group of Vietnam and it contributes
20 of the countryrsquos annual GDP PVNrsquos annual revenue reached VND 773
trillion (or US$ 37 billion) in 2013
PVN plays a very important part in contributing to Vietnamrsquos state budget In
2013 it contributed VND 195 trillion to the total state budget an increase of
45 compared with 2012 For the first 9 months of 2014 PVN contributed
Oil and Gas sector in general and its exploration and services sector in particular
have robustly developed in the past years and are expected to continue its strong
growth to meet the demand of the socio-economic development of Vietnam
According the master plan of oil and gas sector development for the period of
2006-2025 capital demand to meet with the sector development will be about
US$ 1275 - 1335 billion accounting for 20-22 of the total investment demand
of the whole economy (Source PVN)
PVN has 32 companies (as its subsidiaries) listing on Ho Chi Minh Stock
Exchange and Hanoi Stock Exchange of Vietnam PetroVietnam Securities
Incorporation (PSI) started developing PVN-Index reflecting the performance of
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
vii
LIST OF FIGURE
Figure 11 Conceptual Framework of the Study 3
Figure 21 Average Annual Total Returns as of December 31 2012 8
Figure 31 The importance of oil and gas sector 12
Figure 32 PVN-Index component by sector 12
Figure 34 PVN Index vs VNIndex amp HNIndex 14
Figure 35 PVN Index vs VN30 amp HNX10 14
Figure 36 Conception of PVGF 15
Figure 37 Market players 16
Figure 38 VNIndex movements in 2013 16
Figure 39 GDP and GDP Growth 17
Figure 310 Trade Balance 17
Figure 311 FDI inflows 18
Figure 312 Interest rates 18
Figure 41 Asset allocation 23
Figure 42 Subsidiaries of PVN 24
Figure 51 Operation of Open-ended Fund 27
Figure 52 Regulation of establishment and management of ETFs 28
viii
LIST OF ABBREVIATIONS
ETF Exchange ndash Traded Fund
FC Fund Certificate
HNX Hanoi Stock Exchange
NAV Net Asset Value
VN30 30 biggest companies in the Vietnam Stock market
VEFF Vietnam Equitization Focused Fund
VIP LLC Vietnam Investment Platform
PVN Petrovietnam Oil amp Gas Group
PVcomBank Vietnam Public Bank
PVFC Capital Petrovietnam Finance Fund Incorporation
PVGF PetroVietnam Growth Open-ended Fund
PVN-Index 32 listed companies of PetroVietnam on two stock
exchanges of Vietnam
PVN-10 Index 10 biggest share of PVN in the Vietnam Stock market
1
CHAPTER 1
INTRODUCTION
11Rationale
PVFC Capital is the exclusive fund management company within PetroVietnam
Oil amp Gas Group (PVN) Established at the very early stage of the fund
management industry of Vietnam PVFC Capital serves as the fund raising and
fund management arm of the Group With expertise in oil and energy sector our
funds and portfolios have unique advantages in addition to wide range of selected
equities
Background of PVFC Capital
The exclusive fund management company within PetroVietnam Group
Establishment 14 December 2007
Chartered capital VND 100 billion (US$5million)
Shareholders
- PVcomBank (merger between Petrovietnam Finance Corporation
amp Western Bank)
- SOVICO (leading Investment Group)
Number of Employees 33
Assets under management US$490 million (~10 trillion VND)
Table 11 Asset under management
Local fund Offshore fund Portfolio management
Size of assets US$ 35
million
US$ 7 million US$ 480 million
Establishment Nov 2011 Aug 2008 2008
Accumulated
NAV growth
+113 +27 13year for FY2012
Source PVFC Capital
In a typical fund management company there are normally two main
departments Business Development Department and Investment Department I
have chance to apply the knowledge acquired and enhance my experience in both
fields here Particularly my main responsibilities as an associate including
operations for investment promotion market researching and customer
relationship development I also participate assist and support investment team in
analysis of investment opportunities daily work of fund management and
portfolio management
2
As an exclusive fund management company of PetroVietnam and a dynamic
member of PVcomBank PVFC Capital receives continued support as well as
inherits significant experience from PVcombank in terms of financial
management and investment and advantages in oil and gas sector
Funds and entrusted assets managed by PVFC Capital are from both foreign and
domestic investors PVFC Capital possesses a proven track record in asset
management and invaluable experience in the oil and energy sector with the total
value of successfully managed assets of more than VND 10000 billion
The company is managing two funds (one local fund and one offshore fund) with
net asset of 105 million US dollars and eleven investment portfolios with total
net value of 480 million US dollars (Source PVFC Capital) We have to deliver
the report monthly quarterly yearly to investors who are very interested in the
updated information of ther net asset value in the fund Beside the macro-
economic and stock market scanning we have to make recommendation to them
in which stock bonds or financial assets should be bought sold or hold
12Problem statement
The biggest problem of PVFC Capital at the moment is difficulties in establishing
a new fund given current situation of the economy Over the last few years after
the booming period Vietnam encounter the stabilization of the macroeconomic
Compare to the previous time investors are more conservative in their invesment
decisions
Based on market conditions and the current activities of PVFC Capital we realize
it is a critical task to raise fund as well as demand for new potential partners in
local and overseas It is our challenges to expand new customer network to
access and exploit more opportunities from potential partners to establish a new
fund
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (8645227 USD out of total 1435655 USD revenue) As
of 31122013 the company has been managing 11 (eleven) portfolios in
domestic trusts and two foreign investment portfolio with total Net asset value of
about 450000000 USD (Source PVFC Capital)
Currently only two active funds are under our management which are Vietnam
Equitization Focused Fund (VEFF) amp Vietnam Investment Platform (VIP LLC)
both raising from Japanese investors Revenue from fund management in FY
2013 is 130000 USD contributed only 88 of total revenue (Source PVFC
Capital) For a fund management company this revenue structure needs to be
adjusted in the direction that increasing revenue from fund management
activities besides extremely well-managed and active portfolio management
activities
In addition since 2011 the company has not mobilized new funds after the
success of the fund establishment of VEFF Hence there is urgent need now to
establish new funds making revenue from this activity access to new capital
3
flow from investors in order to invest in opportunities within and outside the
petroleum industry
13Objective of the research
This research has the following objectives
o Review current situation of fund management companies and open-ended
funds in Vietnam market
o Identify the main causative factors of PVFC Capital lsquos unbalanced
revenue structure and difficulties in fund raising
o Evaluate the advantages and out-perform characteristics of PVGF in
compare to other form of fund
o Identify solution for PVFC Capital lsquos top management to raising capital
for this new type of fund
14Conceptual framework of the study
Figure 11 shows the approach to the research Firstly overview of PVFC Capital
and through impact model the main issues was defined Before analyzing the
prospects of PVGF the case study of ProFunds UltraSector Oil amp Gas Svc was
introduced as an example of the best practice of an open-ended fund investing in
oil amp gas index
Figure 11 Conceptual Framework of the Study
PROBLEM DEFINITION
BEST PRACTICE OF PROFUNDS
SITUATIONAL ANALYSIS
IMPACT MODEL
DEVELOPING PVGF
ALTERNATIVE SOLUTIONS amp EVALUATION
RECOMMENDATIONS amp CONCLUSION
4
15Scope of the research and data collection
To get the thorough understanding of the opportunities as well as challenges
investing in PVGF the information was retrieved from top management level
(Head of Department) to each associate in different unit in the organization
The primary information was collected though the questionnaires though internal
meeting and internal seminar with all the staff in the company and though the in-
depth interview with head of three most important department in PVFC Capital
which are Business Development Department Investment Department and
Internal Control Department
The secondary data were collected from
o Company profile
o Annual reports
o MonthlyAnnual Investment Report to investors
o Offering Letter to potential investor
o Updated data of PVN-Index from PSI
o PVFC Capitalrsquos Brochure
o Internal seminar Presentation on PVGF
o Other PVGF-related documents
o Public media (newspaper website magazineshellip)
16Organization of the research study
The research includes 7 chapters and its structure is as follows
Chapter 1 Introduction
This chapter provides a brief introduction the research rationales the main issue
research approach and the research structure
Chapter 2 Best Practice
Case of best practice on investing with open-ended fund in oil amp gas index was
used as examples to illustrate the theory and justification of the researcher
Chapter 3 Situational analysis
Chapter 3 provides a status of fund management companies and open-ended fund
in Vietnam market The chapter also discusses the main causative agents and the
result in the need to mobilize and establish a new fund of PVFC Capital
Chapter 4 Developing PVGF
Chapter 4 introduces the PVGF its investment objective strategy and its
advantages compared to other type of funds
5
Chapter 5 Fund development alternative
Chapter 5 provides solution for introduces the new fund of PVGF into the
Vietnam market such as small-scale starting with utilization of the capital from
shareholder as well as enhancing networking activities
The chapter provides alternative solution for introduces exchange-traded fund as
another effective investment tool for PVFC Capital It also compares and
contrasts between the two solutions and evaluates which solution is the most
appropriate one
Chapter 6 Recommendation and conclusion
Chapter 6 wraps up the above chapters conducts two action plans to raising
capital for PVFG as well as recommendations to PVFC Capitallsquos top
management board and strategic shareholders
6
CHAPTER 2
BEST PRACTICE A CASE STUDY OF PROFUNDS ULTRASECTOR
OIL amp GAS SVC
21Introduction
Oil amp Gas UltraSector ProFund is an open-end fund incorporated in the USA
The Fund is advised by ProFund Advisors since October 2013
The Fund invests in securities and derivatives that ProFund Advisors believes in
combination should have similar daily return characteristics as one and one-half
times (15x) the daily return of the Index
22Index Benchmark Dow Jones US Oil amp Gas Index
The Index measures the performance of the oil and gas sector of the US equity
market Component companies include among others exploration and
production integrated oil and gas oil equipment and services pipelines
renewable energy equipment companies and alternative fuel producers As of
September 30 2013 the Index included companies with capitalizations between
$9090 million and $3787 billion The average capitalization of the companies
comprising the Index was approximately $212 billion (Source Profund) The
Index is published under the Bloomberg ticker symbol ldquoDJUSENrdquo
Table 21 Average Annual Total Returns as of December 31 2012
Total Index Companies 84 PriceEarnings Ratio 1634 PriceBook Ratio 225 Dividend Yield 205 Average Index Market Capitalization 2486 billion
(Source httpwwwprofundscom)
Table 22 Index Sector Weightings
Index Sector Weightings Weight Oil amp Gas Producers 7196 Oil Equipment Services amp Distribution 2780 Alternative Energy 024
(Source httpwwwprofundscom)
7
Table 23 Top 10 Index Companies
Top 10 Index Companies Weight Exxon Mobil Corp 2070 Chevron Corp 1190 Schlumberger Ltd 735 ConocoPhillips Co 504 Occidental Petroleum Corp 386 EOG Resources Inc 306 Halliburton Co 287 Anadarko Petroleum Corp 265 Phillips 66 Co 218 The Williams Cos Inc 206
(Source httpwwwprofundscom)
23Investment strategy of Oil amp Gas UltraSector ProFund
ProFund Advisors uses a mathematical approach to investing Using this
approach ProFund Advisors determines the type quantity and mix of investment
positions that the Fund should hold to approximate on a daily basis the
performance of one and one-half times (15x) the Index
The Fund may invest in or gain exposure to only a representative sample of the
securities in the Index or to securities or financial instruments not contained in
the Index with the intent of obtaining exposure with aggregate characteristics
similar to those of a multiple of the Index
The Fund seeks to remain fully invested at all times in securities andor financial
instruments that in combination provide leveraged exposure to the Index
without regard to market conditions trends or direction
At the close of the US securities markets on each trading day the Fund will seek
to position its portfolio so that its exposure to the Index is consistent with the
Fundrsquos investment objective The Indexrsquos movements during the day will affect
whether the Fundrsquos portfolio needs to be re-positioned For example if the Index
has risen on a given day net assets of the Fund should rise As a result the
Fundrsquos exposure will need to be increased Conversely if the Index has fallen on
a given day net assets of the Fund should fall As a result the Fundrsquos exposure
will need to be decreased
Because of daily rebalancing and the compounding of each dayrsquos return over
time the return of the Fund for periods longer than a single day will be the result
of each dayrsquos returns compounded over the period which will very likely differ
from one and one-half times (15x) the return of the Index over the same period
(Source Profund) The Fund will lose money if the level of the Index is flat over
time and it is possible that the Fund will lose money over time even if the level
8
of the Index rises as a result of daily rebalancing the Indexrsquos volatility and the
effects of compounding
The Fund will concentrate its investments in a particular industry or group of
industries to approximately the same extent as the Index is so concentrated
As of the close of business on September 30 2013 the Index was concentrated in
the oil and gas industry group which comprised approximately 100 of the
market capitalization of the Index
24Performance amp return of Oil amp Gas UltraSector ProFund
Portfolio Turnover
The Fund pays transaction costs such as commissions when it buys and sells
securities (or ldquoturns overrdquo its portfolio) A higher portfolio turnover may indicate
higher transaction costs and may result in higher taxes when the Fundrsquos shares
are held in a taxable account These costs affect the Fundrsquos performance During
the most recent fiscal year the Fundrsquos annual portfolio turnover rate was 4 of
the average value of its entire portfolio This portfolio turnover rate is calculated
without regard to cash instrument or derivatives transactions If such transactions
were included the Fundrsquos portfolio turnover rate would be significantly higher
Investment Results
The bar chart below shows how the Fundrsquos investment results for Investor Class
shares have varied from year to year and the table shows how the Fundrsquos average
annual total returns for various periods compare with two broad measures of
market performance
Figure 21 Average Annual Total Returns as of December 31 2012
Source ProFunds
Best Quarter (ended 12312010) 3220
Worst Quarter (ended 12312008) -3833
The year-to-date return as of the most recent quarter which ended September 30
2013 was 2387 (Source Profund)
33
46 46
27
46
-56
19 26
0 4
-80
-60
-40
-20
0
20
40
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Annual Returns of Investor Class Shares as of December 31 each year
9
Table 24 Average Annual Total Returns as of December 31 2012
One Year Five Years Ten Years Inception
Date
Investor Class Shares 1 -753 1361 061900
Before Taxes
After Texas on
Distributions
361 -753 1342
After Texas on
Distributions and
Sales of Shares
235 -624 1221
Service Class Shares 260 -845 1221 061900
SampP 500 1600 166 710
Down Jones US Oil
amp Gas Index
471 -035 1377
Source ProFunds
Fund Return
The Indexrsquos annualized historical volatility rate for the five-year period ended
September 30 2013 was 3299 The Indexrsquos highest September to September
volatility rate during the five-year period was 5803 (September 30 2009)
The Indexrsquos annualized performance for the five-year period ended September
30 2013 was 1450 (Source Profund)
The table below represents performance and returns of the fund as of 13102014
The investment return and principal value of an investment will fluctuate so that
an investors shares when redeemed may be worth more or less than the original
cost Returns include the reinvestment of dividends and capital gains
Table 25 Annual Total Returns Summary
YTD (as of 10132014) -1264
Average Annual One Year 1518
Average Annual Three Year 2305
Average Annual Five Year 1450
Average Annual Ten Year 1083
Average Annual Since Inception 803
Cumulative Since Inception 20143
Gross Expense Ratio 183
Net Expense Ratio 178
(Source httpwwwprofundscom)
10
25 Summary of this chapter
The success of Oil amp Gas UltraSector Profund has brought huge amount of profit
to Profund Company The investment in the energy index helps Profund having
an operation mechanism as an open-end fund with more diversified product as
well as better risk diversification
In Vietnams stock market there are three exchange-traded funds operating and
simulate Vietnamlsquos stock market index Except Ishare Frontier Market has the
low proportion of asset invested in Vietnam the other two funds are familiar to
investors The Market Vectors Vietnam ETF and DB X-Tracker FTSE Vietnam
have continuously dominated the market over the years As of mid-September
2014 the total assets of The Market Vectors Vietnam ETF reached nearly 630
million USD an increase of 270 times in the last 5 years Similarly X-Tracker
DB FTSE Vietnam has managed 400 million USD assets up 82-times since
2008 (Source Cafef)
Since 2011 Intelligent Financial Research amp Consulting (IFRC) and the
Petrovietnam Securities Incorporation (PSI) ndash a subsidiary of PVN have
collaborated building a PVN-Index which composing of all listed companies in
Vietnamese oil amp gas industry PVN-Index is an index consisting of two groups
of representatives and investment indicators starting year 2008 Representative
groups have again been divided into market index (PVNAllshare PVNAllshare
Continuous PVNAllshare HOSE PVNAllshare HNX) and the sector index (oil
and gas basic materials financial industrial and consumers service) Investment
index which also known as PVN10 including 10 stocks with largest market
capitalization and trading value on Ho Chi Minh Stock Exchange (HOSE) and
Hanoi Stock Exchange (HNX) (Sources wwwpvnindexvn)
PVN-Index appeared on the market since May 82012 but so far there are none
of fund management companies in Vietnam have applied this index The best
practice case of Oil amp Gas UltraSector ProFund indicates that there are many
opportunities and long-term benefits (in term of return and performance) for a
fund management company to establish a open-ended fund which imitates an oil
amp gas sector index (in this case PVN-Index) This type of new fund will
overcome the problem of low liquidity which is inherent disadvantage of open-
ended funds at the same time solve the problematic ldquohigh discount raterdquo of
closed-end funds With this new type of fund which imitates energy sector index
the investor will invest in a basket of index easy to follow and suitable for small
investors non-professional investors or foreign institutional investors (pension
funds insurance funds) Also investing in a basket of securities also limit the
market abuse and manipulation
PVFC Capital could apply the practical case of ProFund to create transparent
investment product flexible trading mechanisms risk diversification and
professional management The application of this fund type also help to attract
new investors new capital flows making it easier to attract more capital sources
from the economy through the primary market In addition if PVFC Capital
could establish a similar successful index fund it also leads to positive behavioral
changes in term of investment culture Rather than investing in individual stocks
separately requires more time to analyze the market and transaction time This is
becoming more difficult as the number of shares listed have increased even up to
thousands of stocks
11
CHAPTER 3
SITUATIONAL ANALYSIS
31 Status of fund management companies and Open-ended funds in
Vietnam market
Open-ended Fund is a new type of fund in Vietnam But in the world over 90
of the fund established in the form of open-ended funds The legal basis of the
fund is 1832011TT-BTC Circular - Ministry of Finance which provides the
framework for establishment and management of Open-ended Fund effectively
from 132012 Since then some new fund was established in Vietnam under the
form of Open-ended funds
In the beginning of 2013 only 03 open-end funds were established By the end of
the year there were 08 open-end fund was established (03 of them are former
Closed-end fund and just converted to Open-end funds) Currently there are only
546 fund management companies in the market successfully established Open-
ended fund and 02 companies are in the process of raising capital (See Appendix
1)
General characteristics of the Open-end funds were established as follows
Small scale the Open-ended funds have been established in Vietnam are in small
scale from 50-70 billion VND (minimum size prescribed by the State Security
Commission (SSC) is 50 billion)
The investment objectives to invest primarily in bonds and securities that
generate fixed -income and have low-risk This is consistent with the prudent
investors who aim to preserve capital and investment return just higher than
saving rate Only 2 Open-ended fund invest in listed stocks
32 Oil amp gas sector in Vietnam
PetroVietnam Group (PVN) is the biggest group of Vietnam and it contributes
20 of the countryrsquos annual GDP PVNrsquos annual revenue reached VND 773
trillion (or US$ 37 billion) in 2013
PVN plays a very important part in contributing to Vietnamrsquos state budget In
2013 it contributed VND 195 trillion to the total state budget an increase of
45 compared with 2012 For the first 9 months of 2014 PVN contributed
Oil and Gas sector in general and its exploration and services sector in particular
have robustly developed in the past years and are expected to continue its strong
growth to meet the demand of the socio-economic development of Vietnam
According the master plan of oil and gas sector development for the period of
2006-2025 capital demand to meet with the sector development will be about
US$ 1275 - 1335 billion accounting for 20-22 of the total investment demand
of the whole economy (Source PVN)
PVN has 32 companies (as its subsidiaries) listing on Ho Chi Minh Stock
Exchange and Hanoi Stock Exchange of Vietnam PetroVietnam Securities
Incorporation (PSI) started developing PVN-Index reflecting the performance of
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
viii
LIST OF ABBREVIATIONS
ETF Exchange ndash Traded Fund
FC Fund Certificate
HNX Hanoi Stock Exchange
NAV Net Asset Value
VN30 30 biggest companies in the Vietnam Stock market
VEFF Vietnam Equitization Focused Fund
VIP LLC Vietnam Investment Platform
PVN Petrovietnam Oil amp Gas Group
PVcomBank Vietnam Public Bank
PVFC Capital Petrovietnam Finance Fund Incorporation
PVGF PetroVietnam Growth Open-ended Fund
PVN-Index 32 listed companies of PetroVietnam on two stock
exchanges of Vietnam
PVN-10 Index 10 biggest share of PVN in the Vietnam Stock market
1
CHAPTER 1
INTRODUCTION
11Rationale
PVFC Capital is the exclusive fund management company within PetroVietnam
Oil amp Gas Group (PVN) Established at the very early stage of the fund
management industry of Vietnam PVFC Capital serves as the fund raising and
fund management arm of the Group With expertise in oil and energy sector our
funds and portfolios have unique advantages in addition to wide range of selected
equities
Background of PVFC Capital
The exclusive fund management company within PetroVietnam Group
Establishment 14 December 2007
Chartered capital VND 100 billion (US$5million)
Shareholders
- PVcomBank (merger between Petrovietnam Finance Corporation
amp Western Bank)
- SOVICO (leading Investment Group)
Number of Employees 33
Assets under management US$490 million (~10 trillion VND)
Table 11 Asset under management
Local fund Offshore fund Portfolio management
Size of assets US$ 35
million
US$ 7 million US$ 480 million
Establishment Nov 2011 Aug 2008 2008
Accumulated
NAV growth
+113 +27 13year for FY2012
Source PVFC Capital
In a typical fund management company there are normally two main
departments Business Development Department and Investment Department I
have chance to apply the knowledge acquired and enhance my experience in both
fields here Particularly my main responsibilities as an associate including
operations for investment promotion market researching and customer
relationship development I also participate assist and support investment team in
analysis of investment opportunities daily work of fund management and
portfolio management
2
As an exclusive fund management company of PetroVietnam and a dynamic
member of PVcomBank PVFC Capital receives continued support as well as
inherits significant experience from PVcombank in terms of financial
management and investment and advantages in oil and gas sector
Funds and entrusted assets managed by PVFC Capital are from both foreign and
domestic investors PVFC Capital possesses a proven track record in asset
management and invaluable experience in the oil and energy sector with the total
value of successfully managed assets of more than VND 10000 billion
The company is managing two funds (one local fund and one offshore fund) with
net asset of 105 million US dollars and eleven investment portfolios with total
net value of 480 million US dollars (Source PVFC Capital) We have to deliver
the report monthly quarterly yearly to investors who are very interested in the
updated information of ther net asset value in the fund Beside the macro-
economic and stock market scanning we have to make recommendation to them
in which stock bonds or financial assets should be bought sold or hold
12Problem statement
The biggest problem of PVFC Capital at the moment is difficulties in establishing
a new fund given current situation of the economy Over the last few years after
the booming period Vietnam encounter the stabilization of the macroeconomic
Compare to the previous time investors are more conservative in their invesment
decisions
Based on market conditions and the current activities of PVFC Capital we realize
it is a critical task to raise fund as well as demand for new potential partners in
local and overseas It is our challenges to expand new customer network to
access and exploit more opportunities from potential partners to establish a new
fund
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (8645227 USD out of total 1435655 USD revenue) As
of 31122013 the company has been managing 11 (eleven) portfolios in
domestic trusts and two foreign investment portfolio with total Net asset value of
about 450000000 USD (Source PVFC Capital)
Currently only two active funds are under our management which are Vietnam
Equitization Focused Fund (VEFF) amp Vietnam Investment Platform (VIP LLC)
both raising from Japanese investors Revenue from fund management in FY
2013 is 130000 USD contributed only 88 of total revenue (Source PVFC
Capital) For a fund management company this revenue structure needs to be
adjusted in the direction that increasing revenue from fund management
activities besides extremely well-managed and active portfolio management
activities
In addition since 2011 the company has not mobilized new funds after the
success of the fund establishment of VEFF Hence there is urgent need now to
establish new funds making revenue from this activity access to new capital
3
flow from investors in order to invest in opportunities within and outside the
petroleum industry
13Objective of the research
This research has the following objectives
o Review current situation of fund management companies and open-ended
funds in Vietnam market
o Identify the main causative factors of PVFC Capital lsquos unbalanced
revenue structure and difficulties in fund raising
o Evaluate the advantages and out-perform characteristics of PVGF in
compare to other form of fund
o Identify solution for PVFC Capital lsquos top management to raising capital
for this new type of fund
14Conceptual framework of the study
Figure 11 shows the approach to the research Firstly overview of PVFC Capital
and through impact model the main issues was defined Before analyzing the
prospects of PVGF the case study of ProFunds UltraSector Oil amp Gas Svc was
introduced as an example of the best practice of an open-ended fund investing in
oil amp gas index
Figure 11 Conceptual Framework of the Study
PROBLEM DEFINITION
BEST PRACTICE OF PROFUNDS
SITUATIONAL ANALYSIS
IMPACT MODEL
DEVELOPING PVGF
ALTERNATIVE SOLUTIONS amp EVALUATION
RECOMMENDATIONS amp CONCLUSION
4
15Scope of the research and data collection
To get the thorough understanding of the opportunities as well as challenges
investing in PVGF the information was retrieved from top management level
(Head of Department) to each associate in different unit in the organization
The primary information was collected though the questionnaires though internal
meeting and internal seminar with all the staff in the company and though the in-
depth interview with head of three most important department in PVFC Capital
which are Business Development Department Investment Department and
Internal Control Department
The secondary data were collected from
o Company profile
o Annual reports
o MonthlyAnnual Investment Report to investors
o Offering Letter to potential investor
o Updated data of PVN-Index from PSI
o PVFC Capitalrsquos Brochure
o Internal seminar Presentation on PVGF
o Other PVGF-related documents
o Public media (newspaper website magazineshellip)
16Organization of the research study
The research includes 7 chapters and its structure is as follows
Chapter 1 Introduction
This chapter provides a brief introduction the research rationales the main issue
research approach and the research structure
Chapter 2 Best Practice
Case of best practice on investing with open-ended fund in oil amp gas index was
used as examples to illustrate the theory and justification of the researcher
Chapter 3 Situational analysis
Chapter 3 provides a status of fund management companies and open-ended fund
in Vietnam market The chapter also discusses the main causative agents and the
result in the need to mobilize and establish a new fund of PVFC Capital
Chapter 4 Developing PVGF
Chapter 4 introduces the PVGF its investment objective strategy and its
advantages compared to other type of funds
5
Chapter 5 Fund development alternative
Chapter 5 provides solution for introduces the new fund of PVGF into the
Vietnam market such as small-scale starting with utilization of the capital from
shareholder as well as enhancing networking activities
The chapter provides alternative solution for introduces exchange-traded fund as
another effective investment tool for PVFC Capital It also compares and
contrasts between the two solutions and evaluates which solution is the most
appropriate one
Chapter 6 Recommendation and conclusion
Chapter 6 wraps up the above chapters conducts two action plans to raising
capital for PVFG as well as recommendations to PVFC Capitallsquos top
management board and strategic shareholders
6
CHAPTER 2
BEST PRACTICE A CASE STUDY OF PROFUNDS ULTRASECTOR
OIL amp GAS SVC
21Introduction
Oil amp Gas UltraSector ProFund is an open-end fund incorporated in the USA
The Fund is advised by ProFund Advisors since October 2013
The Fund invests in securities and derivatives that ProFund Advisors believes in
combination should have similar daily return characteristics as one and one-half
times (15x) the daily return of the Index
22Index Benchmark Dow Jones US Oil amp Gas Index
The Index measures the performance of the oil and gas sector of the US equity
market Component companies include among others exploration and
production integrated oil and gas oil equipment and services pipelines
renewable energy equipment companies and alternative fuel producers As of
September 30 2013 the Index included companies with capitalizations between
$9090 million and $3787 billion The average capitalization of the companies
comprising the Index was approximately $212 billion (Source Profund) The
Index is published under the Bloomberg ticker symbol ldquoDJUSENrdquo
Table 21 Average Annual Total Returns as of December 31 2012
Total Index Companies 84 PriceEarnings Ratio 1634 PriceBook Ratio 225 Dividend Yield 205 Average Index Market Capitalization 2486 billion
(Source httpwwwprofundscom)
Table 22 Index Sector Weightings
Index Sector Weightings Weight Oil amp Gas Producers 7196 Oil Equipment Services amp Distribution 2780 Alternative Energy 024
(Source httpwwwprofundscom)
7
Table 23 Top 10 Index Companies
Top 10 Index Companies Weight Exxon Mobil Corp 2070 Chevron Corp 1190 Schlumberger Ltd 735 ConocoPhillips Co 504 Occidental Petroleum Corp 386 EOG Resources Inc 306 Halliburton Co 287 Anadarko Petroleum Corp 265 Phillips 66 Co 218 The Williams Cos Inc 206
(Source httpwwwprofundscom)
23Investment strategy of Oil amp Gas UltraSector ProFund
ProFund Advisors uses a mathematical approach to investing Using this
approach ProFund Advisors determines the type quantity and mix of investment
positions that the Fund should hold to approximate on a daily basis the
performance of one and one-half times (15x) the Index
The Fund may invest in or gain exposure to only a representative sample of the
securities in the Index or to securities or financial instruments not contained in
the Index with the intent of obtaining exposure with aggregate characteristics
similar to those of a multiple of the Index
The Fund seeks to remain fully invested at all times in securities andor financial
instruments that in combination provide leveraged exposure to the Index
without regard to market conditions trends or direction
At the close of the US securities markets on each trading day the Fund will seek
to position its portfolio so that its exposure to the Index is consistent with the
Fundrsquos investment objective The Indexrsquos movements during the day will affect
whether the Fundrsquos portfolio needs to be re-positioned For example if the Index
has risen on a given day net assets of the Fund should rise As a result the
Fundrsquos exposure will need to be increased Conversely if the Index has fallen on
a given day net assets of the Fund should fall As a result the Fundrsquos exposure
will need to be decreased
Because of daily rebalancing and the compounding of each dayrsquos return over
time the return of the Fund for periods longer than a single day will be the result
of each dayrsquos returns compounded over the period which will very likely differ
from one and one-half times (15x) the return of the Index over the same period
(Source Profund) The Fund will lose money if the level of the Index is flat over
time and it is possible that the Fund will lose money over time even if the level
8
of the Index rises as a result of daily rebalancing the Indexrsquos volatility and the
effects of compounding
The Fund will concentrate its investments in a particular industry or group of
industries to approximately the same extent as the Index is so concentrated
As of the close of business on September 30 2013 the Index was concentrated in
the oil and gas industry group which comprised approximately 100 of the
market capitalization of the Index
24Performance amp return of Oil amp Gas UltraSector ProFund
Portfolio Turnover
The Fund pays transaction costs such as commissions when it buys and sells
securities (or ldquoturns overrdquo its portfolio) A higher portfolio turnover may indicate
higher transaction costs and may result in higher taxes when the Fundrsquos shares
are held in a taxable account These costs affect the Fundrsquos performance During
the most recent fiscal year the Fundrsquos annual portfolio turnover rate was 4 of
the average value of its entire portfolio This portfolio turnover rate is calculated
without regard to cash instrument or derivatives transactions If such transactions
were included the Fundrsquos portfolio turnover rate would be significantly higher
Investment Results
The bar chart below shows how the Fundrsquos investment results for Investor Class
shares have varied from year to year and the table shows how the Fundrsquos average
annual total returns for various periods compare with two broad measures of
market performance
Figure 21 Average Annual Total Returns as of December 31 2012
Source ProFunds
Best Quarter (ended 12312010) 3220
Worst Quarter (ended 12312008) -3833
The year-to-date return as of the most recent quarter which ended September 30
2013 was 2387 (Source Profund)
33
46 46
27
46
-56
19 26
0 4
-80
-60
-40
-20
0
20
40
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Annual Returns of Investor Class Shares as of December 31 each year
9
Table 24 Average Annual Total Returns as of December 31 2012
One Year Five Years Ten Years Inception
Date
Investor Class Shares 1 -753 1361 061900
Before Taxes
After Texas on
Distributions
361 -753 1342
After Texas on
Distributions and
Sales of Shares
235 -624 1221
Service Class Shares 260 -845 1221 061900
SampP 500 1600 166 710
Down Jones US Oil
amp Gas Index
471 -035 1377
Source ProFunds
Fund Return
The Indexrsquos annualized historical volatility rate for the five-year period ended
September 30 2013 was 3299 The Indexrsquos highest September to September
volatility rate during the five-year period was 5803 (September 30 2009)
The Indexrsquos annualized performance for the five-year period ended September
30 2013 was 1450 (Source Profund)
The table below represents performance and returns of the fund as of 13102014
The investment return and principal value of an investment will fluctuate so that
an investors shares when redeemed may be worth more or less than the original
cost Returns include the reinvestment of dividends and capital gains
Table 25 Annual Total Returns Summary
YTD (as of 10132014) -1264
Average Annual One Year 1518
Average Annual Three Year 2305
Average Annual Five Year 1450
Average Annual Ten Year 1083
Average Annual Since Inception 803
Cumulative Since Inception 20143
Gross Expense Ratio 183
Net Expense Ratio 178
(Source httpwwwprofundscom)
10
25 Summary of this chapter
The success of Oil amp Gas UltraSector Profund has brought huge amount of profit
to Profund Company The investment in the energy index helps Profund having
an operation mechanism as an open-end fund with more diversified product as
well as better risk diversification
In Vietnams stock market there are three exchange-traded funds operating and
simulate Vietnamlsquos stock market index Except Ishare Frontier Market has the
low proportion of asset invested in Vietnam the other two funds are familiar to
investors The Market Vectors Vietnam ETF and DB X-Tracker FTSE Vietnam
have continuously dominated the market over the years As of mid-September
2014 the total assets of The Market Vectors Vietnam ETF reached nearly 630
million USD an increase of 270 times in the last 5 years Similarly X-Tracker
DB FTSE Vietnam has managed 400 million USD assets up 82-times since
2008 (Source Cafef)
Since 2011 Intelligent Financial Research amp Consulting (IFRC) and the
Petrovietnam Securities Incorporation (PSI) ndash a subsidiary of PVN have
collaborated building a PVN-Index which composing of all listed companies in
Vietnamese oil amp gas industry PVN-Index is an index consisting of two groups
of representatives and investment indicators starting year 2008 Representative
groups have again been divided into market index (PVNAllshare PVNAllshare
Continuous PVNAllshare HOSE PVNAllshare HNX) and the sector index (oil
and gas basic materials financial industrial and consumers service) Investment
index which also known as PVN10 including 10 stocks with largest market
capitalization and trading value on Ho Chi Minh Stock Exchange (HOSE) and
Hanoi Stock Exchange (HNX) (Sources wwwpvnindexvn)
PVN-Index appeared on the market since May 82012 but so far there are none
of fund management companies in Vietnam have applied this index The best
practice case of Oil amp Gas UltraSector ProFund indicates that there are many
opportunities and long-term benefits (in term of return and performance) for a
fund management company to establish a open-ended fund which imitates an oil
amp gas sector index (in this case PVN-Index) This type of new fund will
overcome the problem of low liquidity which is inherent disadvantage of open-
ended funds at the same time solve the problematic ldquohigh discount raterdquo of
closed-end funds With this new type of fund which imitates energy sector index
the investor will invest in a basket of index easy to follow and suitable for small
investors non-professional investors or foreign institutional investors (pension
funds insurance funds) Also investing in a basket of securities also limit the
market abuse and manipulation
PVFC Capital could apply the practical case of ProFund to create transparent
investment product flexible trading mechanisms risk diversification and
professional management The application of this fund type also help to attract
new investors new capital flows making it easier to attract more capital sources
from the economy through the primary market In addition if PVFC Capital
could establish a similar successful index fund it also leads to positive behavioral
changes in term of investment culture Rather than investing in individual stocks
separately requires more time to analyze the market and transaction time This is
becoming more difficult as the number of shares listed have increased even up to
thousands of stocks
11
CHAPTER 3
SITUATIONAL ANALYSIS
31 Status of fund management companies and Open-ended funds in
Vietnam market
Open-ended Fund is a new type of fund in Vietnam But in the world over 90
of the fund established in the form of open-ended funds The legal basis of the
fund is 1832011TT-BTC Circular - Ministry of Finance which provides the
framework for establishment and management of Open-ended Fund effectively
from 132012 Since then some new fund was established in Vietnam under the
form of Open-ended funds
In the beginning of 2013 only 03 open-end funds were established By the end of
the year there were 08 open-end fund was established (03 of them are former
Closed-end fund and just converted to Open-end funds) Currently there are only
546 fund management companies in the market successfully established Open-
ended fund and 02 companies are in the process of raising capital (See Appendix
1)
General characteristics of the Open-end funds were established as follows
Small scale the Open-ended funds have been established in Vietnam are in small
scale from 50-70 billion VND (minimum size prescribed by the State Security
Commission (SSC) is 50 billion)
The investment objectives to invest primarily in bonds and securities that
generate fixed -income and have low-risk This is consistent with the prudent
investors who aim to preserve capital and investment return just higher than
saving rate Only 2 Open-ended fund invest in listed stocks
32 Oil amp gas sector in Vietnam
PetroVietnam Group (PVN) is the biggest group of Vietnam and it contributes
20 of the countryrsquos annual GDP PVNrsquos annual revenue reached VND 773
trillion (or US$ 37 billion) in 2013
PVN plays a very important part in contributing to Vietnamrsquos state budget In
2013 it contributed VND 195 trillion to the total state budget an increase of
45 compared with 2012 For the first 9 months of 2014 PVN contributed
Oil and Gas sector in general and its exploration and services sector in particular
have robustly developed in the past years and are expected to continue its strong
growth to meet the demand of the socio-economic development of Vietnam
According the master plan of oil and gas sector development for the period of
2006-2025 capital demand to meet with the sector development will be about
US$ 1275 - 1335 billion accounting for 20-22 of the total investment demand
of the whole economy (Source PVN)
PVN has 32 companies (as its subsidiaries) listing on Ho Chi Minh Stock
Exchange and Hanoi Stock Exchange of Vietnam PetroVietnam Securities
Incorporation (PSI) started developing PVN-Index reflecting the performance of
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
1
CHAPTER 1
INTRODUCTION
11Rationale
PVFC Capital is the exclusive fund management company within PetroVietnam
Oil amp Gas Group (PVN) Established at the very early stage of the fund
management industry of Vietnam PVFC Capital serves as the fund raising and
fund management arm of the Group With expertise in oil and energy sector our
funds and portfolios have unique advantages in addition to wide range of selected
equities
Background of PVFC Capital
The exclusive fund management company within PetroVietnam Group
Establishment 14 December 2007
Chartered capital VND 100 billion (US$5million)
Shareholders
- PVcomBank (merger between Petrovietnam Finance Corporation
amp Western Bank)
- SOVICO (leading Investment Group)
Number of Employees 33
Assets under management US$490 million (~10 trillion VND)
Table 11 Asset under management
Local fund Offshore fund Portfolio management
Size of assets US$ 35
million
US$ 7 million US$ 480 million
Establishment Nov 2011 Aug 2008 2008
Accumulated
NAV growth
+113 +27 13year for FY2012
Source PVFC Capital
In a typical fund management company there are normally two main
departments Business Development Department and Investment Department I
have chance to apply the knowledge acquired and enhance my experience in both
fields here Particularly my main responsibilities as an associate including
operations for investment promotion market researching and customer
relationship development I also participate assist and support investment team in
analysis of investment opportunities daily work of fund management and
portfolio management
2
As an exclusive fund management company of PetroVietnam and a dynamic
member of PVcomBank PVFC Capital receives continued support as well as
inherits significant experience from PVcombank in terms of financial
management and investment and advantages in oil and gas sector
Funds and entrusted assets managed by PVFC Capital are from both foreign and
domestic investors PVFC Capital possesses a proven track record in asset
management and invaluable experience in the oil and energy sector with the total
value of successfully managed assets of more than VND 10000 billion
The company is managing two funds (one local fund and one offshore fund) with
net asset of 105 million US dollars and eleven investment portfolios with total
net value of 480 million US dollars (Source PVFC Capital) We have to deliver
the report monthly quarterly yearly to investors who are very interested in the
updated information of ther net asset value in the fund Beside the macro-
economic and stock market scanning we have to make recommendation to them
in which stock bonds or financial assets should be bought sold or hold
12Problem statement
The biggest problem of PVFC Capital at the moment is difficulties in establishing
a new fund given current situation of the economy Over the last few years after
the booming period Vietnam encounter the stabilization of the macroeconomic
Compare to the previous time investors are more conservative in their invesment
decisions
Based on market conditions and the current activities of PVFC Capital we realize
it is a critical task to raise fund as well as demand for new potential partners in
local and overseas It is our challenges to expand new customer network to
access and exploit more opportunities from potential partners to establish a new
fund
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (8645227 USD out of total 1435655 USD revenue) As
of 31122013 the company has been managing 11 (eleven) portfolios in
domestic trusts and two foreign investment portfolio with total Net asset value of
about 450000000 USD (Source PVFC Capital)
Currently only two active funds are under our management which are Vietnam
Equitization Focused Fund (VEFF) amp Vietnam Investment Platform (VIP LLC)
both raising from Japanese investors Revenue from fund management in FY
2013 is 130000 USD contributed only 88 of total revenue (Source PVFC
Capital) For a fund management company this revenue structure needs to be
adjusted in the direction that increasing revenue from fund management
activities besides extremely well-managed and active portfolio management
activities
In addition since 2011 the company has not mobilized new funds after the
success of the fund establishment of VEFF Hence there is urgent need now to
establish new funds making revenue from this activity access to new capital
3
flow from investors in order to invest in opportunities within and outside the
petroleum industry
13Objective of the research
This research has the following objectives
o Review current situation of fund management companies and open-ended
funds in Vietnam market
o Identify the main causative factors of PVFC Capital lsquos unbalanced
revenue structure and difficulties in fund raising
o Evaluate the advantages and out-perform characteristics of PVGF in
compare to other form of fund
o Identify solution for PVFC Capital lsquos top management to raising capital
for this new type of fund
14Conceptual framework of the study
Figure 11 shows the approach to the research Firstly overview of PVFC Capital
and through impact model the main issues was defined Before analyzing the
prospects of PVGF the case study of ProFunds UltraSector Oil amp Gas Svc was
introduced as an example of the best practice of an open-ended fund investing in
oil amp gas index
Figure 11 Conceptual Framework of the Study
PROBLEM DEFINITION
BEST PRACTICE OF PROFUNDS
SITUATIONAL ANALYSIS
IMPACT MODEL
DEVELOPING PVGF
ALTERNATIVE SOLUTIONS amp EVALUATION
RECOMMENDATIONS amp CONCLUSION
4
15Scope of the research and data collection
To get the thorough understanding of the opportunities as well as challenges
investing in PVGF the information was retrieved from top management level
(Head of Department) to each associate in different unit in the organization
The primary information was collected though the questionnaires though internal
meeting and internal seminar with all the staff in the company and though the in-
depth interview with head of three most important department in PVFC Capital
which are Business Development Department Investment Department and
Internal Control Department
The secondary data were collected from
o Company profile
o Annual reports
o MonthlyAnnual Investment Report to investors
o Offering Letter to potential investor
o Updated data of PVN-Index from PSI
o PVFC Capitalrsquos Brochure
o Internal seminar Presentation on PVGF
o Other PVGF-related documents
o Public media (newspaper website magazineshellip)
16Organization of the research study
The research includes 7 chapters and its structure is as follows
Chapter 1 Introduction
This chapter provides a brief introduction the research rationales the main issue
research approach and the research structure
Chapter 2 Best Practice
Case of best practice on investing with open-ended fund in oil amp gas index was
used as examples to illustrate the theory and justification of the researcher
Chapter 3 Situational analysis
Chapter 3 provides a status of fund management companies and open-ended fund
in Vietnam market The chapter also discusses the main causative agents and the
result in the need to mobilize and establish a new fund of PVFC Capital
Chapter 4 Developing PVGF
Chapter 4 introduces the PVGF its investment objective strategy and its
advantages compared to other type of funds
5
Chapter 5 Fund development alternative
Chapter 5 provides solution for introduces the new fund of PVGF into the
Vietnam market such as small-scale starting with utilization of the capital from
shareholder as well as enhancing networking activities
The chapter provides alternative solution for introduces exchange-traded fund as
another effective investment tool for PVFC Capital It also compares and
contrasts between the two solutions and evaluates which solution is the most
appropriate one
Chapter 6 Recommendation and conclusion
Chapter 6 wraps up the above chapters conducts two action plans to raising
capital for PVFG as well as recommendations to PVFC Capitallsquos top
management board and strategic shareholders
6
CHAPTER 2
BEST PRACTICE A CASE STUDY OF PROFUNDS ULTRASECTOR
OIL amp GAS SVC
21Introduction
Oil amp Gas UltraSector ProFund is an open-end fund incorporated in the USA
The Fund is advised by ProFund Advisors since October 2013
The Fund invests in securities and derivatives that ProFund Advisors believes in
combination should have similar daily return characteristics as one and one-half
times (15x) the daily return of the Index
22Index Benchmark Dow Jones US Oil amp Gas Index
The Index measures the performance of the oil and gas sector of the US equity
market Component companies include among others exploration and
production integrated oil and gas oil equipment and services pipelines
renewable energy equipment companies and alternative fuel producers As of
September 30 2013 the Index included companies with capitalizations between
$9090 million and $3787 billion The average capitalization of the companies
comprising the Index was approximately $212 billion (Source Profund) The
Index is published under the Bloomberg ticker symbol ldquoDJUSENrdquo
Table 21 Average Annual Total Returns as of December 31 2012
Total Index Companies 84 PriceEarnings Ratio 1634 PriceBook Ratio 225 Dividend Yield 205 Average Index Market Capitalization 2486 billion
(Source httpwwwprofundscom)
Table 22 Index Sector Weightings
Index Sector Weightings Weight Oil amp Gas Producers 7196 Oil Equipment Services amp Distribution 2780 Alternative Energy 024
(Source httpwwwprofundscom)
7
Table 23 Top 10 Index Companies
Top 10 Index Companies Weight Exxon Mobil Corp 2070 Chevron Corp 1190 Schlumberger Ltd 735 ConocoPhillips Co 504 Occidental Petroleum Corp 386 EOG Resources Inc 306 Halliburton Co 287 Anadarko Petroleum Corp 265 Phillips 66 Co 218 The Williams Cos Inc 206
(Source httpwwwprofundscom)
23Investment strategy of Oil amp Gas UltraSector ProFund
ProFund Advisors uses a mathematical approach to investing Using this
approach ProFund Advisors determines the type quantity and mix of investment
positions that the Fund should hold to approximate on a daily basis the
performance of one and one-half times (15x) the Index
The Fund may invest in or gain exposure to only a representative sample of the
securities in the Index or to securities or financial instruments not contained in
the Index with the intent of obtaining exposure with aggregate characteristics
similar to those of a multiple of the Index
The Fund seeks to remain fully invested at all times in securities andor financial
instruments that in combination provide leveraged exposure to the Index
without regard to market conditions trends or direction
At the close of the US securities markets on each trading day the Fund will seek
to position its portfolio so that its exposure to the Index is consistent with the
Fundrsquos investment objective The Indexrsquos movements during the day will affect
whether the Fundrsquos portfolio needs to be re-positioned For example if the Index
has risen on a given day net assets of the Fund should rise As a result the
Fundrsquos exposure will need to be increased Conversely if the Index has fallen on
a given day net assets of the Fund should fall As a result the Fundrsquos exposure
will need to be decreased
Because of daily rebalancing and the compounding of each dayrsquos return over
time the return of the Fund for periods longer than a single day will be the result
of each dayrsquos returns compounded over the period which will very likely differ
from one and one-half times (15x) the return of the Index over the same period
(Source Profund) The Fund will lose money if the level of the Index is flat over
time and it is possible that the Fund will lose money over time even if the level
8
of the Index rises as a result of daily rebalancing the Indexrsquos volatility and the
effects of compounding
The Fund will concentrate its investments in a particular industry or group of
industries to approximately the same extent as the Index is so concentrated
As of the close of business on September 30 2013 the Index was concentrated in
the oil and gas industry group which comprised approximately 100 of the
market capitalization of the Index
24Performance amp return of Oil amp Gas UltraSector ProFund
Portfolio Turnover
The Fund pays transaction costs such as commissions when it buys and sells
securities (or ldquoturns overrdquo its portfolio) A higher portfolio turnover may indicate
higher transaction costs and may result in higher taxes when the Fundrsquos shares
are held in a taxable account These costs affect the Fundrsquos performance During
the most recent fiscal year the Fundrsquos annual portfolio turnover rate was 4 of
the average value of its entire portfolio This portfolio turnover rate is calculated
without regard to cash instrument or derivatives transactions If such transactions
were included the Fundrsquos portfolio turnover rate would be significantly higher
Investment Results
The bar chart below shows how the Fundrsquos investment results for Investor Class
shares have varied from year to year and the table shows how the Fundrsquos average
annual total returns for various periods compare with two broad measures of
market performance
Figure 21 Average Annual Total Returns as of December 31 2012
Source ProFunds
Best Quarter (ended 12312010) 3220
Worst Quarter (ended 12312008) -3833
The year-to-date return as of the most recent quarter which ended September 30
2013 was 2387 (Source Profund)
33
46 46
27
46
-56
19 26
0 4
-80
-60
-40
-20
0
20
40
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Annual Returns of Investor Class Shares as of December 31 each year
9
Table 24 Average Annual Total Returns as of December 31 2012
One Year Five Years Ten Years Inception
Date
Investor Class Shares 1 -753 1361 061900
Before Taxes
After Texas on
Distributions
361 -753 1342
After Texas on
Distributions and
Sales of Shares
235 -624 1221
Service Class Shares 260 -845 1221 061900
SampP 500 1600 166 710
Down Jones US Oil
amp Gas Index
471 -035 1377
Source ProFunds
Fund Return
The Indexrsquos annualized historical volatility rate for the five-year period ended
September 30 2013 was 3299 The Indexrsquos highest September to September
volatility rate during the five-year period was 5803 (September 30 2009)
The Indexrsquos annualized performance for the five-year period ended September
30 2013 was 1450 (Source Profund)
The table below represents performance and returns of the fund as of 13102014
The investment return and principal value of an investment will fluctuate so that
an investors shares when redeemed may be worth more or less than the original
cost Returns include the reinvestment of dividends and capital gains
Table 25 Annual Total Returns Summary
YTD (as of 10132014) -1264
Average Annual One Year 1518
Average Annual Three Year 2305
Average Annual Five Year 1450
Average Annual Ten Year 1083
Average Annual Since Inception 803
Cumulative Since Inception 20143
Gross Expense Ratio 183
Net Expense Ratio 178
(Source httpwwwprofundscom)
10
25 Summary of this chapter
The success of Oil amp Gas UltraSector Profund has brought huge amount of profit
to Profund Company The investment in the energy index helps Profund having
an operation mechanism as an open-end fund with more diversified product as
well as better risk diversification
In Vietnams stock market there are three exchange-traded funds operating and
simulate Vietnamlsquos stock market index Except Ishare Frontier Market has the
low proportion of asset invested in Vietnam the other two funds are familiar to
investors The Market Vectors Vietnam ETF and DB X-Tracker FTSE Vietnam
have continuously dominated the market over the years As of mid-September
2014 the total assets of The Market Vectors Vietnam ETF reached nearly 630
million USD an increase of 270 times in the last 5 years Similarly X-Tracker
DB FTSE Vietnam has managed 400 million USD assets up 82-times since
2008 (Source Cafef)
Since 2011 Intelligent Financial Research amp Consulting (IFRC) and the
Petrovietnam Securities Incorporation (PSI) ndash a subsidiary of PVN have
collaborated building a PVN-Index which composing of all listed companies in
Vietnamese oil amp gas industry PVN-Index is an index consisting of two groups
of representatives and investment indicators starting year 2008 Representative
groups have again been divided into market index (PVNAllshare PVNAllshare
Continuous PVNAllshare HOSE PVNAllshare HNX) and the sector index (oil
and gas basic materials financial industrial and consumers service) Investment
index which also known as PVN10 including 10 stocks with largest market
capitalization and trading value on Ho Chi Minh Stock Exchange (HOSE) and
Hanoi Stock Exchange (HNX) (Sources wwwpvnindexvn)
PVN-Index appeared on the market since May 82012 but so far there are none
of fund management companies in Vietnam have applied this index The best
practice case of Oil amp Gas UltraSector ProFund indicates that there are many
opportunities and long-term benefits (in term of return and performance) for a
fund management company to establish a open-ended fund which imitates an oil
amp gas sector index (in this case PVN-Index) This type of new fund will
overcome the problem of low liquidity which is inherent disadvantage of open-
ended funds at the same time solve the problematic ldquohigh discount raterdquo of
closed-end funds With this new type of fund which imitates energy sector index
the investor will invest in a basket of index easy to follow and suitable for small
investors non-professional investors or foreign institutional investors (pension
funds insurance funds) Also investing in a basket of securities also limit the
market abuse and manipulation
PVFC Capital could apply the practical case of ProFund to create transparent
investment product flexible trading mechanisms risk diversification and
professional management The application of this fund type also help to attract
new investors new capital flows making it easier to attract more capital sources
from the economy through the primary market In addition if PVFC Capital
could establish a similar successful index fund it also leads to positive behavioral
changes in term of investment culture Rather than investing in individual stocks
separately requires more time to analyze the market and transaction time This is
becoming more difficult as the number of shares listed have increased even up to
thousands of stocks
11
CHAPTER 3
SITUATIONAL ANALYSIS
31 Status of fund management companies and Open-ended funds in
Vietnam market
Open-ended Fund is a new type of fund in Vietnam But in the world over 90
of the fund established in the form of open-ended funds The legal basis of the
fund is 1832011TT-BTC Circular - Ministry of Finance which provides the
framework for establishment and management of Open-ended Fund effectively
from 132012 Since then some new fund was established in Vietnam under the
form of Open-ended funds
In the beginning of 2013 only 03 open-end funds were established By the end of
the year there were 08 open-end fund was established (03 of them are former
Closed-end fund and just converted to Open-end funds) Currently there are only
546 fund management companies in the market successfully established Open-
ended fund and 02 companies are in the process of raising capital (See Appendix
1)
General characteristics of the Open-end funds were established as follows
Small scale the Open-ended funds have been established in Vietnam are in small
scale from 50-70 billion VND (minimum size prescribed by the State Security
Commission (SSC) is 50 billion)
The investment objectives to invest primarily in bonds and securities that
generate fixed -income and have low-risk This is consistent with the prudent
investors who aim to preserve capital and investment return just higher than
saving rate Only 2 Open-ended fund invest in listed stocks
32 Oil amp gas sector in Vietnam
PetroVietnam Group (PVN) is the biggest group of Vietnam and it contributes
20 of the countryrsquos annual GDP PVNrsquos annual revenue reached VND 773
trillion (or US$ 37 billion) in 2013
PVN plays a very important part in contributing to Vietnamrsquos state budget In
2013 it contributed VND 195 trillion to the total state budget an increase of
45 compared with 2012 For the first 9 months of 2014 PVN contributed
Oil and Gas sector in general and its exploration and services sector in particular
have robustly developed in the past years and are expected to continue its strong
growth to meet the demand of the socio-economic development of Vietnam
According the master plan of oil and gas sector development for the period of
2006-2025 capital demand to meet with the sector development will be about
US$ 1275 - 1335 billion accounting for 20-22 of the total investment demand
of the whole economy (Source PVN)
PVN has 32 companies (as its subsidiaries) listing on Ho Chi Minh Stock
Exchange and Hanoi Stock Exchange of Vietnam PetroVietnam Securities
Incorporation (PSI) started developing PVN-Index reflecting the performance of
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
2
As an exclusive fund management company of PetroVietnam and a dynamic
member of PVcomBank PVFC Capital receives continued support as well as
inherits significant experience from PVcombank in terms of financial
management and investment and advantages in oil and gas sector
Funds and entrusted assets managed by PVFC Capital are from both foreign and
domestic investors PVFC Capital possesses a proven track record in asset
management and invaluable experience in the oil and energy sector with the total
value of successfully managed assets of more than VND 10000 billion
The company is managing two funds (one local fund and one offshore fund) with
net asset of 105 million US dollars and eleven investment portfolios with total
net value of 480 million US dollars (Source PVFC Capital) We have to deliver
the report monthly quarterly yearly to investors who are very interested in the
updated information of ther net asset value in the fund Beside the macro-
economic and stock market scanning we have to make recommendation to them
in which stock bonds or financial assets should be bought sold or hold
12Problem statement
The biggest problem of PVFC Capital at the moment is difficulties in establishing
a new fund given current situation of the economy Over the last few years after
the booming period Vietnam encounter the stabilization of the macroeconomic
Compare to the previous time investors are more conservative in their invesment
decisions
Based on market conditions and the current activities of PVFC Capital we realize
it is a critical task to raise fund as well as demand for new potential partners in
local and overseas It is our challenges to expand new customer network to
access and exploit more opportunities from potential partners to establish a new
fund
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (8645227 USD out of total 1435655 USD revenue) As
of 31122013 the company has been managing 11 (eleven) portfolios in
domestic trusts and two foreign investment portfolio with total Net asset value of
about 450000000 USD (Source PVFC Capital)
Currently only two active funds are under our management which are Vietnam
Equitization Focused Fund (VEFF) amp Vietnam Investment Platform (VIP LLC)
both raising from Japanese investors Revenue from fund management in FY
2013 is 130000 USD contributed only 88 of total revenue (Source PVFC
Capital) For a fund management company this revenue structure needs to be
adjusted in the direction that increasing revenue from fund management
activities besides extremely well-managed and active portfolio management
activities
In addition since 2011 the company has not mobilized new funds after the
success of the fund establishment of VEFF Hence there is urgent need now to
establish new funds making revenue from this activity access to new capital
3
flow from investors in order to invest in opportunities within and outside the
petroleum industry
13Objective of the research
This research has the following objectives
o Review current situation of fund management companies and open-ended
funds in Vietnam market
o Identify the main causative factors of PVFC Capital lsquos unbalanced
revenue structure and difficulties in fund raising
o Evaluate the advantages and out-perform characteristics of PVGF in
compare to other form of fund
o Identify solution for PVFC Capital lsquos top management to raising capital
for this new type of fund
14Conceptual framework of the study
Figure 11 shows the approach to the research Firstly overview of PVFC Capital
and through impact model the main issues was defined Before analyzing the
prospects of PVGF the case study of ProFunds UltraSector Oil amp Gas Svc was
introduced as an example of the best practice of an open-ended fund investing in
oil amp gas index
Figure 11 Conceptual Framework of the Study
PROBLEM DEFINITION
BEST PRACTICE OF PROFUNDS
SITUATIONAL ANALYSIS
IMPACT MODEL
DEVELOPING PVGF
ALTERNATIVE SOLUTIONS amp EVALUATION
RECOMMENDATIONS amp CONCLUSION
4
15Scope of the research and data collection
To get the thorough understanding of the opportunities as well as challenges
investing in PVGF the information was retrieved from top management level
(Head of Department) to each associate in different unit in the organization
The primary information was collected though the questionnaires though internal
meeting and internal seminar with all the staff in the company and though the in-
depth interview with head of three most important department in PVFC Capital
which are Business Development Department Investment Department and
Internal Control Department
The secondary data were collected from
o Company profile
o Annual reports
o MonthlyAnnual Investment Report to investors
o Offering Letter to potential investor
o Updated data of PVN-Index from PSI
o PVFC Capitalrsquos Brochure
o Internal seminar Presentation on PVGF
o Other PVGF-related documents
o Public media (newspaper website magazineshellip)
16Organization of the research study
The research includes 7 chapters and its structure is as follows
Chapter 1 Introduction
This chapter provides a brief introduction the research rationales the main issue
research approach and the research structure
Chapter 2 Best Practice
Case of best practice on investing with open-ended fund in oil amp gas index was
used as examples to illustrate the theory and justification of the researcher
Chapter 3 Situational analysis
Chapter 3 provides a status of fund management companies and open-ended fund
in Vietnam market The chapter also discusses the main causative agents and the
result in the need to mobilize and establish a new fund of PVFC Capital
Chapter 4 Developing PVGF
Chapter 4 introduces the PVGF its investment objective strategy and its
advantages compared to other type of funds
5
Chapter 5 Fund development alternative
Chapter 5 provides solution for introduces the new fund of PVGF into the
Vietnam market such as small-scale starting with utilization of the capital from
shareholder as well as enhancing networking activities
The chapter provides alternative solution for introduces exchange-traded fund as
another effective investment tool for PVFC Capital It also compares and
contrasts between the two solutions and evaluates which solution is the most
appropriate one
Chapter 6 Recommendation and conclusion
Chapter 6 wraps up the above chapters conducts two action plans to raising
capital for PVFG as well as recommendations to PVFC Capitallsquos top
management board and strategic shareholders
6
CHAPTER 2
BEST PRACTICE A CASE STUDY OF PROFUNDS ULTRASECTOR
OIL amp GAS SVC
21Introduction
Oil amp Gas UltraSector ProFund is an open-end fund incorporated in the USA
The Fund is advised by ProFund Advisors since October 2013
The Fund invests in securities and derivatives that ProFund Advisors believes in
combination should have similar daily return characteristics as one and one-half
times (15x) the daily return of the Index
22Index Benchmark Dow Jones US Oil amp Gas Index
The Index measures the performance of the oil and gas sector of the US equity
market Component companies include among others exploration and
production integrated oil and gas oil equipment and services pipelines
renewable energy equipment companies and alternative fuel producers As of
September 30 2013 the Index included companies with capitalizations between
$9090 million and $3787 billion The average capitalization of the companies
comprising the Index was approximately $212 billion (Source Profund) The
Index is published under the Bloomberg ticker symbol ldquoDJUSENrdquo
Table 21 Average Annual Total Returns as of December 31 2012
Total Index Companies 84 PriceEarnings Ratio 1634 PriceBook Ratio 225 Dividend Yield 205 Average Index Market Capitalization 2486 billion
(Source httpwwwprofundscom)
Table 22 Index Sector Weightings
Index Sector Weightings Weight Oil amp Gas Producers 7196 Oil Equipment Services amp Distribution 2780 Alternative Energy 024
(Source httpwwwprofundscom)
7
Table 23 Top 10 Index Companies
Top 10 Index Companies Weight Exxon Mobil Corp 2070 Chevron Corp 1190 Schlumberger Ltd 735 ConocoPhillips Co 504 Occidental Petroleum Corp 386 EOG Resources Inc 306 Halliburton Co 287 Anadarko Petroleum Corp 265 Phillips 66 Co 218 The Williams Cos Inc 206
(Source httpwwwprofundscom)
23Investment strategy of Oil amp Gas UltraSector ProFund
ProFund Advisors uses a mathematical approach to investing Using this
approach ProFund Advisors determines the type quantity and mix of investment
positions that the Fund should hold to approximate on a daily basis the
performance of one and one-half times (15x) the Index
The Fund may invest in or gain exposure to only a representative sample of the
securities in the Index or to securities or financial instruments not contained in
the Index with the intent of obtaining exposure with aggregate characteristics
similar to those of a multiple of the Index
The Fund seeks to remain fully invested at all times in securities andor financial
instruments that in combination provide leveraged exposure to the Index
without regard to market conditions trends or direction
At the close of the US securities markets on each trading day the Fund will seek
to position its portfolio so that its exposure to the Index is consistent with the
Fundrsquos investment objective The Indexrsquos movements during the day will affect
whether the Fundrsquos portfolio needs to be re-positioned For example if the Index
has risen on a given day net assets of the Fund should rise As a result the
Fundrsquos exposure will need to be increased Conversely if the Index has fallen on
a given day net assets of the Fund should fall As a result the Fundrsquos exposure
will need to be decreased
Because of daily rebalancing and the compounding of each dayrsquos return over
time the return of the Fund for periods longer than a single day will be the result
of each dayrsquos returns compounded over the period which will very likely differ
from one and one-half times (15x) the return of the Index over the same period
(Source Profund) The Fund will lose money if the level of the Index is flat over
time and it is possible that the Fund will lose money over time even if the level
8
of the Index rises as a result of daily rebalancing the Indexrsquos volatility and the
effects of compounding
The Fund will concentrate its investments in a particular industry or group of
industries to approximately the same extent as the Index is so concentrated
As of the close of business on September 30 2013 the Index was concentrated in
the oil and gas industry group which comprised approximately 100 of the
market capitalization of the Index
24Performance amp return of Oil amp Gas UltraSector ProFund
Portfolio Turnover
The Fund pays transaction costs such as commissions when it buys and sells
securities (or ldquoturns overrdquo its portfolio) A higher portfolio turnover may indicate
higher transaction costs and may result in higher taxes when the Fundrsquos shares
are held in a taxable account These costs affect the Fundrsquos performance During
the most recent fiscal year the Fundrsquos annual portfolio turnover rate was 4 of
the average value of its entire portfolio This portfolio turnover rate is calculated
without regard to cash instrument or derivatives transactions If such transactions
were included the Fundrsquos portfolio turnover rate would be significantly higher
Investment Results
The bar chart below shows how the Fundrsquos investment results for Investor Class
shares have varied from year to year and the table shows how the Fundrsquos average
annual total returns for various periods compare with two broad measures of
market performance
Figure 21 Average Annual Total Returns as of December 31 2012
Source ProFunds
Best Quarter (ended 12312010) 3220
Worst Quarter (ended 12312008) -3833
The year-to-date return as of the most recent quarter which ended September 30
2013 was 2387 (Source Profund)
33
46 46
27
46
-56
19 26
0 4
-80
-60
-40
-20
0
20
40
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Annual Returns of Investor Class Shares as of December 31 each year
9
Table 24 Average Annual Total Returns as of December 31 2012
One Year Five Years Ten Years Inception
Date
Investor Class Shares 1 -753 1361 061900
Before Taxes
After Texas on
Distributions
361 -753 1342
After Texas on
Distributions and
Sales of Shares
235 -624 1221
Service Class Shares 260 -845 1221 061900
SampP 500 1600 166 710
Down Jones US Oil
amp Gas Index
471 -035 1377
Source ProFunds
Fund Return
The Indexrsquos annualized historical volatility rate for the five-year period ended
September 30 2013 was 3299 The Indexrsquos highest September to September
volatility rate during the five-year period was 5803 (September 30 2009)
The Indexrsquos annualized performance for the five-year period ended September
30 2013 was 1450 (Source Profund)
The table below represents performance and returns of the fund as of 13102014
The investment return and principal value of an investment will fluctuate so that
an investors shares when redeemed may be worth more or less than the original
cost Returns include the reinvestment of dividends and capital gains
Table 25 Annual Total Returns Summary
YTD (as of 10132014) -1264
Average Annual One Year 1518
Average Annual Three Year 2305
Average Annual Five Year 1450
Average Annual Ten Year 1083
Average Annual Since Inception 803
Cumulative Since Inception 20143
Gross Expense Ratio 183
Net Expense Ratio 178
(Source httpwwwprofundscom)
10
25 Summary of this chapter
The success of Oil amp Gas UltraSector Profund has brought huge amount of profit
to Profund Company The investment in the energy index helps Profund having
an operation mechanism as an open-end fund with more diversified product as
well as better risk diversification
In Vietnams stock market there are three exchange-traded funds operating and
simulate Vietnamlsquos stock market index Except Ishare Frontier Market has the
low proportion of asset invested in Vietnam the other two funds are familiar to
investors The Market Vectors Vietnam ETF and DB X-Tracker FTSE Vietnam
have continuously dominated the market over the years As of mid-September
2014 the total assets of The Market Vectors Vietnam ETF reached nearly 630
million USD an increase of 270 times in the last 5 years Similarly X-Tracker
DB FTSE Vietnam has managed 400 million USD assets up 82-times since
2008 (Source Cafef)
Since 2011 Intelligent Financial Research amp Consulting (IFRC) and the
Petrovietnam Securities Incorporation (PSI) ndash a subsidiary of PVN have
collaborated building a PVN-Index which composing of all listed companies in
Vietnamese oil amp gas industry PVN-Index is an index consisting of two groups
of representatives and investment indicators starting year 2008 Representative
groups have again been divided into market index (PVNAllshare PVNAllshare
Continuous PVNAllshare HOSE PVNAllshare HNX) and the sector index (oil
and gas basic materials financial industrial and consumers service) Investment
index which also known as PVN10 including 10 stocks with largest market
capitalization and trading value on Ho Chi Minh Stock Exchange (HOSE) and
Hanoi Stock Exchange (HNX) (Sources wwwpvnindexvn)
PVN-Index appeared on the market since May 82012 but so far there are none
of fund management companies in Vietnam have applied this index The best
practice case of Oil amp Gas UltraSector ProFund indicates that there are many
opportunities and long-term benefits (in term of return and performance) for a
fund management company to establish a open-ended fund which imitates an oil
amp gas sector index (in this case PVN-Index) This type of new fund will
overcome the problem of low liquidity which is inherent disadvantage of open-
ended funds at the same time solve the problematic ldquohigh discount raterdquo of
closed-end funds With this new type of fund which imitates energy sector index
the investor will invest in a basket of index easy to follow and suitable for small
investors non-professional investors or foreign institutional investors (pension
funds insurance funds) Also investing in a basket of securities also limit the
market abuse and manipulation
PVFC Capital could apply the practical case of ProFund to create transparent
investment product flexible trading mechanisms risk diversification and
professional management The application of this fund type also help to attract
new investors new capital flows making it easier to attract more capital sources
from the economy through the primary market In addition if PVFC Capital
could establish a similar successful index fund it also leads to positive behavioral
changes in term of investment culture Rather than investing in individual stocks
separately requires more time to analyze the market and transaction time This is
becoming more difficult as the number of shares listed have increased even up to
thousands of stocks
11
CHAPTER 3
SITUATIONAL ANALYSIS
31 Status of fund management companies and Open-ended funds in
Vietnam market
Open-ended Fund is a new type of fund in Vietnam But in the world over 90
of the fund established in the form of open-ended funds The legal basis of the
fund is 1832011TT-BTC Circular - Ministry of Finance which provides the
framework for establishment and management of Open-ended Fund effectively
from 132012 Since then some new fund was established in Vietnam under the
form of Open-ended funds
In the beginning of 2013 only 03 open-end funds were established By the end of
the year there were 08 open-end fund was established (03 of them are former
Closed-end fund and just converted to Open-end funds) Currently there are only
546 fund management companies in the market successfully established Open-
ended fund and 02 companies are in the process of raising capital (See Appendix
1)
General characteristics of the Open-end funds were established as follows
Small scale the Open-ended funds have been established in Vietnam are in small
scale from 50-70 billion VND (minimum size prescribed by the State Security
Commission (SSC) is 50 billion)
The investment objectives to invest primarily in bonds and securities that
generate fixed -income and have low-risk This is consistent with the prudent
investors who aim to preserve capital and investment return just higher than
saving rate Only 2 Open-ended fund invest in listed stocks
32 Oil amp gas sector in Vietnam
PetroVietnam Group (PVN) is the biggest group of Vietnam and it contributes
20 of the countryrsquos annual GDP PVNrsquos annual revenue reached VND 773
trillion (or US$ 37 billion) in 2013
PVN plays a very important part in contributing to Vietnamrsquos state budget In
2013 it contributed VND 195 trillion to the total state budget an increase of
45 compared with 2012 For the first 9 months of 2014 PVN contributed
Oil and Gas sector in general and its exploration and services sector in particular
have robustly developed in the past years and are expected to continue its strong
growth to meet the demand of the socio-economic development of Vietnam
According the master plan of oil and gas sector development for the period of
2006-2025 capital demand to meet with the sector development will be about
US$ 1275 - 1335 billion accounting for 20-22 of the total investment demand
of the whole economy (Source PVN)
PVN has 32 companies (as its subsidiaries) listing on Ho Chi Minh Stock
Exchange and Hanoi Stock Exchange of Vietnam PetroVietnam Securities
Incorporation (PSI) started developing PVN-Index reflecting the performance of
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
3
flow from investors in order to invest in opportunities within and outside the
petroleum industry
13Objective of the research
This research has the following objectives
o Review current situation of fund management companies and open-ended
funds in Vietnam market
o Identify the main causative factors of PVFC Capital lsquos unbalanced
revenue structure and difficulties in fund raising
o Evaluate the advantages and out-perform characteristics of PVGF in
compare to other form of fund
o Identify solution for PVFC Capital lsquos top management to raising capital
for this new type of fund
14Conceptual framework of the study
Figure 11 shows the approach to the research Firstly overview of PVFC Capital
and through impact model the main issues was defined Before analyzing the
prospects of PVGF the case study of ProFunds UltraSector Oil amp Gas Svc was
introduced as an example of the best practice of an open-ended fund investing in
oil amp gas index
Figure 11 Conceptual Framework of the Study
PROBLEM DEFINITION
BEST PRACTICE OF PROFUNDS
SITUATIONAL ANALYSIS
IMPACT MODEL
DEVELOPING PVGF
ALTERNATIVE SOLUTIONS amp EVALUATION
RECOMMENDATIONS amp CONCLUSION
4
15Scope of the research and data collection
To get the thorough understanding of the opportunities as well as challenges
investing in PVGF the information was retrieved from top management level
(Head of Department) to each associate in different unit in the organization
The primary information was collected though the questionnaires though internal
meeting and internal seminar with all the staff in the company and though the in-
depth interview with head of three most important department in PVFC Capital
which are Business Development Department Investment Department and
Internal Control Department
The secondary data were collected from
o Company profile
o Annual reports
o MonthlyAnnual Investment Report to investors
o Offering Letter to potential investor
o Updated data of PVN-Index from PSI
o PVFC Capitalrsquos Brochure
o Internal seminar Presentation on PVGF
o Other PVGF-related documents
o Public media (newspaper website magazineshellip)
16Organization of the research study
The research includes 7 chapters and its structure is as follows
Chapter 1 Introduction
This chapter provides a brief introduction the research rationales the main issue
research approach and the research structure
Chapter 2 Best Practice
Case of best practice on investing with open-ended fund in oil amp gas index was
used as examples to illustrate the theory and justification of the researcher
Chapter 3 Situational analysis
Chapter 3 provides a status of fund management companies and open-ended fund
in Vietnam market The chapter also discusses the main causative agents and the
result in the need to mobilize and establish a new fund of PVFC Capital
Chapter 4 Developing PVGF
Chapter 4 introduces the PVGF its investment objective strategy and its
advantages compared to other type of funds
5
Chapter 5 Fund development alternative
Chapter 5 provides solution for introduces the new fund of PVGF into the
Vietnam market such as small-scale starting with utilization of the capital from
shareholder as well as enhancing networking activities
The chapter provides alternative solution for introduces exchange-traded fund as
another effective investment tool for PVFC Capital It also compares and
contrasts between the two solutions and evaluates which solution is the most
appropriate one
Chapter 6 Recommendation and conclusion
Chapter 6 wraps up the above chapters conducts two action plans to raising
capital for PVFG as well as recommendations to PVFC Capitallsquos top
management board and strategic shareholders
6
CHAPTER 2
BEST PRACTICE A CASE STUDY OF PROFUNDS ULTRASECTOR
OIL amp GAS SVC
21Introduction
Oil amp Gas UltraSector ProFund is an open-end fund incorporated in the USA
The Fund is advised by ProFund Advisors since October 2013
The Fund invests in securities and derivatives that ProFund Advisors believes in
combination should have similar daily return characteristics as one and one-half
times (15x) the daily return of the Index
22Index Benchmark Dow Jones US Oil amp Gas Index
The Index measures the performance of the oil and gas sector of the US equity
market Component companies include among others exploration and
production integrated oil and gas oil equipment and services pipelines
renewable energy equipment companies and alternative fuel producers As of
September 30 2013 the Index included companies with capitalizations between
$9090 million and $3787 billion The average capitalization of the companies
comprising the Index was approximately $212 billion (Source Profund) The
Index is published under the Bloomberg ticker symbol ldquoDJUSENrdquo
Table 21 Average Annual Total Returns as of December 31 2012
Total Index Companies 84 PriceEarnings Ratio 1634 PriceBook Ratio 225 Dividend Yield 205 Average Index Market Capitalization 2486 billion
(Source httpwwwprofundscom)
Table 22 Index Sector Weightings
Index Sector Weightings Weight Oil amp Gas Producers 7196 Oil Equipment Services amp Distribution 2780 Alternative Energy 024
(Source httpwwwprofundscom)
7
Table 23 Top 10 Index Companies
Top 10 Index Companies Weight Exxon Mobil Corp 2070 Chevron Corp 1190 Schlumberger Ltd 735 ConocoPhillips Co 504 Occidental Petroleum Corp 386 EOG Resources Inc 306 Halliburton Co 287 Anadarko Petroleum Corp 265 Phillips 66 Co 218 The Williams Cos Inc 206
(Source httpwwwprofundscom)
23Investment strategy of Oil amp Gas UltraSector ProFund
ProFund Advisors uses a mathematical approach to investing Using this
approach ProFund Advisors determines the type quantity and mix of investment
positions that the Fund should hold to approximate on a daily basis the
performance of one and one-half times (15x) the Index
The Fund may invest in or gain exposure to only a representative sample of the
securities in the Index or to securities or financial instruments not contained in
the Index with the intent of obtaining exposure with aggregate characteristics
similar to those of a multiple of the Index
The Fund seeks to remain fully invested at all times in securities andor financial
instruments that in combination provide leveraged exposure to the Index
without regard to market conditions trends or direction
At the close of the US securities markets on each trading day the Fund will seek
to position its portfolio so that its exposure to the Index is consistent with the
Fundrsquos investment objective The Indexrsquos movements during the day will affect
whether the Fundrsquos portfolio needs to be re-positioned For example if the Index
has risen on a given day net assets of the Fund should rise As a result the
Fundrsquos exposure will need to be increased Conversely if the Index has fallen on
a given day net assets of the Fund should fall As a result the Fundrsquos exposure
will need to be decreased
Because of daily rebalancing and the compounding of each dayrsquos return over
time the return of the Fund for periods longer than a single day will be the result
of each dayrsquos returns compounded over the period which will very likely differ
from one and one-half times (15x) the return of the Index over the same period
(Source Profund) The Fund will lose money if the level of the Index is flat over
time and it is possible that the Fund will lose money over time even if the level
8
of the Index rises as a result of daily rebalancing the Indexrsquos volatility and the
effects of compounding
The Fund will concentrate its investments in a particular industry or group of
industries to approximately the same extent as the Index is so concentrated
As of the close of business on September 30 2013 the Index was concentrated in
the oil and gas industry group which comprised approximately 100 of the
market capitalization of the Index
24Performance amp return of Oil amp Gas UltraSector ProFund
Portfolio Turnover
The Fund pays transaction costs such as commissions when it buys and sells
securities (or ldquoturns overrdquo its portfolio) A higher portfolio turnover may indicate
higher transaction costs and may result in higher taxes when the Fundrsquos shares
are held in a taxable account These costs affect the Fundrsquos performance During
the most recent fiscal year the Fundrsquos annual portfolio turnover rate was 4 of
the average value of its entire portfolio This portfolio turnover rate is calculated
without regard to cash instrument or derivatives transactions If such transactions
were included the Fundrsquos portfolio turnover rate would be significantly higher
Investment Results
The bar chart below shows how the Fundrsquos investment results for Investor Class
shares have varied from year to year and the table shows how the Fundrsquos average
annual total returns for various periods compare with two broad measures of
market performance
Figure 21 Average Annual Total Returns as of December 31 2012
Source ProFunds
Best Quarter (ended 12312010) 3220
Worst Quarter (ended 12312008) -3833
The year-to-date return as of the most recent quarter which ended September 30
2013 was 2387 (Source Profund)
33
46 46
27
46
-56
19 26
0 4
-80
-60
-40
-20
0
20
40
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Annual Returns of Investor Class Shares as of December 31 each year
9
Table 24 Average Annual Total Returns as of December 31 2012
One Year Five Years Ten Years Inception
Date
Investor Class Shares 1 -753 1361 061900
Before Taxes
After Texas on
Distributions
361 -753 1342
After Texas on
Distributions and
Sales of Shares
235 -624 1221
Service Class Shares 260 -845 1221 061900
SampP 500 1600 166 710
Down Jones US Oil
amp Gas Index
471 -035 1377
Source ProFunds
Fund Return
The Indexrsquos annualized historical volatility rate for the five-year period ended
September 30 2013 was 3299 The Indexrsquos highest September to September
volatility rate during the five-year period was 5803 (September 30 2009)
The Indexrsquos annualized performance for the five-year period ended September
30 2013 was 1450 (Source Profund)
The table below represents performance and returns of the fund as of 13102014
The investment return and principal value of an investment will fluctuate so that
an investors shares when redeemed may be worth more or less than the original
cost Returns include the reinvestment of dividends and capital gains
Table 25 Annual Total Returns Summary
YTD (as of 10132014) -1264
Average Annual One Year 1518
Average Annual Three Year 2305
Average Annual Five Year 1450
Average Annual Ten Year 1083
Average Annual Since Inception 803
Cumulative Since Inception 20143
Gross Expense Ratio 183
Net Expense Ratio 178
(Source httpwwwprofundscom)
10
25 Summary of this chapter
The success of Oil amp Gas UltraSector Profund has brought huge amount of profit
to Profund Company The investment in the energy index helps Profund having
an operation mechanism as an open-end fund with more diversified product as
well as better risk diversification
In Vietnams stock market there are three exchange-traded funds operating and
simulate Vietnamlsquos stock market index Except Ishare Frontier Market has the
low proportion of asset invested in Vietnam the other two funds are familiar to
investors The Market Vectors Vietnam ETF and DB X-Tracker FTSE Vietnam
have continuously dominated the market over the years As of mid-September
2014 the total assets of The Market Vectors Vietnam ETF reached nearly 630
million USD an increase of 270 times in the last 5 years Similarly X-Tracker
DB FTSE Vietnam has managed 400 million USD assets up 82-times since
2008 (Source Cafef)
Since 2011 Intelligent Financial Research amp Consulting (IFRC) and the
Petrovietnam Securities Incorporation (PSI) ndash a subsidiary of PVN have
collaborated building a PVN-Index which composing of all listed companies in
Vietnamese oil amp gas industry PVN-Index is an index consisting of two groups
of representatives and investment indicators starting year 2008 Representative
groups have again been divided into market index (PVNAllshare PVNAllshare
Continuous PVNAllshare HOSE PVNAllshare HNX) and the sector index (oil
and gas basic materials financial industrial and consumers service) Investment
index which also known as PVN10 including 10 stocks with largest market
capitalization and trading value on Ho Chi Minh Stock Exchange (HOSE) and
Hanoi Stock Exchange (HNX) (Sources wwwpvnindexvn)
PVN-Index appeared on the market since May 82012 but so far there are none
of fund management companies in Vietnam have applied this index The best
practice case of Oil amp Gas UltraSector ProFund indicates that there are many
opportunities and long-term benefits (in term of return and performance) for a
fund management company to establish a open-ended fund which imitates an oil
amp gas sector index (in this case PVN-Index) This type of new fund will
overcome the problem of low liquidity which is inherent disadvantage of open-
ended funds at the same time solve the problematic ldquohigh discount raterdquo of
closed-end funds With this new type of fund which imitates energy sector index
the investor will invest in a basket of index easy to follow and suitable for small
investors non-professional investors or foreign institutional investors (pension
funds insurance funds) Also investing in a basket of securities also limit the
market abuse and manipulation
PVFC Capital could apply the practical case of ProFund to create transparent
investment product flexible trading mechanisms risk diversification and
professional management The application of this fund type also help to attract
new investors new capital flows making it easier to attract more capital sources
from the economy through the primary market In addition if PVFC Capital
could establish a similar successful index fund it also leads to positive behavioral
changes in term of investment culture Rather than investing in individual stocks
separately requires more time to analyze the market and transaction time This is
becoming more difficult as the number of shares listed have increased even up to
thousands of stocks
11
CHAPTER 3
SITUATIONAL ANALYSIS
31 Status of fund management companies and Open-ended funds in
Vietnam market
Open-ended Fund is a new type of fund in Vietnam But in the world over 90
of the fund established in the form of open-ended funds The legal basis of the
fund is 1832011TT-BTC Circular - Ministry of Finance which provides the
framework for establishment and management of Open-ended Fund effectively
from 132012 Since then some new fund was established in Vietnam under the
form of Open-ended funds
In the beginning of 2013 only 03 open-end funds were established By the end of
the year there were 08 open-end fund was established (03 of them are former
Closed-end fund and just converted to Open-end funds) Currently there are only
546 fund management companies in the market successfully established Open-
ended fund and 02 companies are in the process of raising capital (See Appendix
1)
General characteristics of the Open-end funds were established as follows
Small scale the Open-ended funds have been established in Vietnam are in small
scale from 50-70 billion VND (minimum size prescribed by the State Security
Commission (SSC) is 50 billion)
The investment objectives to invest primarily in bonds and securities that
generate fixed -income and have low-risk This is consistent with the prudent
investors who aim to preserve capital and investment return just higher than
saving rate Only 2 Open-ended fund invest in listed stocks
32 Oil amp gas sector in Vietnam
PetroVietnam Group (PVN) is the biggest group of Vietnam and it contributes
20 of the countryrsquos annual GDP PVNrsquos annual revenue reached VND 773
trillion (or US$ 37 billion) in 2013
PVN plays a very important part in contributing to Vietnamrsquos state budget In
2013 it contributed VND 195 trillion to the total state budget an increase of
45 compared with 2012 For the first 9 months of 2014 PVN contributed
Oil and Gas sector in general and its exploration and services sector in particular
have robustly developed in the past years and are expected to continue its strong
growth to meet the demand of the socio-economic development of Vietnam
According the master plan of oil and gas sector development for the period of
2006-2025 capital demand to meet with the sector development will be about
US$ 1275 - 1335 billion accounting for 20-22 of the total investment demand
of the whole economy (Source PVN)
PVN has 32 companies (as its subsidiaries) listing on Ho Chi Minh Stock
Exchange and Hanoi Stock Exchange of Vietnam PetroVietnam Securities
Incorporation (PSI) started developing PVN-Index reflecting the performance of
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
4
15Scope of the research and data collection
To get the thorough understanding of the opportunities as well as challenges
investing in PVGF the information was retrieved from top management level
(Head of Department) to each associate in different unit in the organization
The primary information was collected though the questionnaires though internal
meeting and internal seminar with all the staff in the company and though the in-
depth interview with head of three most important department in PVFC Capital
which are Business Development Department Investment Department and
Internal Control Department
The secondary data were collected from
o Company profile
o Annual reports
o MonthlyAnnual Investment Report to investors
o Offering Letter to potential investor
o Updated data of PVN-Index from PSI
o PVFC Capitalrsquos Brochure
o Internal seminar Presentation on PVGF
o Other PVGF-related documents
o Public media (newspaper website magazineshellip)
16Organization of the research study
The research includes 7 chapters and its structure is as follows
Chapter 1 Introduction
This chapter provides a brief introduction the research rationales the main issue
research approach and the research structure
Chapter 2 Best Practice
Case of best practice on investing with open-ended fund in oil amp gas index was
used as examples to illustrate the theory and justification of the researcher
Chapter 3 Situational analysis
Chapter 3 provides a status of fund management companies and open-ended fund
in Vietnam market The chapter also discusses the main causative agents and the
result in the need to mobilize and establish a new fund of PVFC Capital
Chapter 4 Developing PVGF
Chapter 4 introduces the PVGF its investment objective strategy and its
advantages compared to other type of funds
5
Chapter 5 Fund development alternative
Chapter 5 provides solution for introduces the new fund of PVGF into the
Vietnam market such as small-scale starting with utilization of the capital from
shareholder as well as enhancing networking activities
The chapter provides alternative solution for introduces exchange-traded fund as
another effective investment tool for PVFC Capital It also compares and
contrasts between the two solutions and evaluates which solution is the most
appropriate one
Chapter 6 Recommendation and conclusion
Chapter 6 wraps up the above chapters conducts two action plans to raising
capital for PVFG as well as recommendations to PVFC Capitallsquos top
management board and strategic shareholders
6
CHAPTER 2
BEST PRACTICE A CASE STUDY OF PROFUNDS ULTRASECTOR
OIL amp GAS SVC
21Introduction
Oil amp Gas UltraSector ProFund is an open-end fund incorporated in the USA
The Fund is advised by ProFund Advisors since October 2013
The Fund invests in securities and derivatives that ProFund Advisors believes in
combination should have similar daily return characteristics as one and one-half
times (15x) the daily return of the Index
22Index Benchmark Dow Jones US Oil amp Gas Index
The Index measures the performance of the oil and gas sector of the US equity
market Component companies include among others exploration and
production integrated oil and gas oil equipment and services pipelines
renewable energy equipment companies and alternative fuel producers As of
September 30 2013 the Index included companies with capitalizations between
$9090 million and $3787 billion The average capitalization of the companies
comprising the Index was approximately $212 billion (Source Profund) The
Index is published under the Bloomberg ticker symbol ldquoDJUSENrdquo
Table 21 Average Annual Total Returns as of December 31 2012
Total Index Companies 84 PriceEarnings Ratio 1634 PriceBook Ratio 225 Dividend Yield 205 Average Index Market Capitalization 2486 billion
(Source httpwwwprofundscom)
Table 22 Index Sector Weightings
Index Sector Weightings Weight Oil amp Gas Producers 7196 Oil Equipment Services amp Distribution 2780 Alternative Energy 024
(Source httpwwwprofundscom)
7
Table 23 Top 10 Index Companies
Top 10 Index Companies Weight Exxon Mobil Corp 2070 Chevron Corp 1190 Schlumberger Ltd 735 ConocoPhillips Co 504 Occidental Petroleum Corp 386 EOG Resources Inc 306 Halliburton Co 287 Anadarko Petroleum Corp 265 Phillips 66 Co 218 The Williams Cos Inc 206
(Source httpwwwprofundscom)
23Investment strategy of Oil amp Gas UltraSector ProFund
ProFund Advisors uses a mathematical approach to investing Using this
approach ProFund Advisors determines the type quantity and mix of investment
positions that the Fund should hold to approximate on a daily basis the
performance of one and one-half times (15x) the Index
The Fund may invest in or gain exposure to only a representative sample of the
securities in the Index or to securities or financial instruments not contained in
the Index with the intent of obtaining exposure with aggregate characteristics
similar to those of a multiple of the Index
The Fund seeks to remain fully invested at all times in securities andor financial
instruments that in combination provide leveraged exposure to the Index
without regard to market conditions trends or direction
At the close of the US securities markets on each trading day the Fund will seek
to position its portfolio so that its exposure to the Index is consistent with the
Fundrsquos investment objective The Indexrsquos movements during the day will affect
whether the Fundrsquos portfolio needs to be re-positioned For example if the Index
has risen on a given day net assets of the Fund should rise As a result the
Fundrsquos exposure will need to be increased Conversely if the Index has fallen on
a given day net assets of the Fund should fall As a result the Fundrsquos exposure
will need to be decreased
Because of daily rebalancing and the compounding of each dayrsquos return over
time the return of the Fund for periods longer than a single day will be the result
of each dayrsquos returns compounded over the period which will very likely differ
from one and one-half times (15x) the return of the Index over the same period
(Source Profund) The Fund will lose money if the level of the Index is flat over
time and it is possible that the Fund will lose money over time even if the level
8
of the Index rises as a result of daily rebalancing the Indexrsquos volatility and the
effects of compounding
The Fund will concentrate its investments in a particular industry or group of
industries to approximately the same extent as the Index is so concentrated
As of the close of business on September 30 2013 the Index was concentrated in
the oil and gas industry group which comprised approximately 100 of the
market capitalization of the Index
24Performance amp return of Oil amp Gas UltraSector ProFund
Portfolio Turnover
The Fund pays transaction costs such as commissions when it buys and sells
securities (or ldquoturns overrdquo its portfolio) A higher portfolio turnover may indicate
higher transaction costs and may result in higher taxes when the Fundrsquos shares
are held in a taxable account These costs affect the Fundrsquos performance During
the most recent fiscal year the Fundrsquos annual portfolio turnover rate was 4 of
the average value of its entire portfolio This portfolio turnover rate is calculated
without regard to cash instrument or derivatives transactions If such transactions
were included the Fundrsquos portfolio turnover rate would be significantly higher
Investment Results
The bar chart below shows how the Fundrsquos investment results for Investor Class
shares have varied from year to year and the table shows how the Fundrsquos average
annual total returns for various periods compare with two broad measures of
market performance
Figure 21 Average Annual Total Returns as of December 31 2012
Source ProFunds
Best Quarter (ended 12312010) 3220
Worst Quarter (ended 12312008) -3833
The year-to-date return as of the most recent quarter which ended September 30
2013 was 2387 (Source Profund)
33
46 46
27
46
-56
19 26
0 4
-80
-60
-40
-20
0
20
40
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Annual Returns of Investor Class Shares as of December 31 each year
9
Table 24 Average Annual Total Returns as of December 31 2012
One Year Five Years Ten Years Inception
Date
Investor Class Shares 1 -753 1361 061900
Before Taxes
After Texas on
Distributions
361 -753 1342
After Texas on
Distributions and
Sales of Shares
235 -624 1221
Service Class Shares 260 -845 1221 061900
SampP 500 1600 166 710
Down Jones US Oil
amp Gas Index
471 -035 1377
Source ProFunds
Fund Return
The Indexrsquos annualized historical volatility rate for the five-year period ended
September 30 2013 was 3299 The Indexrsquos highest September to September
volatility rate during the five-year period was 5803 (September 30 2009)
The Indexrsquos annualized performance for the five-year period ended September
30 2013 was 1450 (Source Profund)
The table below represents performance and returns of the fund as of 13102014
The investment return and principal value of an investment will fluctuate so that
an investors shares when redeemed may be worth more or less than the original
cost Returns include the reinvestment of dividends and capital gains
Table 25 Annual Total Returns Summary
YTD (as of 10132014) -1264
Average Annual One Year 1518
Average Annual Three Year 2305
Average Annual Five Year 1450
Average Annual Ten Year 1083
Average Annual Since Inception 803
Cumulative Since Inception 20143
Gross Expense Ratio 183
Net Expense Ratio 178
(Source httpwwwprofundscom)
10
25 Summary of this chapter
The success of Oil amp Gas UltraSector Profund has brought huge amount of profit
to Profund Company The investment in the energy index helps Profund having
an operation mechanism as an open-end fund with more diversified product as
well as better risk diversification
In Vietnams stock market there are three exchange-traded funds operating and
simulate Vietnamlsquos stock market index Except Ishare Frontier Market has the
low proportion of asset invested in Vietnam the other two funds are familiar to
investors The Market Vectors Vietnam ETF and DB X-Tracker FTSE Vietnam
have continuously dominated the market over the years As of mid-September
2014 the total assets of The Market Vectors Vietnam ETF reached nearly 630
million USD an increase of 270 times in the last 5 years Similarly X-Tracker
DB FTSE Vietnam has managed 400 million USD assets up 82-times since
2008 (Source Cafef)
Since 2011 Intelligent Financial Research amp Consulting (IFRC) and the
Petrovietnam Securities Incorporation (PSI) ndash a subsidiary of PVN have
collaborated building a PVN-Index which composing of all listed companies in
Vietnamese oil amp gas industry PVN-Index is an index consisting of two groups
of representatives and investment indicators starting year 2008 Representative
groups have again been divided into market index (PVNAllshare PVNAllshare
Continuous PVNAllshare HOSE PVNAllshare HNX) and the sector index (oil
and gas basic materials financial industrial and consumers service) Investment
index which also known as PVN10 including 10 stocks with largest market
capitalization and trading value on Ho Chi Minh Stock Exchange (HOSE) and
Hanoi Stock Exchange (HNX) (Sources wwwpvnindexvn)
PVN-Index appeared on the market since May 82012 but so far there are none
of fund management companies in Vietnam have applied this index The best
practice case of Oil amp Gas UltraSector ProFund indicates that there are many
opportunities and long-term benefits (in term of return and performance) for a
fund management company to establish a open-ended fund which imitates an oil
amp gas sector index (in this case PVN-Index) This type of new fund will
overcome the problem of low liquidity which is inherent disadvantage of open-
ended funds at the same time solve the problematic ldquohigh discount raterdquo of
closed-end funds With this new type of fund which imitates energy sector index
the investor will invest in a basket of index easy to follow and suitable for small
investors non-professional investors or foreign institutional investors (pension
funds insurance funds) Also investing in a basket of securities also limit the
market abuse and manipulation
PVFC Capital could apply the practical case of ProFund to create transparent
investment product flexible trading mechanisms risk diversification and
professional management The application of this fund type also help to attract
new investors new capital flows making it easier to attract more capital sources
from the economy through the primary market In addition if PVFC Capital
could establish a similar successful index fund it also leads to positive behavioral
changes in term of investment culture Rather than investing in individual stocks
separately requires more time to analyze the market and transaction time This is
becoming more difficult as the number of shares listed have increased even up to
thousands of stocks
11
CHAPTER 3
SITUATIONAL ANALYSIS
31 Status of fund management companies and Open-ended funds in
Vietnam market
Open-ended Fund is a new type of fund in Vietnam But in the world over 90
of the fund established in the form of open-ended funds The legal basis of the
fund is 1832011TT-BTC Circular - Ministry of Finance which provides the
framework for establishment and management of Open-ended Fund effectively
from 132012 Since then some new fund was established in Vietnam under the
form of Open-ended funds
In the beginning of 2013 only 03 open-end funds were established By the end of
the year there were 08 open-end fund was established (03 of them are former
Closed-end fund and just converted to Open-end funds) Currently there are only
546 fund management companies in the market successfully established Open-
ended fund and 02 companies are in the process of raising capital (See Appendix
1)
General characteristics of the Open-end funds were established as follows
Small scale the Open-ended funds have been established in Vietnam are in small
scale from 50-70 billion VND (minimum size prescribed by the State Security
Commission (SSC) is 50 billion)
The investment objectives to invest primarily in bonds and securities that
generate fixed -income and have low-risk This is consistent with the prudent
investors who aim to preserve capital and investment return just higher than
saving rate Only 2 Open-ended fund invest in listed stocks
32 Oil amp gas sector in Vietnam
PetroVietnam Group (PVN) is the biggest group of Vietnam and it contributes
20 of the countryrsquos annual GDP PVNrsquos annual revenue reached VND 773
trillion (or US$ 37 billion) in 2013
PVN plays a very important part in contributing to Vietnamrsquos state budget In
2013 it contributed VND 195 trillion to the total state budget an increase of
45 compared with 2012 For the first 9 months of 2014 PVN contributed
Oil and Gas sector in general and its exploration and services sector in particular
have robustly developed in the past years and are expected to continue its strong
growth to meet the demand of the socio-economic development of Vietnam
According the master plan of oil and gas sector development for the period of
2006-2025 capital demand to meet with the sector development will be about
US$ 1275 - 1335 billion accounting for 20-22 of the total investment demand
of the whole economy (Source PVN)
PVN has 32 companies (as its subsidiaries) listing on Ho Chi Minh Stock
Exchange and Hanoi Stock Exchange of Vietnam PetroVietnam Securities
Incorporation (PSI) started developing PVN-Index reflecting the performance of
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
5
Chapter 5 Fund development alternative
Chapter 5 provides solution for introduces the new fund of PVGF into the
Vietnam market such as small-scale starting with utilization of the capital from
shareholder as well as enhancing networking activities
The chapter provides alternative solution for introduces exchange-traded fund as
another effective investment tool for PVFC Capital It also compares and
contrasts between the two solutions and evaluates which solution is the most
appropriate one
Chapter 6 Recommendation and conclusion
Chapter 6 wraps up the above chapters conducts two action plans to raising
capital for PVFG as well as recommendations to PVFC Capitallsquos top
management board and strategic shareholders
6
CHAPTER 2
BEST PRACTICE A CASE STUDY OF PROFUNDS ULTRASECTOR
OIL amp GAS SVC
21Introduction
Oil amp Gas UltraSector ProFund is an open-end fund incorporated in the USA
The Fund is advised by ProFund Advisors since October 2013
The Fund invests in securities and derivatives that ProFund Advisors believes in
combination should have similar daily return characteristics as one and one-half
times (15x) the daily return of the Index
22Index Benchmark Dow Jones US Oil amp Gas Index
The Index measures the performance of the oil and gas sector of the US equity
market Component companies include among others exploration and
production integrated oil and gas oil equipment and services pipelines
renewable energy equipment companies and alternative fuel producers As of
September 30 2013 the Index included companies with capitalizations between
$9090 million and $3787 billion The average capitalization of the companies
comprising the Index was approximately $212 billion (Source Profund) The
Index is published under the Bloomberg ticker symbol ldquoDJUSENrdquo
Table 21 Average Annual Total Returns as of December 31 2012
Total Index Companies 84 PriceEarnings Ratio 1634 PriceBook Ratio 225 Dividend Yield 205 Average Index Market Capitalization 2486 billion
(Source httpwwwprofundscom)
Table 22 Index Sector Weightings
Index Sector Weightings Weight Oil amp Gas Producers 7196 Oil Equipment Services amp Distribution 2780 Alternative Energy 024
(Source httpwwwprofundscom)
7
Table 23 Top 10 Index Companies
Top 10 Index Companies Weight Exxon Mobil Corp 2070 Chevron Corp 1190 Schlumberger Ltd 735 ConocoPhillips Co 504 Occidental Petroleum Corp 386 EOG Resources Inc 306 Halliburton Co 287 Anadarko Petroleum Corp 265 Phillips 66 Co 218 The Williams Cos Inc 206
(Source httpwwwprofundscom)
23Investment strategy of Oil amp Gas UltraSector ProFund
ProFund Advisors uses a mathematical approach to investing Using this
approach ProFund Advisors determines the type quantity and mix of investment
positions that the Fund should hold to approximate on a daily basis the
performance of one and one-half times (15x) the Index
The Fund may invest in or gain exposure to only a representative sample of the
securities in the Index or to securities or financial instruments not contained in
the Index with the intent of obtaining exposure with aggregate characteristics
similar to those of a multiple of the Index
The Fund seeks to remain fully invested at all times in securities andor financial
instruments that in combination provide leveraged exposure to the Index
without regard to market conditions trends or direction
At the close of the US securities markets on each trading day the Fund will seek
to position its portfolio so that its exposure to the Index is consistent with the
Fundrsquos investment objective The Indexrsquos movements during the day will affect
whether the Fundrsquos portfolio needs to be re-positioned For example if the Index
has risen on a given day net assets of the Fund should rise As a result the
Fundrsquos exposure will need to be increased Conversely if the Index has fallen on
a given day net assets of the Fund should fall As a result the Fundrsquos exposure
will need to be decreased
Because of daily rebalancing and the compounding of each dayrsquos return over
time the return of the Fund for periods longer than a single day will be the result
of each dayrsquos returns compounded over the period which will very likely differ
from one and one-half times (15x) the return of the Index over the same period
(Source Profund) The Fund will lose money if the level of the Index is flat over
time and it is possible that the Fund will lose money over time even if the level
8
of the Index rises as a result of daily rebalancing the Indexrsquos volatility and the
effects of compounding
The Fund will concentrate its investments in a particular industry or group of
industries to approximately the same extent as the Index is so concentrated
As of the close of business on September 30 2013 the Index was concentrated in
the oil and gas industry group which comprised approximately 100 of the
market capitalization of the Index
24Performance amp return of Oil amp Gas UltraSector ProFund
Portfolio Turnover
The Fund pays transaction costs such as commissions when it buys and sells
securities (or ldquoturns overrdquo its portfolio) A higher portfolio turnover may indicate
higher transaction costs and may result in higher taxes when the Fundrsquos shares
are held in a taxable account These costs affect the Fundrsquos performance During
the most recent fiscal year the Fundrsquos annual portfolio turnover rate was 4 of
the average value of its entire portfolio This portfolio turnover rate is calculated
without regard to cash instrument or derivatives transactions If such transactions
were included the Fundrsquos portfolio turnover rate would be significantly higher
Investment Results
The bar chart below shows how the Fundrsquos investment results for Investor Class
shares have varied from year to year and the table shows how the Fundrsquos average
annual total returns for various periods compare with two broad measures of
market performance
Figure 21 Average Annual Total Returns as of December 31 2012
Source ProFunds
Best Quarter (ended 12312010) 3220
Worst Quarter (ended 12312008) -3833
The year-to-date return as of the most recent quarter which ended September 30
2013 was 2387 (Source Profund)
33
46 46
27
46
-56
19 26
0 4
-80
-60
-40
-20
0
20
40
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Annual Returns of Investor Class Shares as of December 31 each year
9
Table 24 Average Annual Total Returns as of December 31 2012
One Year Five Years Ten Years Inception
Date
Investor Class Shares 1 -753 1361 061900
Before Taxes
After Texas on
Distributions
361 -753 1342
After Texas on
Distributions and
Sales of Shares
235 -624 1221
Service Class Shares 260 -845 1221 061900
SampP 500 1600 166 710
Down Jones US Oil
amp Gas Index
471 -035 1377
Source ProFunds
Fund Return
The Indexrsquos annualized historical volatility rate for the five-year period ended
September 30 2013 was 3299 The Indexrsquos highest September to September
volatility rate during the five-year period was 5803 (September 30 2009)
The Indexrsquos annualized performance for the five-year period ended September
30 2013 was 1450 (Source Profund)
The table below represents performance and returns of the fund as of 13102014
The investment return and principal value of an investment will fluctuate so that
an investors shares when redeemed may be worth more or less than the original
cost Returns include the reinvestment of dividends and capital gains
Table 25 Annual Total Returns Summary
YTD (as of 10132014) -1264
Average Annual One Year 1518
Average Annual Three Year 2305
Average Annual Five Year 1450
Average Annual Ten Year 1083
Average Annual Since Inception 803
Cumulative Since Inception 20143
Gross Expense Ratio 183
Net Expense Ratio 178
(Source httpwwwprofundscom)
10
25 Summary of this chapter
The success of Oil amp Gas UltraSector Profund has brought huge amount of profit
to Profund Company The investment in the energy index helps Profund having
an operation mechanism as an open-end fund with more diversified product as
well as better risk diversification
In Vietnams stock market there are three exchange-traded funds operating and
simulate Vietnamlsquos stock market index Except Ishare Frontier Market has the
low proportion of asset invested in Vietnam the other two funds are familiar to
investors The Market Vectors Vietnam ETF and DB X-Tracker FTSE Vietnam
have continuously dominated the market over the years As of mid-September
2014 the total assets of The Market Vectors Vietnam ETF reached nearly 630
million USD an increase of 270 times in the last 5 years Similarly X-Tracker
DB FTSE Vietnam has managed 400 million USD assets up 82-times since
2008 (Source Cafef)
Since 2011 Intelligent Financial Research amp Consulting (IFRC) and the
Petrovietnam Securities Incorporation (PSI) ndash a subsidiary of PVN have
collaborated building a PVN-Index which composing of all listed companies in
Vietnamese oil amp gas industry PVN-Index is an index consisting of two groups
of representatives and investment indicators starting year 2008 Representative
groups have again been divided into market index (PVNAllshare PVNAllshare
Continuous PVNAllshare HOSE PVNAllshare HNX) and the sector index (oil
and gas basic materials financial industrial and consumers service) Investment
index which also known as PVN10 including 10 stocks with largest market
capitalization and trading value on Ho Chi Minh Stock Exchange (HOSE) and
Hanoi Stock Exchange (HNX) (Sources wwwpvnindexvn)
PVN-Index appeared on the market since May 82012 but so far there are none
of fund management companies in Vietnam have applied this index The best
practice case of Oil amp Gas UltraSector ProFund indicates that there are many
opportunities and long-term benefits (in term of return and performance) for a
fund management company to establish a open-ended fund which imitates an oil
amp gas sector index (in this case PVN-Index) This type of new fund will
overcome the problem of low liquidity which is inherent disadvantage of open-
ended funds at the same time solve the problematic ldquohigh discount raterdquo of
closed-end funds With this new type of fund which imitates energy sector index
the investor will invest in a basket of index easy to follow and suitable for small
investors non-professional investors or foreign institutional investors (pension
funds insurance funds) Also investing in a basket of securities also limit the
market abuse and manipulation
PVFC Capital could apply the practical case of ProFund to create transparent
investment product flexible trading mechanisms risk diversification and
professional management The application of this fund type also help to attract
new investors new capital flows making it easier to attract more capital sources
from the economy through the primary market In addition if PVFC Capital
could establish a similar successful index fund it also leads to positive behavioral
changes in term of investment culture Rather than investing in individual stocks
separately requires more time to analyze the market and transaction time This is
becoming more difficult as the number of shares listed have increased even up to
thousands of stocks
11
CHAPTER 3
SITUATIONAL ANALYSIS
31 Status of fund management companies and Open-ended funds in
Vietnam market
Open-ended Fund is a new type of fund in Vietnam But in the world over 90
of the fund established in the form of open-ended funds The legal basis of the
fund is 1832011TT-BTC Circular - Ministry of Finance which provides the
framework for establishment and management of Open-ended Fund effectively
from 132012 Since then some new fund was established in Vietnam under the
form of Open-ended funds
In the beginning of 2013 only 03 open-end funds were established By the end of
the year there were 08 open-end fund was established (03 of them are former
Closed-end fund and just converted to Open-end funds) Currently there are only
546 fund management companies in the market successfully established Open-
ended fund and 02 companies are in the process of raising capital (See Appendix
1)
General characteristics of the Open-end funds were established as follows
Small scale the Open-ended funds have been established in Vietnam are in small
scale from 50-70 billion VND (minimum size prescribed by the State Security
Commission (SSC) is 50 billion)
The investment objectives to invest primarily in bonds and securities that
generate fixed -income and have low-risk This is consistent with the prudent
investors who aim to preserve capital and investment return just higher than
saving rate Only 2 Open-ended fund invest in listed stocks
32 Oil amp gas sector in Vietnam
PetroVietnam Group (PVN) is the biggest group of Vietnam and it contributes
20 of the countryrsquos annual GDP PVNrsquos annual revenue reached VND 773
trillion (or US$ 37 billion) in 2013
PVN plays a very important part in contributing to Vietnamrsquos state budget In
2013 it contributed VND 195 trillion to the total state budget an increase of
45 compared with 2012 For the first 9 months of 2014 PVN contributed
Oil and Gas sector in general and its exploration and services sector in particular
have robustly developed in the past years and are expected to continue its strong
growth to meet the demand of the socio-economic development of Vietnam
According the master plan of oil and gas sector development for the period of
2006-2025 capital demand to meet with the sector development will be about
US$ 1275 - 1335 billion accounting for 20-22 of the total investment demand
of the whole economy (Source PVN)
PVN has 32 companies (as its subsidiaries) listing on Ho Chi Minh Stock
Exchange and Hanoi Stock Exchange of Vietnam PetroVietnam Securities
Incorporation (PSI) started developing PVN-Index reflecting the performance of
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
6
CHAPTER 2
BEST PRACTICE A CASE STUDY OF PROFUNDS ULTRASECTOR
OIL amp GAS SVC
21Introduction
Oil amp Gas UltraSector ProFund is an open-end fund incorporated in the USA
The Fund is advised by ProFund Advisors since October 2013
The Fund invests in securities and derivatives that ProFund Advisors believes in
combination should have similar daily return characteristics as one and one-half
times (15x) the daily return of the Index
22Index Benchmark Dow Jones US Oil amp Gas Index
The Index measures the performance of the oil and gas sector of the US equity
market Component companies include among others exploration and
production integrated oil and gas oil equipment and services pipelines
renewable energy equipment companies and alternative fuel producers As of
September 30 2013 the Index included companies with capitalizations between
$9090 million and $3787 billion The average capitalization of the companies
comprising the Index was approximately $212 billion (Source Profund) The
Index is published under the Bloomberg ticker symbol ldquoDJUSENrdquo
Table 21 Average Annual Total Returns as of December 31 2012
Total Index Companies 84 PriceEarnings Ratio 1634 PriceBook Ratio 225 Dividend Yield 205 Average Index Market Capitalization 2486 billion
(Source httpwwwprofundscom)
Table 22 Index Sector Weightings
Index Sector Weightings Weight Oil amp Gas Producers 7196 Oil Equipment Services amp Distribution 2780 Alternative Energy 024
(Source httpwwwprofundscom)
7
Table 23 Top 10 Index Companies
Top 10 Index Companies Weight Exxon Mobil Corp 2070 Chevron Corp 1190 Schlumberger Ltd 735 ConocoPhillips Co 504 Occidental Petroleum Corp 386 EOG Resources Inc 306 Halliburton Co 287 Anadarko Petroleum Corp 265 Phillips 66 Co 218 The Williams Cos Inc 206
(Source httpwwwprofundscom)
23Investment strategy of Oil amp Gas UltraSector ProFund
ProFund Advisors uses a mathematical approach to investing Using this
approach ProFund Advisors determines the type quantity and mix of investment
positions that the Fund should hold to approximate on a daily basis the
performance of one and one-half times (15x) the Index
The Fund may invest in or gain exposure to only a representative sample of the
securities in the Index or to securities or financial instruments not contained in
the Index with the intent of obtaining exposure with aggregate characteristics
similar to those of a multiple of the Index
The Fund seeks to remain fully invested at all times in securities andor financial
instruments that in combination provide leveraged exposure to the Index
without regard to market conditions trends or direction
At the close of the US securities markets on each trading day the Fund will seek
to position its portfolio so that its exposure to the Index is consistent with the
Fundrsquos investment objective The Indexrsquos movements during the day will affect
whether the Fundrsquos portfolio needs to be re-positioned For example if the Index
has risen on a given day net assets of the Fund should rise As a result the
Fundrsquos exposure will need to be increased Conversely if the Index has fallen on
a given day net assets of the Fund should fall As a result the Fundrsquos exposure
will need to be decreased
Because of daily rebalancing and the compounding of each dayrsquos return over
time the return of the Fund for periods longer than a single day will be the result
of each dayrsquos returns compounded over the period which will very likely differ
from one and one-half times (15x) the return of the Index over the same period
(Source Profund) The Fund will lose money if the level of the Index is flat over
time and it is possible that the Fund will lose money over time even if the level
8
of the Index rises as a result of daily rebalancing the Indexrsquos volatility and the
effects of compounding
The Fund will concentrate its investments in a particular industry or group of
industries to approximately the same extent as the Index is so concentrated
As of the close of business on September 30 2013 the Index was concentrated in
the oil and gas industry group which comprised approximately 100 of the
market capitalization of the Index
24Performance amp return of Oil amp Gas UltraSector ProFund
Portfolio Turnover
The Fund pays transaction costs such as commissions when it buys and sells
securities (or ldquoturns overrdquo its portfolio) A higher portfolio turnover may indicate
higher transaction costs and may result in higher taxes when the Fundrsquos shares
are held in a taxable account These costs affect the Fundrsquos performance During
the most recent fiscal year the Fundrsquos annual portfolio turnover rate was 4 of
the average value of its entire portfolio This portfolio turnover rate is calculated
without regard to cash instrument or derivatives transactions If such transactions
were included the Fundrsquos portfolio turnover rate would be significantly higher
Investment Results
The bar chart below shows how the Fundrsquos investment results for Investor Class
shares have varied from year to year and the table shows how the Fundrsquos average
annual total returns for various periods compare with two broad measures of
market performance
Figure 21 Average Annual Total Returns as of December 31 2012
Source ProFunds
Best Quarter (ended 12312010) 3220
Worst Quarter (ended 12312008) -3833
The year-to-date return as of the most recent quarter which ended September 30
2013 was 2387 (Source Profund)
33
46 46
27
46
-56
19 26
0 4
-80
-60
-40
-20
0
20
40
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Annual Returns of Investor Class Shares as of December 31 each year
9
Table 24 Average Annual Total Returns as of December 31 2012
One Year Five Years Ten Years Inception
Date
Investor Class Shares 1 -753 1361 061900
Before Taxes
After Texas on
Distributions
361 -753 1342
After Texas on
Distributions and
Sales of Shares
235 -624 1221
Service Class Shares 260 -845 1221 061900
SampP 500 1600 166 710
Down Jones US Oil
amp Gas Index
471 -035 1377
Source ProFunds
Fund Return
The Indexrsquos annualized historical volatility rate for the five-year period ended
September 30 2013 was 3299 The Indexrsquos highest September to September
volatility rate during the five-year period was 5803 (September 30 2009)
The Indexrsquos annualized performance for the five-year period ended September
30 2013 was 1450 (Source Profund)
The table below represents performance and returns of the fund as of 13102014
The investment return and principal value of an investment will fluctuate so that
an investors shares when redeemed may be worth more or less than the original
cost Returns include the reinvestment of dividends and capital gains
Table 25 Annual Total Returns Summary
YTD (as of 10132014) -1264
Average Annual One Year 1518
Average Annual Three Year 2305
Average Annual Five Year 1450
Average Annual Ten Year 1083
Average Annual Since Inception 803
Cumulative Since Inception 20143
Gross Expense Ratio 183
Net Expense Ratio 178
(Source httpwwwprofundscom)
10
25 Summary of this chapter
The success of Oil amp Gas UltraSector Profund has brought huge amount of profit
to Profund Company The investment in the energy index helps Profund having
an operation mechanism as an open-end fund with more diversified product as
well as better risk diversification
In Vietnams stock market there are three exchange-traded funds operating and
simulate Vietnamlsquos stock market index Except Ishare Frontier Market has the
low proportion of asset invested in Vietnam the other two funds are familiar to
investors The Market Vectors Vietnam ETF and DB X-Tracker FTSE Vietnam
have continuously dominated the market over the years As of mid-September
2014 the total assets of The Market Vectors Vietnam ETF reached nearly 630
million USD an increase of 270 times in the last 5 years Similarly X-Tracker
DB FTSE Vietnam has managed 400 million USD assets up 82-times since
2008 (Source Cafef)
Since 2011 Intelligent Financial Research amp Consulting (IFRC) and the
Petrovietnam Securities Incorporation (PSI) ndash a subsidiary of PVN have
collaborated building a PVN-Index which composing of all listed companies in
Vietnamese oil amp gas industry PVN-Index is an index consisting of two groups
of representatives and investment indicators starting year 2008 Representative
groups have again been divided into market index (PVNAllshare PVNAllshare
Continuous PVNAllshare HOSE PVNAllshare HNX) and the sector index (oil
and gas basic materials financial industrial and consumers service) Investment
index which also known as PVN10 including 10 stocks with largest market
capitalization and trading value on Ho Chi Minh Stock Exchange (HOSE) and
Hanoi Stock Exchange (HNX) (Sources wwwpvnindexvn)
PVN-Index appeared on the market since May 82012 but so far there are none
of fund management companies in Vietnam have applied this index The best
practice case of Oil amp Gas UltraSector ProFund indicates that there are many
opportunities and long-term benefits (in term of return and performance) for a
fund management company to establish a open-ended fund which imitates an oil
amp gas sector index (in this case PVN-Index) This type of new fund will
overcome the problem of low liquidity which is inherent disadvantage of open-
ended funds at the same time solve the problematic ldquohigh discount raterdquo of
closed-end funds With this new type of fund which imitates energy sector index
the investor will invest in a basket of index easy to follow and suitable for small
investors non-professional investors or foreign institutional investors (pension
funds insurance funds) Also investing in a basket of securities also limit the
market abuse and manipulation
PVFC Capital could apply the practical case of ProFund to create transparent
investment product flexible trading mechanisms risk diversification and
professional management The application of this fund type also help to attract
new investors new capital flows making it easier to attract more capital sources
from the economy through the primary market In addition if PVFC Capital
could establish a similar successful index fund it also leads to positive behavioral
changes in term of investment culture Rather than investing in individual stocks
separately requires more time to analyze the market and transaction time This is
becoming more difficult as the number of shares listed have increased even up to
thousands of stocks
11
CHAPTER 3
SITUATIONAL ANALYSIS
31 Status of fund management companies and Open-ended funds in
Vietnam market
Open-ended Fund is a new type of fund in Vietnam But in the world over 90
of the fund established in the form of open-ended funds The legal basis of the
fund is 1832011TT-BTC Circular - Ministry of Finance which provides the
framework for establishment and management of Open-ended Fund effectively
from 132012 Since then some new fund was established in Vietnam under the
form of Open-ended funds
In the beginning of 2013 only 03 open-end funds were established By the end of
the year there were 08 open-end fund was established (03 of them are former
Closed-end fund and just converted to Open-end funds) Currently there are only
546 fund management companies in the market successfully established Open-
ended fund and 02 companies are in the process of raising capital (See Appendix
1)
General characteristics of the Open-end funds were established as follows
Small scale the Open-ended funds have been established in Vietnam are in small
scale from 50-70 billion VND (minimum size prescribed by the State Security
Commission (SSC) is 50 billion)
The investment objectives to invest primarily in bonds and securities that
generate fixed -income and have low-risk This is consistent with the prudent
investors who aim to preserve capital and investment return just higher than
saving rate Only 2 Open-ended fund invest in listed stocks
32 Oil amp gas sector in Vietnam
PetroVietnam Group (PVN) is the biggest group of Vietnam and it contributes
20 of the countryrsquos annual GDP PVNrsquos annual revenue reached VND 773
trillion (or US$ 37 billion) in 2013
PVN plays a very important part in contributing to Vietnamrsquos state budget In
2013 it contributed VND 195 trillion to the total state budget an increase of
45 compared with 2012 For the first 9 months of 2014 PVN contributed
Oil and Gas sector in general and its exploration and services sector in particular
have robustly developed in the past years and are expected to continue its strong
growth to meet the demand of the socio-economic development of Vietnam
According the master plan of oil and gas sector development for the period of
2006-2025 capital demand to meet with the sector development will be about
US$ 1275 - 1335 billion accounting for 20-22 of the total investment demand
of the whole economy (Source PVN)
PVN has 32 companies (as its subsidiaries) listing on Ho Chi Minh Stock
Exchange and Hanoi Stock Exchange of Vietnam PetroVietnam Securities
Incorporation (PSI) started developing PVN-Index reflecting the performance of
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
7
Table 23 Top 10 Index Companies
Top 10 Index Companies Weight Exxon Mobil Corp 2070 Chevron Corp 1190 Schlumberger Ltd 735 ConocoPhillips Co 504 Occidental Petroleum Corp 386 EOG Resources Inc 306 Halliburton Co 287 Anadarko Petroleum Corp 265 Phillips 66 Co 218 The Williams Cos Inc 206
(Source httpwwwprofundscom)
23Investment strategy of Oil amp Gas UltraSector ProFund
ProFund Advisors uses a mathematical approach to investing Using this
approach ProFund Advisors determines the type quantity and mix of investment
positions that the Fund should hold to approximate on a daily basis the
performance of one and one-half times (15x) the Index
The Fund may invest in or gain exposure to only a representative sample of the
securities in the Index or to securities or financial instruments not contained in
the Index with the intent of obtaining exposure with aggregate characteristics
similar to those of a multiple of the Index
The Fund seeks to remain fully invested at all times in securities andor financial
instruments that in combination provide leveraged exposure to the Index
without regard to market conditions trends or direction
At the close of the US securities markets on each trading day the Fund will seek
to position its portfolio so that its exposure to the Index is consistent with the
Fundrsquos investment objective The Indexrsquos movements during the day will affect
whether the Fundrsquos portfolio needs to be re-positioned For example if the Index
has risen on a given day net assets of the Fund should rise As a result the
Fundrsquos exposure will need to be increased Conversely if the Index has fallen on
a given day net assets of the Fund should fall As a result the Fundrsquos exposure
will need to be decreased
Because of daily rebalancing and the compounding of each dayrsquos return over
time the return of the Fund for periods longer than a single day will be the result
of each dayrsquos returns compounded over the period which will very likely differ
from one and one-half times (15x) the return of the Index over the same period
(Source Profund) The Fund will lose money if the level of the Index is flat over
time and it is possible that the Fund will lose money over time even if the level
8
of the Index rises as a result of daily rebalancing the Indexrsquos volatility and the
effects of compounding
The Fund will concentrate its investments in a particular industry or group of
industries to approximately the same extent as the Index is so concentrated
As of the close of business on September 30 2013 the Index was concentrated in
the oil and gas industry group which comprised approximately 100 of the
market capitalization of the Index
24Performance amp return of Oil amp Gas UltraSector ProFund
Portfolio Turnover
The Fund pays transaction costs such as commissions when it buys and sells
securities (or ldquoturns overrdquo its portfolio) A higher portfolio turnover may indicate
higher transaction costs and may result in higher taxes when the Fundrsquos shares
are held in a taxable account These costs affect the Fundrsquos performance During
the most recent fiscal year the Fundrsquos annual portfolio turnover rate was 4 of
the average value of its entire portfolio This portfolio turnover rate is calculated
without regard to cash instrument or derivatives transactions If such transactions
were included the Fundrsquos portfolio turnover rate would be significantly higher
Investment Results
The bar chart below shows how the Fundrsquos investment results for Investor Class
shares have varied from year to year and the table shows how the Fundrsquos average
annual total returns for various periods compare with two broad measures of
market performance
Figure 21 Average Annual Total Returns as of December 31 2012
Source ProFunds
Best Quarter (ended 12312010) 3220
Worst Quarter (ended 12312008) -3833
The year-to-date return as of the most recent quarter which ended September 30
2013 was 2387 (Source Profund)
33
46 46
27
46
-56
19 26
0 4
-80
-60
-40
-20
0
20
40
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Annual Returns of Investor Class Shares as of December 31 each year
9
Table 24 Average Annual Total Returns as of December 31 2012
One Year Five Years Ten Years Inception
Date
Investor Class Shares 1 -753 1361 061900
Before Taxes
After Texas on
Distributions
361 -753 1342
After Texas on
Distributions and
Sales of Shares
235 -624 1221
Service Class Shares 260 -845 1221 061900
SampP 500 1600 166 710
Down Jones US Oil
amp Gas Index
471 -035 1377
Source ProFunds
Fund Return
The Indexrsquos annualized historical volatility rate for the five-year period ended
September 30 2013 was 3299 The Indexrsquos highest September to September
volatility rate during the five-year period was 5803 (September 30 2009)
The Indexrsquos annualized performance for the five-year period ended September
30 2013 was 1450 (Source Profund)
The table below represents performance and returns of the fund as of 13102014
The investment return and principal value of an investment will fluctuate so that
an investors shares when redeemed may be worth more or less than the original
cost Returns include the reinvestment of dividends and capital gains
Table 25 Annual Total Returns Summary
YTD (as of 10132014) -1264
Average Annual One Year 1518
Average Annual Three Year 2305
Average Annual Five Year 1450
Average Annual Ten Year 1083
Average Annual Since Inception 803
Cumulative Since Inception 20143
Gross Expense Ratio 183
Net Expense Ratio 178
(Source httpwwwprofundscom)
10
25 Summary of this chapter
The success of Oil amp Gas UltraSector Profund has brought huge amount of profit
to Profund Company The investment in the energy index helps Profund having
an operation mechanism as an open-end fund with more diversified product as
well as better risk diversification
In Vietnams stock market there are three exchange-traded funds operating and
simulate Vietnamlsquos stock market index Except Ishare Frontier Market has the
low proportion of asset invested in Vietnam the other two funds are familiar to
investors The Market Vectors Vietnam ETF and DB X-Tracker FTSE Vietnam
have continuously dominated the market over the years As of mid-September
2014 the total assets of The Market Vectors Vietnam ETF reached nearly 630
million USD an increase of 270 times in the last 5 years Similarly X-Tracker
DB FTSE Vietnam has managed 400 million USD assets up 82-times since
2008 (Source Cafef)
Since 2011 Intelligent Financial Research amp Consulting (IFRC) and the
Petrovietnam Securities Incorporation (PSI) ndash a subsidiary of PVN have
collaborated building a PVN-Index which composing of all listed companies in
Vietnamese oil amp gas industry PVN-Index is an index consisting of two groups
of representatives and investment indicators starting year 2008 Representative
groups have again been divided into market index (PVNAllshare PVNAllshare
Continuous PVNAllshare HOSE PVNAllshare HNX) and the sector index (oil
and gas basic materials financial industrial and consumers service) Investment
index which also known as PVN10 including 10 stocks with largest market
capitalization and trading value on Ho Chi Minh Stock Exchange (HOSE) and
Hanoi Stock Exchange (HNX) (Sources wwwpvnindexvn)
PVN-Index appeared on the market since May 82012 but so far there are none
of fund management companies in Vietnam have applied this index The best
practice case of Oil amp Gas UltraSector ProFund indicates that there are many
opportunities and long-term benefits (in term of return and performance) for a
fund management company to establish a open-ended fund which imitates an oil
amp gas sector index (in this case PVN-Index) This type of new fund will
overcome the problem of low liquidity which is inherent disadvantage of open-
ended funds at the same time solve the problematic ldquohigh discount raterdquo of
closed-end funds With this new type of fund which imitates energy sector index
the investor will invest in a basket of index easy to follow and suitable for small
investors non-professional investors or foreign institutional investors (pension
funds insurance funds) Also investing in a basket of securities also limit the
market abuse and manipulation
PVFC Capital could apply the practical case of ProFund to create transparent
investment product flexible trading mechanisms risk diversification and
professional management The application of this fund type also help to attract
new investors new capital flows making it easier to attract more capital sources
from the economy through the primary market In addition if PVFC Capital
could establish a similar successful index fund it also leads to positive behavioral
changes in term of investment culture Rather than investing in individual stocks
separately requires more time to analyze the market and transaction time This is
becoming more difficult as the number of shares listed have increased even up to
thousands of stocks
11
CHAPTER 3
SITUATIONAL ANALYSIS
31 Status of fund management companies and Open-ended funds in
Vietnam market
Open-ended Fund is a new type of fund in Vietnam But in the world over 90
of the fund established in the form of open-ended funds The legal basis of the
fund is 1832011TT-BTC Circular - Ministry of Finance which provides the
framework for establishment and management of Open-ended Fund effectively
from 132012 Since then some new fund was established in Vietnam under the
form of Open-ended funds
In the beginning of 2013 only 03 open-end funds were established By the end of
the year there were 08 open-end fund was established (03 of them are former
Closed-end fund and just converted to Open-end funds) Currently there are only
546 fund management companies in the market successfully established Open-
ended fund and 02 companies are in the process of raising capital (See Appendix
1)
General characteristics of the Open-end funds were established as follows
Small scale the Open-ended funds have been established in Vietnam are in small
scale from 50-70 billion VND (minimum size prescribed by the State Security
Commission (SSC) is 50 billion)
The investment objectives to invest primarily in bonds and securities that
generate fixed -income and have low-risk This is consistent with the prudent
investors who aim to preserve capital and investment return just higher than
saving rate Only 2 Open-ended fund invest in listed stocks
32 Oil amp gas sector in Vietnam
PetroVietnam Group (PVN) is the biggest group of Vietnam and it contributes
20 of the countryrsquos annual GDP PVNrsquos annual revenue reached VND 773
trillion (or US$ 37 billion) in 2013
PVN plays a very important part in contributing to Vietnamrsquos state budget In
2013 it contributed VND 195 trillion to the total state budget an increase of
45 compared with 2012 For the first 9 months of 2014 PVN contributed
Oil and Gas sector in general and its exploration and services sector in particular
have robustly developed in the past years and are expected to continue its strong
growth to meet the demand of the socio-economic development of Vietnam
According the master plan of oil and gas sector development for the period of
2006-2025 capital demand to meet with the sector development will be about
US$ 1275 - 1335 billion accounting for 20-22 of the total investment demand
of the whole economy (Source PVN)
PVN has 32 companies (as its subsidiaries) listing on Ho Chi Minh Stock
Exchange and Hanoi Stock Exchange of Vietnam PetroVietnam Securities
Incorporation (PSI) started developing PVN-Index reflecting the performance of
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
8
of the Index rises as a result of daily rebalancing the Indexrsquos volatility and the
effects of compounding
The Fund will concentrate its investments in a particular industry or group of
industries to approximately the same extent as the Index is so concentrated
As of the close of business on September 30 2013 the Index was concentrated in
the oil and gas industry group which comprised approximately 100 of the
market capitalization of the Index
24Performance amp return of Oil amp Gas UltraSector ProFund
Portfolio Turnover
The Fund pays transaction costs such as commissions when it buys and sells
securities (or ldquoturns overrdquo its portfolio) A higher portfolio turnover may indicate
higher transaction costs and may result in higher taxes when the Fundrsquos shares
are held in a taxable account These costs affect the Fundrsquos performance During
the most recent fiscal year the Fundrsquos annual portfolio turnover rate was 4 of
the average value of its entire portfolio This portfolio turnover rate is calculated
without regard to cash instrument or derivatives transactions If such transactions
were included the Fundrsquos portfolio turnover rate would be significantly higher
Investment Results
The bar chart below shows how the Fundrsquos investment results for Investor Class
shares have varied from year to year and the table shows how the Fundrsquos average
annual total returns for various periods compare with two broad measures of
market performance
Figure 21 Average Annual Total Returns as of December 31 2012
Source ProFunds
Best Quarter (ended 12312010) 3220
Worst Quarter (ended 12312008) -3833
The year-to-date return as of the most recent quarter which ended September 30
2013 was 2387 (Source Profund)
33
46 46
27
46
-56
19 26
0 4
-80
-60
-40
-20
0
20
40
60
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Annual Returns of Investor Class Shares as of December 31 each year
9
Table 24 Average Annual Total Returns as of December 31 2012
One Year Five Years Ten Years Inception
Date
Investor Class Shares 1 -753 1361 061900
Before Taxes
After Texas on
Distributions
361 -753 1342
After Texas on
Distributions and
Sales of Shares
235 -624 1221
Service Class Shares 260 -845 1221 061900
SampP 500 1600 166 710
Down Jones US Oil
amp Gas Index
471 -035 1377
Source ProFunds
Fund Return
The Indexrsquos annualized historical volatility rate for the five-year period ended
September 30 2013 was 3299 The Indexrsquos highest September to September
volatility rate during the five-year period was 5803 (September 30 2009)
The Indexrsquos annualized performance for the five-year period ended September
30 2013 was 1450 (Source Profund)
The table below represents performance and returns of the fund as of 13102014
The investment return and principal value of an investment will fluctuate so that
an investors shares when redeemed may be worth more or less than the original
cost Returns include the reinvestment of dividends and capital gains
Table 25 Annual Total Returns Summary
YTD (as of 10132014) -1264
Average Annual One Year 1518
Average Annual Three Year 2305
Average Annual Five Year 1450
Average Annual Ten Year 1083
Average Annual Since Inception 803
Cumulative Since Inception 20143
Gross Expense Ratio 183
Net Expense Ratio 178
(Source httpwwwprofundscom)
10
25 Summary of this chapter
The success of Oil amp Gas UltraSector Profund has brought huge amount of profit
to Profund Company The investment in the energy index helps Profund having
an operation mechanism as an open-end fund with more diversified product as
well as better risk diversification
In Vietnams stock market there are three exchange-traded funds operating and
simulate Vietnamlsquos stock market index Except Ishare Frontier Market has the
low proportion of asset invested in Vietnam the other two funds are familiar to
investors The Market Vectors Vietnam ETF and DB X-Tracker FTSE Vietnam
have continuously dominated the market over the years As of mid-September
2014 the total assets of The Market Vectors Vietnam ETF reached nearly 630
million USD an increase of 270 times in the last 5 years Similarly X-Tracker
DB FTSE Vietnam has managed 400 million USD assets up 82-times since
2008 (Source Cafef)
Since 2011 Intelligent Financial Research amp Consulting (IFRC) and the
Petrovietnam Securities Incorporation (PSI) ndash a subsidiary of PVN have
collaborated building a PVN-Index which composing of all listed companies in
Vietnamese oil amp gas industry PVN-Index is an index consisting of two groups
of representatives and investment indicators starting year 2008 Representative
groups have again been divided into market index (PVNAllshare PVNAllshare
Continuous PVNAllshare HOSE PVNAllshare HNX) and the sector index (oil
and gas basic materials financial industrial and consumers service) Investment
index which also known as PVN10 including 10 stocks with largest market
capitalization and trading value on Ho Chi Minh Stock Exchange (HOSE) and
Hanoi Stock Exchange (HNX) (Sources wwwpvnindexvn)
PVN-Index appeared on the market since May 82012 but so far there are none
of fund management companies in Vietnam have applied this index The best
practice case of Oil amp Gas UltraSector ProFund indicates that there are many
opportunities and long-term benefits (in term of return and performance) for a
fund management company to establish a open-ended fund which imitates an oil
amp gas sector index (in this case PVN-Index) This type of new fund will
overcome the problem of low liquidity which is inherent disadvantage of open-
ended funds at the same time solve the problematic ldquohigh discount raterdquo of
closed-end funds With this new type of fund which imitates energy sector index
the investor will invest in a basket of index easy to follow and suitable for small
investors non-professional investors or foreign institutional investors (pension
funds insurance funds) Also investing in a basket of securities also limit the
market abuse and manipulation
PVFC Capital could apply the practical case of ProFund to create transparent
investment product flexible trading mechanisms risk diversification and
professional management The application of this fund type also help to attract
new investors new capital flows making it easier to attract more capital sources
from the economy through the primary market In addition if PVFC Capital
could establish a similar successful index fund it also leads to positive behavioral
changes in term of investment culture Rather than investing in individual stocks
separately requires more time to analyze the market and transaction time This is
becoming more difficult as the number of shares listed have increased even up to
thousands of stocks
11
CHAPTER 3
SITUATIONAL ANALYSIS
31 Status of fund management companies and Open-ended funds in
Vietnam market
Open-ended Fund is a new type of fund in Vietnam But in the world over 90
of the fund established in the form of open-ended funds The legal basis of the
fund is 1832011TT-BTC Circular - Ministry of Finance which provides the
framework for establishment and management of Open-ended Fund effectively
from 132012 Since then some new fund was established in Vietnam under the
form of Open-ended funds
In the beginning of 2013 only 03 open-end funds were established By the end of
the year there were 08 open-end fund was established (03 of them are former
Closed-end fund and just converted to Open-end funds) Currently there are only
546 fund management companies in the market successfully established Open-
ended fund and 02 companies are in the process of raising capital (See Appendix
1)
General characteristics of the Open-end funds were established as follows
Small scale the Open-ended funds have been established in Vietnam are in small
scale from 50-70 billion VND (minimum size prescribed by the State Security
Commission (SSC) is 50 billion)
The investment objectives to invest primarily in bonds and securities that
generate fixed -income and have low-risk This is consistent with the prudent
investors who aim to preserve capital and investment return just higher than
saving rate Only 2 Open-ended fund invest in listed stocks
32 Oil amp gas sector in Vietnam
PetroVietnam Group (PVN) is the biggest group of Vietnam and it contributes
20 of the countryrsquos annual GDP PVNrsquos annual revenue reached VND 773
trillion (or US$ 37 billion) in 2013
PVN plays a very important part in contributing to Vietnamrsquos state budget In
2013 it contributed VND 195 trillion to the total state budget an increase of
45 compared with 2012 For the first 9 months of 2014 PVN contributed
Oil and Gas sector in general and its exploration and services sector in particular
have robustly developed in the past years and are expected to continue its strong
growth to meet the demand of the socio-economic development of Vietnam
According the master plan of oil and gas sector development for the period of
2006-2025 capital demand to meet with the sector development will be about
US$ 1275 - 1335 billion accounting for 20-22 of the total investment demand
of the whole economy (Source PVN)
PVN has 32 companies (as its subsidiaries) listing on Ho Chi Minh Stock
Exchange and Hanoi Stock Exchange of Vietnam PetroVietnam Securities
Incorporation (PSI) started developing PVN-Index reflecting the performance of
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
9
Table 24 Average Annual Total Returns as of December 31 2012
One Year Five Years Ten Years Inception
Date
Investor Class Shares 1 -753 1361 061900
Before Taxes
After Texas on
Distributions
361 -753 1342
After Texas on
Distributions and
Sales of Shares
235 -624 1221
Service Class Shares 260 -845 1221 061900
SampP 500 1600 166 710
Down Jones US Oil
amp Gas Index
471 -035 1377
Source ProFunds
Fund Return
The Indexrsquos annualized historical volatility rate for the five-year period ended
September 30 2013 was 3299 The Indexrsquos highest September to September
volatility rate during the five-year period was 5803 (September 30 2009)
The Indexrsquos annualized performance for the five-year period ended September
30 2013 was 1450 (Source Profund)
The table below represents performance and returns of the fund as of 13102014
The investment return and principal value of an investment will fluctuate so that
an investors shares when redeemed may be worth more or less than the original
cost Returns include the reinvestment of dividends and capital gains
Table 25 Annual Total Returns Summary
YTD (as of 10132014) -1264
Average Annual One Year 1518
Average Annual Three Year 2305
Average Annual Five Year 1450
Average Annual Ten Year 1083
Average Annual Since Inception 803
Cumulative Since Inception 20143
Gross Expense Ratio 183
Net Expense Ratio 178
(Source httpwwwprofundscom)
10
25 Summary of this chapter
The success of Oil amp Gas UltraSector Profund has brought huge amount of profit
to Profund Company The investment in the energy index helps Profund having
an operation mechanism as an open-end fund with more diversified product as
well as better risk diversification
In Vietnams stock market there are three exchange-traded funds operating and
simulate Vietnamlsquos stock market index Except Ishare Frontier Market has the
low proportion of asset invested in Vietnam the other two funds are familiar to
investors The Market Vectors Vietnam ETF and DB X-Tracker FTSE Vietnam
have continuously dominated the market over the years As of mid-September
2014 the total assets of The Market Vectors Vietnam ETF reached nearly 630
million USD an increase of 270 times in the last 5 years Similarly X-Tracker
DB FTSE Vietnam has managed 400 million USD assets up 82-times since
2008 (Source Cafef)
Since 2011 Intelligent Financial Research amp Consulting (IFRC) and the
Petrovietnam Securities Incorporation (PSI) ndash a subsidiary of PVN have
collaborated building a PVN-Index which composing of all listed companies in
Vietnamese oil amp gas industry PVN-Index is an index consisting of two groups
of representatives and investment indicators starting year 2008 Representative
groups have again been divided into market index (PVNAllshare PVNAllshare
Continuous PVNAllshare HOSE PVNAllshare HNX) and the sector index (oil
and gas basic materials financial industrial and consumers service) Investment
index which also known as PVN10 including 10 stocks with largest market
capitalization and trading value on Ho Chi Minh Stock Exchange (HOSE) and
Hanoi Stock Exchange (HNX) (Sources wwwpvnindexvn)
PVN-Index appeared on the market since May 82012 but so far there are none
of fund management companies in Vietnam have applied this index The best
practice case of Oil amp Gas UltraSector ProFund indicates that there are many
opportunities and long-term benefits (in term of return and performance) for a
fund management company to establish a open-ended fund which imitates an oil
amp gas sector index (in this case PVN-Index) This type of new fund will
overcome the problem of low liquidity which is inherent disadvantage of open-
ended funds at the same time solve the problematic ldquohigh discount raterdquo of
closed-end funds With this new type of fund which imitates energy sector index
the investor will invest in a basket of index easy to follow and suitable for small
investors non-professional investors or foreign institutional investors (pension
funds insurance funds) Also investing in a basket of securities also limit the
market abuse and manipulation
PVFC Capital could apply the practical case of ProFund to create transparent
investment product flexible trading mechanisms risk diversification and
professional management The application of this fund type also help to attract
new investors new capital flows making it easier to attract more capital sources
from the economy through the primary market In addition if PVFC Capital
could establish a similar successful index fund it also leads to positive behavioral
changes in term of investment culture Rather than investing in individual stocks
separately requires more time to analyze the market and transaction time This is
becoming more difficult as the number of shares listed have increased even up to
thousands of stocks
11
CHAPTER 3
SITUATIONAL ANALYSIS
31 Status of fund management companies and Open-ended funds in
Vietnam market
Open-ended Fund is a new type of fund in Vietnam But in the world over 90
of the fund established in the form of open-ended funds The legal basis of the
fund is 1832011TT-BTC Circular - Ministry of Finance which provides the
framework for establishment and management of Open-ended Fund effectively
from 132012 Since then some new fund was established in Vietnam under the
form of Open-ended funds
In the beginning of 2013 only 03 open-end funds were established By the end of
the year there were 08 open-end fund was established (03 of them are former
Closed-end fund and just converted to Open-end funds) Currently there are only
546 fund management companies in the market successfully established Open-
ended fund and 02 companies are in the process of raising capital (See Appendix
1)
General characteristics of the Open-end funds were established as follows
Small scale the Open-ended funds have been established in Vietnam are in small
scale from 50-70 billion VND (minimum size prescribed by the State Security
Commission (SSC) is 50 billion)
The investment objectives to invest primarily in bonds and securities that
generate fixed -income and have low-risk This is consistent with the prudent
investors who aim to preserve capital and investment return just higher than
saving rate Only 2 Open-ended fund invest in listed stocks
32 Oil amp gas sector in Vietnam
PetroVietnam Group (PVN) is the biggest group of Vietnam and it contributes
20 of the countryrsquos annual GDP PVNrsquos annual revenue reached VND 773
trillion (or US$ 37 billion) in 2013
PVN plays a very important part in contributing to Vietnamrsquos state budget In
2013 it contributed VND 195 trillion to the total state budget an increase of
45 compared with 2012 For the first 9 months of 2014 PVN contributed
Oil and Gas sector in general and its exploration and services sector in particular
have robustly developed in the past years and are expected to continue its strong
growth to meet the demand of the socio-economic development of Vietnam
According the master plan of oil and gas sector development for the period of
2006-2025 capital demand to meet with the sector development will be about
US$ 1275 - 1335 billion accounting for 20-22 of the total investment demand
of the whole economy (Source PVN)
PVN has 32 companies (as its subsidiaries) listing on Ho Chi Minh Stock
Exchange and Hanoi Stock Exchange of Vietnam PetroVietnam Securities
Incorporation (PSI) started developing PVN-Index reflecting the performance of
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
10
25 Summary of this chapter
The success of Oil amp Gas UltraSector Profund has brought huge amount of profit
to Profund Company The investment in the energy index helps Profund having
an operation mechanism as an open-end fund with more diversified product as
well as better risk diversification
In Vietnams stock market there are three exchange-traded funds operating and
simulate Vietnamlsquos stock market index Except Ishare Frontier Market has the
low proportion of asset invested in Vietnam the other two funds are familiar to
investors The Market Vectors Vietnam ETF and DB X-Tracker FTSE Vietnam
have continuously dominated the market over the years As of mid-September
2014 the total assets of The Market Vectors Vietnam ETF reached nearly 630
million USD an increase of 270 times in the last 5 years Similarly X-Tracker
DB FTSE Vietnam has managed 400 million USD assets up 82-times since
2008 (Source Cafef)
Since 2011 Intelligent Financial Research amp Consulting (IFRC) and the
Petrovietnam Securities Incorporation (PSI) ndash a subsidiary of PVN have
collaborated building a PVN-Index which composing of all listed companies in
Vietnamese oil amp gas industry PVN-Index is an index consisting of two groups
of representatives and investment indicators starting year 2008 Representative
groups have again been divided into market index (PVNAllshare PVNAllshare
Continuous PVNAllshare HOSE PVNAllshare HNX) and the sector index (oil
and gas basic materials financial industrial and consumers service) Investment
index which also known as PVN10 including 10 stocks with largest market
capitalization and trading value on Ho Chi Minh Stock Exchange (HOSE) and
Hanoi Stock Exchange (HNX) (Sources wwwpvnindexvn)
PVN-Index appeared on the market since May 82012 but so far there are none
of fund management companies in Vietnam have applied this index The best
practice case of Oil amp Gas UltraSector ProFund indicates that there are many
opportunities and long-term benefits (in term of return and performance) for a
fund management company to establish a open-ended fund which imitates an oil
amp gas sector index (in this case PVN-Index) This type of new fund will
overcome the problem of low liquidity which is inherent disadvantage of open-
ended funds at the same time solve the problematic ldquohigh discount raterdquo of
closed-end funds With this new type of fund which imitates energy sector index
the investor will invest in a basket of index easy to follow and suitable for small
investors non-professional investors or foreign institutional investors (pension
funds insurance funds) Also investing in a basket of securities also limit the
market abuse and manipulation
PVFC Capital could apply the practical case of ProFund to create transparent
investment product flexible trading mechanisms risk diversification and
professional management The application of this fund type also help to attract
new investors new capital flows making it easier to attract more capital sources
from the economy through the primary market In addition if PVFC Capital
could establish a similar successful index fund it also leads to positive behavioral
changes in term of investment culture Rather than investing in individual stocks
separately requires more time to analyze the market and transaction time This is
becoming more difficult as the number of shares listed have increased even up to
thousands of stocks
11
CHAPTER 3
SITUATIONAL ANALYSIS
31 Status of fund management companies and Open-ended funds in
Vietnam market
Open-ended Fund is a new type of fund in Vietnam But in the world over 90
of the fund established in the form of open-ended funds The legal basis of the
fund is 1832011TT-BTC Circular - Ministry of Finance which provides the
framework for establishment and management of Open-ended Fund effectively
from 132012 Since then some new fund was established in Vietnam under the
form of Open-ended funds
In the beginning of 2013 only 03 open-end funds were established By the end of
the year there were 08 open-end fund was established (03 of them are former
Closed-end fund and just converted to Open-end funds) Currently there are only
546 fund management companies in the market successfully established Open-
ended fund and 02 companies are in the process of raising capital (See Appendix
1)
General characteristics of the Open-end funds were established as follows
Small scale the Open-ended funds have been established in Vietnam are in small
scale from 50-70 billion VND (minimum size prescribed by the State Security
Commission (SSC) is 50 billion)
The investment objectives to invest primarily in bonds and securities that
generate fixed -income and have low-risk This is consistent with the prudent
investors who aim to preserve capital and investment return just higher than
saving rate Only 2 Open-ended fund invest in listed stocks
32 Oil amp gas sector in Vietnam
PetroVietnam Group (PVN) is the biggest group of Vietnam and it contributes
20 of the countryrsquos annual GDP PVNrsquos annual revenue reached VND 773
trillion (or US$ 37 billion) in 2013
PVN plays a very important part in contributing to Vietnamrsquos state budget In
2013 it contributed VND 195 trillion to the total state budget an increase of
45 compared with 2012 For the first 9 months of 2014 PVN contributed
Oil and Gas sector in general and its exploration and services sector in particular
have robustly developed in the past years and are expected to continue its strong
growth to meet the demand of the socio-economic development of Vietnam
According the master plan of oil and gas sector development for the period of
2006-2025 capital demand to meet with the sector development will be about
US$ 1275 - 1335 billion accounting for 20-22 of the total investment demand
of the whole economy (Source PVN)
PVN has 32 companies (as its subsidiaries) listing on Ho Chi Minh Stock
Exchange and Hanoi Stock Exchange of Vietnam PetroVietnam Securities
Incorporation (PSI) started developing PVN-Index reflecting the performance of
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
11
CHAPTER 3
SITUATIONAL ANALYSIS
31 Status of fund management companies and Open-ended funds in
Vietnam market
Open-ended Fund is a new type of fund in Vietnam But in the world over 90
of the fund established in the form of open-ended funds The legal basis of the
fund is 1832011TT-BTC Circular - Ministry of Finance which provides the
framework for establishment and management of Open-ended Fund effectively
from 132012 Since then some new fund was established in Vietnam under the
form of Open-ended funds
In the beginning of 2013 only 03 open-end funds were established By the end of
the year there were 08 open-end fund was established (03 of them are former
Closed-end fund and just converted to Open-end funds) Currently there are only
546 fund management companies in the market successfully established Open-
ended fund and 02 companies are in the process of raising capital (See Appendix
1)
General characteristics of the Open-end funds were established as follows
Small scale the Open-ended funds have been established in Vietnam are in small
scale from 50-70 billion VND (minimum size prescribed by the State Security
Commission (SSC) is 50 billion)
The investment objectives to invest primarily in bonds and securities that
generate fixed -income and have low-risk This is consistent with the prudent
investors who aim to preserve capital and investment return just higher than
saving rate Only 2 Open-ended fund invest in listed stocks
32 Oil amp gas sector in Vietnam
PetroVietnam Group (PVN) is the biggest group of Vietnam and it contributes
20 of the countryrsquos annual GDP PVNrsquos annual revenue reached VND 773
trillion (or US$ 37 billion) in 2013
PVN plays a very important part in contributing to Vietnamrsquos state budget In
2013 it contributed VND 195 trillion to the total state budget an increase of
45 compared with 2012 For the first 9 months of 2014 PVN contributed
Oil and Gas sector in general and its exploration and services sector in particular
have robustly developed in the past years and are expected to continue its strong
growth to meet the demand of the socio-economic development of Vietnam
According the master plan of oil and gas sector development for the period of
2006-2025 capital demand to meet with the sector development will be about
US$ 1275 - 1335 billion accounting for 20-22 of the total investment demand
of the whole economy (Source PVN)
PVN has 32 companies (as its subsidiaries) listing on Ho Chi Minh Stock
Exchange and Hanoi Stock Exchange of Vietnam PetroVietnam Securities
Incorporation (PSI) started developing PVN-Index reflecting the performance of
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
12
these listed PVNrsquos subsidiaries in 2011 and declared PVN-Index in its website in
February 2012 This index meets the international standard and practices and is
expected to be realized and tracked by international financial community
(Source PVN)
Figure 31 The importance of oil and gas sector
Exploration and
Exploitation
76 contracts with foreign partners and
23 offshore contracts
Production 28 oil projects and 10 gas projects
Electricity 13 electricity project
Oil Refinery 4 Oil Refinery projects and 6
Chemical Oil projects
Bio-energy 3 bio-energy projects
(Source httpwwwpvnvn)
Figure 32 PVN-Index component by sector
Source PSI PVFC Capital
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
13
PVN has 32 listed companies on the two stock exchanges of Vietnam
Total capitalization of the 32 listed companies VND 228000 billion equivalent
to 20 total market capitalization (Source PSI)
33 Simulation and performance of PVN Index
Simlation of PetroVietnam ndash Index (PVN-Index) has been developed by
PetroVietnam Securities Company (PSI) since 2012 It represents the
performance of 32 listed companies of PetroVietnam oil amp gas Group (PVN) on
two stock exchanges of VietnamTotal capitalization of the 32 listed companies is
VND 228000 billion (~ US$108 billion) equivalent to 20 total market
capitalization (Source PSI)
One important result in equitization process and re-structure of PVN is the strong
connection with listing PVNrsquos affiliates on stock market These results contribute
important part in the development of Vietnamese stock market as well as help
PVN strengthen the specialization to focus on its core business activities
The stock index family for PVNrsquos member units listed on stock exchange (PVN-
Index family) is another advance in re-structuring process and enhancing the
business activities management of PVN and its affiliates PVN-Index family is
published in Quarter 1-2012 and targeted to following expectations
331 PVN-Index family is one of measurement scale reflecting
business performance of PetroVietnam PVN-Index family particularly in
financial market will better support effective capital mobilization channel for
PVN and affiliates when PVN is strengthening capital raising activities on
domestic and international markets
332 The index will support to enhance the transparency in business
activities management and information releasing of PVN and affiliates
Through taking part in the index companies will be required to publish specific
information about financial situation and business activities The publishing of
these information on website of PVN-Index in two languages Vietnamese-
English and on prestigious financial channel like Bloomberg will create efficient
information provision environment to domestic and international investors and
enhance the transparency
333 PVN-Index family contains a wide range of index type including
tradable index (PVN-10) This is preparation step for investing in index
products - an indispensable trend for Vietnamese stock market in the near
future The development following international standards will help PVN-10 can
easily become trading product with investor when SSC allows to trade new
investment vehicles Financial instruments on tradable index are expected to be
efficient capital mobilization channel with PVN and its affiliates
334 The index family is developed following international standards
to be highly representative and commercialized in international financial
market in particular
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
14
Each index is calculated as both Price Return Index and Total Return
Index
PVN-Index is calculated both at End of Day and in Real Time
The index is calculated an converted to popular currencies to attract the
interest of international investor The foreign currencies used are USD
EUR and JPY
Stock selection in calculating index has to satisfy some requirements
based on market capitalization and liquidity
PVN-Index use international industry classification license of ICBs
(Industry Classification Benchmarks) from FTSE International Limited
(UK) for companies in the index
The information of index is published on Bloomberg with specific access
code and displayed in real-time time as equity index This procedure
bring back efficiency for international professional investor in tracking
index movement
34 PVN Index performance compared to other indexes
PVN Index always outperformed other indexes 2013 rose by 544 25 times
higher than that of VN-Index and more than 3 times as much as that of HNX-
Index This is one of the strongest point to support the planning of establishing an
open-ended fund imitate this index
Figure 34 PVN Index vs VNIndex amp HNIndex
Source PSI
Figure 35 PVN Index vs VN30 amp HNX10
Source PSI
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VNIndex HNXIndex PVN Index PVN10 Index
-20
0
20
40
60
80
100
120
13
2012
23
2012
33
2012
43
2012
53
2012
63
2012
73
2012
83
2012
93
2012
103
2012
113
2012
123
2012
13
2013
23
2013
33
2013
43
2013
53
2013
63
2013
73
2013
83
2013
93
2013
103
2013
113
2013
123
2013
VN30 Index HNX30 Index PVN Index PVN10 Index
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
15
35 Impact model
Figure 36 Conception of PVGF
CONCEPTION OF PVGF
Financial Market Condition
LOCAL
Main Revenue Source
Portfolio Management
Need to establish NEW OPEN - ENDED FUND
Portfolio Management
generate revenue much higher than
Fund Management
1832011TT-BTC Circular
providing guidance on the
establishment organization and
operation of Open-ended Fund
Revenue Structure need to adjust towards more from
Fund management activities
No New Fund established since 2011
Business Development amp Fund Raising face difficulties
Rising but still facing
many difficulties
Investor Confidence
has improved
significantly
OVERSEASSTOCK BONDS
OPEN_ENDED FUND ESTABLISHMENT
Unbalance in revenue
allocation
Internal
External
Collaboration amp Support have not
been exploited from major
shareholders
Has not utilize the
completive advantages
by exploit the
capabilities amp network
from associates within
the Group (PVN
PVcomBank amp Suvico
Group)
The diagram above states the main causative agents and the way it results in the
actual needs to mobilize and establish a new funds in PVFC Capital
Firstly we need to consider the external factors including The status of current
capital markets the confidence of investors and the legal framework for the
establishment and management of a new type of Fund (Open -ended Fund)
36 Financial Market Conditions
There are totally more than 700 listed companies on the two stock exchanges
with total capitalization of USD 459 billion (an increase of USD 94 bil
compared with 2012) equivalent to 31 of GDP
After the peak of 1137 points in February 2007 VN-Index had reduced since
2008 due to the global financial crisis until Quarter II of 2013 when the market
started to rally and enter major recovery uptrends VNIndex grew by 219 in
2013
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
16
Figure 37 Market players
Source HSX HNX VSD
Figure 38 VNIndex movements in 2013
Source VNDirect
The stock market index in Vietnam is in the rising group in the world as
calculation in the early months of 2013 But the operation of the market is still
facing many difficulties and challenges which effect significantly to the
mobilization of medium and long term capital flow
Unfavorable factors including
- The World economy is forecasted to be complex potentially risky and difficult
to recovery The international financial institutions have lowered their growth
forecasts for major economies such as the US Eurozone China Japan
- The economic policy in the country should implement goals of maintaining
macroeconomic stability control inflation and ensure growth remains higher than
in 2012
- Weak domestic demand competitiveness economic efficiency is low
- The bad debt write-offs and restructuring in banking structure is a big issue and
cannot be handled right away
0
200
400
600
800
2005 2006 2007 2008 2009 2010 2011 2012 2013
Number of securities company
Number of fund manager company
Number of listed company
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
17
(v) State budget will also be more difficult demand for macroeconomic
stabilization rise but the revenues are limited
37 Confidence of investor
Confidence of foreign investors in Vietnam market has improved significantly
This is due to the effective implementation of monetary policy in Vietnam the
reforms in the banking sector reducing the state budget deficit as well as the
positive changes in the balance of trade and payments
Figure 39 GDP and GDP Growth
Source GSO
The GDP of the country has grown by 25 times in the last 6 years and has
become as one of the fastest growing economies in Asia The annual growth rate
of GDP is about 71 for the period of 2000-2010 (Source General Statistic
Office) Since 2011 Vietnam has achieved this average growth with the aim to
stabilize long term macro-economy
Figure 310 Trade Balance
Source GSO
The country has achieved significantly improved trade balance Vietnam had
trade surplus in two consecutive years of 2012-2013 after 20 years of trade
deficit
0
2
4
6
8
10
000
5000
10000
15000
20000
2007 2008 2009 2010 2011 2012 2013 GDP (billion USD)
-50
0
50
100
150
2007 2008 2009 2010 2011 2012 2013
Import Export Trade balance
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
18
Figure 311 FDI inflows
Source GSO
The country has reduced registered FDI but increased disbursement
Figure 312 Interest rates
Source GSO
The interest rate has significantly reduced interest rates in the last 2 years
In addition the political debate on the priority issues of resolving state enterprise
reform fighting against corruption have led to many observers believing that the
Government of Vietnam is really act not just talk
With the potential development of the domestic as well as export market
medium-term investors could find investment opportunities in Vietnam very
attractive PVFC Capital believes in those companies which have good
governance clear and well-defined strategic direction will always be attractive to
value investors in their investment basket
38 Legal Framework - Circular 1832011Circular ndash Ministry of Finance
Circular 1832011TT-BTC guidelines on establishment and management Open-
ended Fund issued by the Ministry of Finance marked the development of the
fund management industry and are highly appreciated in many aspects
Firstly the legislation now allows closed-end fund is converted into open-end
funds This is considered a promising direction for the upcoming expiration of
current funds and in the context of high discount rate of fund certificates (the
difference between the price of fund units and the net asset value of fund
certificates)
Secondly the fund is open-platform product designed to connect the stock
market with other markets such as insurance (interlink-products) money (
0
20
40
60
80
2007 2008 2009 2010 2011 2012 2013
Registered capital Disbursement capital
140 130 120 110 90 80 75 70 6
00
50
100
150
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
19
monetary market funds ) the social security system (pension fund) or connect to
other areas of the market such products index derivative securities bonds (
such as index funds ETFs derivative funds bond funds )
Thirdly open-ended funds with high liquidity low cost will be more attractive
for investors
Considering the Internal factor including Revenue Structure and Support
from shareholders
39 Revenue Structure
Revenue and Cost structure of the Company in fiscal year 2013 are as follows
Table 31 Revenue Structure ITEMS REVENUE
(Unit USD)
EXPENSES
(Unit USD)
Fund Management 70838 363636
Portfolio Management 864227
Depositary 462810
Investment Activities 37780 (28335)
Provision for short term
investment
(105785)
Total 1435655 902007
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
In 2013 PVFC Capitallsquos revenue is composed mainly from extremely active
portfolio management (183 VND biltotal 30 4 VND bil revenue) As of
31122013 the company has been managing 11 (eleven) portfolios in domestic
trusts and two foreign investment portfolio with total net asset value of 9405
billion VND (Source PVFC Capital)
Thus considering target for revenue allocation profit from fund management
activity is not commensurate with the profit from the portfolio management
activities and not commensurate with the potential resources that company is
having in term of administrative governance capacity financial capacity and
customer networks
310 Support from shareholders
Collaboration amp Support have not been exploited from major shareholders PVFC
Capital have strong shareholders (PVN PVcomBank Sovio Group) in the way
that they are big corporation with diversified business There is a shareholder-
relation unit within the company but still operates passively lack of creativity
lack of connectivity and especially lack the ability to communicate timely the
movement of business or constant message of the Executive Board to the
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
20
shareholders The consequence of this situation is less linkages to the long-term
commitment from shareholders At difficult time the company will likely
become lonely and hard to find the firm support from these strategic
shareholders The support from these giant corporations could attract more
investors to make investment in the company However the company has not
utilized the completive advantages by exploit the capabilities amp network from
associates within these Group (PVN PVcomBank amp Sovico Group)
Table 32 Summarized factors affecting business
Category Factor Description (+-)
External factors Financial Market
Conditions Rising but still facing many
difficulties (+)
Confidence of
investors
Confidence of foreign investors in
Vietnam stock market has improved
significantly due to the government
policies (+)
Legal Framework -
Circular
1832011Circular
Marked the prospect and
development of the fund
management industry (+)
Internal factors Revenue Structure
Unbalance in revenue structure (-)
Revenue is not commensurate with
the profit and with the potential
resources of the company (-)
Support from
shareholders Collaboration amp Support have not
been exploited from major
shareholders (PVN PVcomBank amp
Sovico Group) (-)
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
21
CHAPTER 4
DEVELOPING THE PVGF
41 Introducing new form of funds (PVGF)
We are currently reasearching and preparing to introduce to investors a new form
of fund - Open-ended Fund This type of fund offers many advantages compare
to the old Close-ended Fund and Member Fund The mechanism is flexible for
invetors since customers can make withdrawal anytime requested It is suitable
for investors who have less knowledge of special stock market and only accept
low risk level The new forms will create opportunities for fund management like
us to access and exploit the potential capital inflow from both local and foreign
partners
From that basis we are constructing the draft of PetroVietnam Growth Open-
ended Fund (PVGF) for the purpose of investing in the shares of companies in
oil and gas industry focusing on the stocks in the PVN-10 Index (10 biggest
share of PVN in the Vietnam Stock market) (See appendix 7) PVFG is Open-
ended Fund and aims to take advantage of the industry and help promote the
company image The main provisions of the proposed fund are as following
Table 41 PetroVietnam Growth Open-ended Fund (Proposed)
Fund Name PetroVietnam Growth Open-ended Fund
Abbreviation PVGF
Form of Fund Funds are established and operated under the current
law of Vietnam
Initial fund size Min 50 billion VND (~ 5000000 Fund units)
Investors Includes institutional and individual investors in
Vietnam and oversea
Fund management
Company
PVFC Capital
Custodian Bank Deutsche Bank (Proposed)
Investment
Objectives
The Fund aims to maximize profits for investors
through investments in oil and gas stocks that have
high returns
Investment
Structure
- Up to 95 of the Net asset value of the Fund in a
basket of stocks in PVN-10 stocks the shares of the
company under the Vietnam Oil and Gas Group (PVN)
that have high liquidity solid fundamental numbers
and attractive dividend rate
- Up to 70 of net asset value of the Fund will invest
in securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will
determine the proportion of assets in the portfolio to
ensure profitability and liquidity of funds
Source PVFC Capital
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
22
42 Investment objective amp strategy
Investment objective The fund aims to maximize profits for investors through
investing in securities of companies with high growth potential in oil and gas
sector
Investment strategy
- Focusing on growth securities in the oil and gas sector particularly those of
PVN-10 Index
- Maximum 95 of the fundrsquos NAV in securities of oil and gas sector
- Maximum 70 of the fundrsquos NAV in fixed income (including government
bonds corporate bonds etchellip)
- Also investing in fixed income markets (government bonds and enterprise
bonds)
Based on the performance of PVN Index the macro-economic situation and
securities market the fundrsquos investment structure will be decided from time to
time in order to ensure its profit as well as liquidity
The Fund shall seek for obtaining a result which is similar to the Index and shall
not implement the defence strategy when the market is reducing and shall not
materialize its profits when the market is pricing too high The passive investing
is aimed to reduce the costs and make closer replication of Index by keeping a
ratio of investment capital turnover lower than the ratio used by the funds which
implement an active investment strategy
The value of investment portfolio of the Fund is often not less than 95 of the
corresponding value of basket of securities of PVN-Index The list of stocks is
screening through the index participation conditions which satisfy the criteria of
free-float ratio market capitalization and trading value When HOSE makes the
rebalancing or unexpected change of PVN-Index portfolio the ratio of the Fundrsquos
assets invested in the securities basket may fluctuate to less than 95 of the
corresponding value of securities basket of PVN-Index
In order to replicate the PVN- Index in principle the Fund must hold all stocks in
a basket of PVN- Index at corresponding ratio However in some cases the Fund
cannot fully buy all the stocks corresponding to the weighting in the Index In
such cases the Fund may choose the method of raising the weighting or reducing
the weighting of certain stocks in the index or buying the stocks not belonged to
the index but have high correlation with PVN- Index to replace the stocks in the
index in order to replicate the closest PVN- Index after deducting the Fundrsquos
expenses PVGF may sell stocks in the basket in advance if it estimates that there
is a possibility of such stock to be out of the basket of PVN- Index or may buy
the stocks which are not currently in the PVN- Index in advance if it estimates
that there is a possibility of such stock to enter in basket of PVN- Index in the
next reviewing session
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
23
Figure 41 Asset allocation
Source PVFC Capital
43 Characteristics of listed companies in PVN-10 Index
PetroVietnam currently has 32 listed subsidiaries accounting for 20 of the total
market capitalization PVN-Index which was developed by PetroVietnam
Securities Inc (PSI) and launched in 2012 represents the performance of these
listed companies in the two stock exchanges The index meets the international
standards and practice and is expected to be widely used by the investment
professionals In the past two years PVN-Index outperformed other indexes in
Vietnam including VN-Index HNX-Index VN-30 and HNX-30 Specifically in
2013 PVN-Index grew 544 which was 25 times the growth rate of the VN-
Index and more than three times the growth of HNX-Index
In the PVN-Index indexes the PVN-10 is a collection of 10 stocks with the
largest market capitalization and highest liquidity amongst 32 shares of the listed
PVN member companies
Table 42 PVN-10 Index
No Ticker Company name Market price at
2442014
1 GAS PetroVietnam Gas Joint Stock Corporation 97000
2 PVD Petrovietnam Drilling amp Well Services Corporation 83000
3 PVS PetroVietnam Technical Services Corporation 26300
4 DPM PetroVietnam Fertilizer and Chemicals Corporation 35300
5 PVT Petrovietnam Transportation Corporation 14200
6 PVX Petrovietnam Construction Joint Stock Corporation 5200
7 PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
44500
8 PET Petrovietnam General Services Joint Stock
Corporation
17900
9 PGS PetroVietNam Southern Gas Joint Stock Company 29200
10 PVC Drilling Mud Corporation 20800
Source PSI
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
24
Key Success Factors of Investment in PVN-Index
431 Big market capitalization 32 listed companies of PetroVietnam account
for more than 20 of the total market capitalization In particular 4 out of
10 stocks in PVN-10 Index are among top 30 stocks with the largest
capitalization of the market
432 High liquidity The average trading volume of the stocks in PVN-10 Index
is 17 million shares per day which is at very high liquidity level compared
to other shares on the market
433 Subsidiaries in the value chain of oil and gas sector
Figure 42 Subsidiaries of PVN
Source PVN
434 Positive business results substantial financial position average PE of
10 stocks of PVN-10 is 999 average PB is 184
435 High dividend payout 7 out of 10 companies of PVN-10 Index have high
dividend payment with DPM GAS PVD and PGD ranking the best
(dividend yield gt 10)
Table 43 PVN-10 Dividend Ticker Company names 2012rsquos 2013rsquos
PVS PetroVietnam Technical Services Corporation 15 12
PVD Petrovietnam Drilling amp Well Services Corporation 20 30
DPM PetroVietnam Fertilizer and Chemicals Corporation 45 50
GAS PetroVietnam Gas Joint Stock Corporation 30 42
PVT Petrovietnam Transportation Corporation 0 10
PVX Petrovietnam Construction Joint Stock Corporation 0 0
PGD PetroVietNam Low Pressure Gas Distribution Joint Stock
Company
30 20
PET Petrovietnam General Services Joint Stock Corporation 0 16
PGS PetroVietNam Southern Gas Joint Stock Company 12 15
PVC Drilling Mud Corporation 10 10
Source PSI
PetroVietnam Technical Services
Corporation (PVS)
Distribution
amp Services
Equipment
supplying
services
Petrochemis
try
Exploration
amp
Exploitatio
n
PetroVietnam Exploration
Production Corporation (PVEP) Joint Venture
VietsovPetro
(VSP)
PetroVietnam Gas Joint
Stock Corporation (Gas)
PetroVietnam
Southern Gas JSC
(PGS)
PetroVietnam Low Pressure
Gas Distribution JSC (PGD)
PetroVietnam Drilling and Well
Services JSC (PVD)
Drilling Mud Corporation
(PVC)
PetroVietnam Fertilizer and
Chemical Corporation (DPM)
PetroVietnam
Transportation
Corporation (PVT)
Transporta
tion
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
25
CHAPTER 5
FUND DEVELOPMENT ALTERNATIVE
51 Small Scale Start Up
We could propose small-scale fund to the potential investors in the first phase
of the fund establishment The minium required charter capital of a fund in
Vietnam is about 50 bil VND (equivalent to about 23 mil US dollars) This
could offer to foreign investor who wil not be troubled by that amount of
contribution Initially we propose a small scale fund But after operation we
will invariably increase the fund size on the basis of growth and efficiency of
the fund
Contrary to proactive investing is passive investment Preference of investors
for Index Fund is rising around the world (even faster than open-ended
funds) The reason is derived from the theory of financial EMH (efficient
market hypothesis) That is investors cannot outsmart the market and if
you cannot beat the market then better go with it
Targeted potential investors for PVGF
- Investors who prefer lower risk levels Low level of risk of the PVGF is
shown in three dimensions First the fund exists in the form of a structured
stock portfolio eliminates most of the non-systematic risk Second to be
selected in the basket index stocks must pass the conditions relating to
transparency and business performance And third if compared with the
current investment channels (such as passive equity investments with high
risk level less attractive saving interest rates real estate investment with
very poor liquidity ) the PVGF represents a more balance and harmony
between risk and profit
- Foreigners who want to invest generally in energy sector PVGF suitable
for investors are only interested in having a common investment in
Vietnam Oil amp Gas sector and not focus on the specific stocks to invest
This is a very popular way of investing in the world often by large
financial institutions pension funds insurance companies With most
foreign investors with very positive evaluation and positive outlook on
Vietnams economic prospects PVGF could help them penetrate the door
and join Vietnam market in a quick least expensive and safest way In
other words PVGF could become a new approach channel for foreign
capital flows into Vietnamlsquos energy sector
52 Support from shareholders
In its early stage of fund establishment counterpart fund from PVFC Capital
and from its major shareholder is critical to create the trust attracting the
participation from potential investors We could utilize the companyrsquos charter
capital and mobilize the support from major shareholders in the initial phase
of fund establishment Because they are big corporation in their own sector
the support from these giant corporation could attract more investors to make
investment in our company
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
26
We should make proposals to parent-company (here in the case is
PVcomBank and PVN) to get more support from other subsidiaries
associates and partners within Petrovietnam Group PVN is the biggest
corporation in Vietnam that have hundreds of subsidiaries They operate in
vast arrays of fields from upstream to downstream If we could exploit the
tighter relations and boost the cooperation level with these companies within
PVN Group it could be the company lsquos competitve advantages to get access
to new capital flow since PVN already has a very strong and diversified
netwotking
53 Adantages of Open-ended Fund
New form of open-ended fund is very flexible for the withdrawal which will
open up opportunities for PVFC Capital to access and exploit the potential of
new capital inflows from foreign partners following the success of the fund
VIP LLC amp VEFF VIP LLC is an offshore fund It is an investment
mechanism for Japanese investors to invest in Vietnam created by PVFC
Capital and its Japanese partner as the fundrsquos distributor in Japan VIP LLC
was established in 2008 with the initial fund size of approximately US$ 5
million The fund successfully closed in June 2014 with the average annual
growth rate being 9 of Net Asset Value throughout its life (Source PVFC
Capital)
VEFF is a local member fund When it was established in 2011 PVFC
Capital was proud that it was the only fund born in that year due to the
economic difficulties of the year The initial fund size is approximately US$
35 million with fund term of 5 years for phase one With its investment
objectives of taking the advantages of the equitization process in Vietnam in
general and within the PVN Group in particular the fund has achieved the
growth of 236 since its establishment (Source PVFC Capital)
Table 51 Advantages of Open-ended Fund
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility
Investors can redeem a part of or the whole investment
capital Fund Management Company has the
responsibility to buy back fund units at the trading
price equivalent to NAV per fund unit
Transparency
Only invest in stocks of index benchmark websites
provide full daily disclosure
Open-ended funds must invest in assets with high
liquidity
Open-ended funds must regularly publish its net asset
value on the website of the fund management
company
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
27
Reasonable size of
investment capital
With a reasonable size of investment capital (VND 02
million) investors can be the fundrsquos shareholders
holding part of big-cap securities in the market
Cost Effective Low management fee transaction fees only when
trading on exchange
Simple to
understand
Passive management to match markets provide
investment returns to match the return of index
benchmark
Share price is traded around fundrsquos NAV Any
differences will be balanced by arbitrage trades
High liquidity
Fund unit could be either traded on the stock exchange
or bought back by Fund Management Company
through exchange transactions
Flexibility Easy to buy flexibility to buy and sell
Competitive
management fee 1 percent per year
Figure 51 Operation of Open-ended Fund
(Source PVFC Capital)
54 Expected performance
The fund follows active investment policy which will be flexible in adjusting
the asset allocation into stocks or fixed income instrument to ensure expected
return for the fund
In bull market (market on uptrend) 18 year This is a modest profit
expectations based on the lowest growth rate of PVN-10 Index in the years
with market growth
In bear market (market on downtrend) 9 year This is based on the
average growth rate of PVN-10 Index in the past 5 years (from 2008 to the
present) when the market had undergone both cycles of growth and
recession (Source PVFC Capital)
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
28
55 PVN-10 exchange-traded fund
Exchange Traded Fund (ETF) is a form of passive investment fund imitate
on a particular index Accordingly fund managers do not actively restructure
funds portfolio but just hold onto the securities basket of index ETF fund
certificate is listed and traded on the Stock Exchange
There are many types of ETFs ETF imitates stock index index of debt
instruments index of commodity Currency Index
PVFC Capital could establish an ETF imitates PVN 10 Index as an alternative
solution for open-ended fund (see Table 52 for the advantages of ETF)
PVN-10 Index has clear and specific objectives highly representative for
energy oil amp gas sector
Currently there are only two foreign ETFs investing in the Vietnam Stock
Market FTSE Vietnam Index ETF and Market Vectors Vietnam ETF
(VNM) For example FTSE Vietnam Index ETF imitates FTSE Vietnam
All-Share Index which include leading companies accounting for 90 of
total market capitalization in Vietnam (~ 42 companies) But these two ETFs
investing in Vietnam stock market are both foreign funds and listed in Europe
stock exchange market
The legal base for ETFs in Vietnam is Circular 2292012TT-BTC by
Ministry of Finance guiding the establishment and management of the
Exchange Traded Fund (ETF) The purpose of the Circular is attract
investment capital into new investment tool develop stock market
sustainablely
Figure 5 2 Regulation of establishment and management of ETFs
(Source PVFC Capital)
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
29
56 Evaluation of Alternative
This part is about to have a deep look into each solution and find out
advantages and disadvantages of each solution
There are some advantages of scenario using ETF over Open-ended Fund
when PVFC Capital establish PVN10 Index under ETF form as following
Table 52 Comparing open-ended fund (PVGF) with
PVN-Index ETF (Alternative)
Open-ended Fund (PVGF) ETF (Alternative)
High liquidity Fund Certificates (FCs) are
not traded on the Stock
Exchange but investors can
request redemption from
Fund Management Company
Trading frequency at least 2
timesmonth
ETF shares could be
either traded on the stock
exchange or bought back
by Fund Management
Company through
exchange transactions
Price tracking
closely
movement of
NAV
The trading price is NAVFCs
ETF share price is traded
around fundrsquos NAV Any
differences will be
balanced by arbitrage
trades
Lower costs
Proactive Investment Strategy
and higher management amp
research cost
Investments in liquid assets
The fund is managed
passively tracking the
performance of a certain
underlying asset
Risk and profit
equivalent to the risk and
profitability of simulated
index
High capital
utilization
Always keep an amount of
cash or liquid assets to buy
back FCs upon investors lsquos
request
The fund could invest all
of its capital
Flexible
funding or
redeeming
process
Deposit and withdrawal
procedures are fast and
flexible
Just need to pass the approval
of the Board of
Representatives
High flexibility
Investors only needs to
send share buyingselling
orders to Fund
Management company
High
transparence
- Report periodically sends
to investors monthly
quarterly and annually
- Published on the company
website
Summary report financial
reports statistical reports
transaction fees activity
- Frequency of required
information release is
more than that of both
close-end and open-
ended funds
- Publish reference
index on website of
Stock exchange
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
30
reports
- Publish tracking error
on website of fund
management company
weekly
However alternative solution of establishing a ETF imitates PVN-10 Index also
contains disadvantages as discussed in following table
Table 53 Disadvantages of ETF (alternative solution)
PVN-Index ETF
Passive investment
strategy
Only suitable for investors prefer passive
investment strategy Not suitable for investors who
prefer research amp analysis stock picking and
making investment decision
Difficult to obtain
superior profits
Even if the market in the strong growth stage it is
difficult to earn a higher profit than market
Difficult to manage
uncertainty in
simulation
It is difficult to minimize tracking error due to high
frequency of corporate events such as MampA
bonus shares share split The difficulty is more
severe in low liquidity market
In addition the development of ETF in Vietnam market is depend on many other
external factors as identified in the below table
Table 54 Conditions for ETF to develop and operate effectively
Development of
reference indexes
Development of indexes that are managed and
approved by the Stock Exchanges in order to
create market diversity Currently the index of the
Stock Exchange was relatively poor with only 4
indexs (VNIndex HNX-Index VN30 and HNX30)
Technology
infrastructure from
authorities
The Stock Exchanges VSD need to
improvecomplete IT infrastructure for the
operation of the ETF funds and the index
Additional legal
provisions
Additional provisions allow securities borrowing
and lending
Upgrading technology
capability of Fund
Fund Management Company must have sufficient
technology capacity to maintain and operate
structucred portfolio closely follow the reference
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
31
Management Company index to avoid false tracking errors and also to
ensure compliance with the restrictions on
investment in securities law
Selecting the
appropriate timing for
fund establishment
Selecting the appropriate timing for fund
establishment when the reference index is low and
there is growth potential in the future
In addition market liquidity have to be at a high
level to ensure the funds portfolio closely follow
portfolio of reference index
Enhancing awareness
from individual
investors
Investors should be aware that ETF is an effective
investment tool where nvestors can easily
assessevaluate the fund operation through
fluctuations of the reference index
57 Comparison
Vietnams stock market will continue to thrive and ETF certificates will be more
interested by amateur investors since selected stocks from the list are mostly
good stocks industry leaders as well as profitability is able to pass growth of the
VN-index This time is appropriate for the advent of the ETF Since the
establishment of this fund will not only increase the liquidity of the market but
also to meet the needs of non-professional investors in Vietnam
Whether open or closed-end funds the investment efficiency of fund should be at
top priority so the ETF expert with reputable fund manager or portfolio selection
includes many good stocks as well as timing to buy on cheap price must be in
primary concerns
Certainly in the short term with limited understanding of the major investors the
ETFs will not be well received but in the longer term the ETF will be much
more attractive not only to the institutional investors but also for individual
investors
There are some argument supports why ETF is not the priority solution
- Firstly investors especially small investors it is difficult to track the
movement of the index outside VN-Index VN30 the HNX-Index and
HNX30 Only a few brokers have a price list for each index excluding the
aforementioned index Their historical data also cannot be looked up If
there are no tools supporting analysis the data can be incomplete and only
accurate at a certain stage
- Second the security companies only focus on key indicators like VN-
Index VN30 the HNX-Index and HNX30 they hardly ever mention
other indicators
- Third if possible looking at the chart of the index investors will see that
the market index on the same floor have a very high correlation with each
other
- In terms of applications not only PVN-Index but also the many official
index of HOSE and HNX has not been used much except that the
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
32
Vietnam Fund Management (VFM) used VN30 Index as a reference for
their first ETF
- Operating environment for ETFs is also incomplete no market maker and
securities borrowing mechanism
However with an attitude of no one can win the market many investors
including individuals have chosen to invest in an ETF in several different
segments to get a market portfolio Therefore ETFs still the alternative but it
very much depends on the market timing and condition of the Vietnam stock
market
Evaluating risk investing in ETFs with examples
- Market risk the biggest risk from the ETFs is the market risk When the
market goes up and also goes down ETF basket is tied to the underlying
asset and will fluctuate with the market the same way
- The risk of diversity in the world there are currently 1500 active ETFs
and investors is facing with too many choices in the same field For
example in the past year the best ETF in biotechnology industry
(biotech) and the worst ETF of this industry had more than 18 of
distance Because one ETF holds companies that have the potential cure
to cancer while other ETF bet on companies in the life sciences sector
which leads to different results even though these companies are the same
field of biotechnology
- Transaction Risk ETF transaction prices based on supply and demand
Therefore it depends on the differences in trading (the bid-ask spread)
which is similar to stocks Thus ETFs with greater liquidity will have
lower price gap (spread) In contrast the less liquid ETFs will have a
higher spread (possibly from 2- 4) thus reducing profits or increasing
costs when taking a position in sellingbuying ETFs
- Basic indicators Risk most ETFs are simulated by a certain indicators and
trading is close to net asset value But sometimes the price cannot cling to
this indicator For example when the Arab war happens Egypt stock-
exchange closed for a short time the Market Vector Egypt ETF (EGPT)
was still trading and investors bet that the Egyptian market will open
everything will be resolved well and then they push this ETF at higher
price (the premium) But when the market reopened the market was
silence and ETFs have become too expensive
Table 55 Evaluation Summary
In short-term
(Solution)
PVGF Establishing Open-ended Fund investing
in PVN-10 Index Noted that The performance
of PVN-Index has always outperformed other
index (HNX30 or VN30)
In Long-term
(Alternative)
ETF Establishing exchange-traded fund (ETF)
imitates PVN-10 Index (consider and depend on
the external amp internal factors)
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
33
CHAPTER 6
CONCLUSION amp RECOMMENDATION
61 Conclusion
In conclusion the company is encountering challenges in which are how to
raise more funds and how to expand the business network given current
market situation To resolve the constraints there are few solution were
proposed small-scale starting with utilization of the capital from shareholder
introduction and formulation of new fund as well as enhancing networking
activities
While the stock market fluctuates with many negative trends in recent years
causing concern for investors the new open-end fund with focusing on the
basket of PVN Index 10 with the advantage of high liquidity low risk and
interest return will likely attract the attention of investors In the past two
years PVN-10 Index has obtained an outstanding growth compared with that
of VN-Index VN-30 Index HNX-Index vagrave HNX-30 Index
In addition to the general advantages of open-ended funds which are highly
liquidity transparence the investment capital is very suitable for all investors
With only 5 million VND (~23585 USD) investors are able to buy fund
certificates to invest in stocks with great value PVGF can bring better profit
than the market by proactive investment strategy focusing on the oil and gas
sector that all stocks are highly liquid attractive potentially faster recovery
when the economy flourishes
The establishment of open-ended funds through mobilizing funds from
members of the Group will concentrate financial and information resources
From that the fund could invest in corporate bonds within associate and
affiliates of PVN members The participation of shareholders such as
PVcomBank and companies within PVN Group in the proposed fund will
provide trust for investors attract the contribution from partners
The establishment of PVGF beside goals of bringing a new product to the
market also aims to build image of a multi-functional fund management
company of PVFC Capital with diverse types of funds and portfolio and to
help increase scale of capital under management
62 Action Plan 1 Open-ended Fund
621 Fund Structure
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
34
Table 61 Fund structures of Open-ended fund (Plan 1)
The name (expected) Petrovietnam Open-ended Growth Fund (PVGF)
Forms of funds Open-ended funds are established and operated under the
current law of Vietnam
Note Fund Certificates (FCs) are not listed on the Stock
Exchange but was acquired back by Fund Management
Company on the primary market
Fund size 50 billion VND (~ 5000000 fund certificates)
Investors Includes foreign and local investors both legal entities or
individuals
Fund Management
Company
PVFC Capital
Supervision Bank HSBC or Deutsche Bank
Investment
Objectives
The Fund aims to maximize profits for investors through
investments in oil and gas stocks that have high returns
Asset allocation - Up to 95 of the Net asset value of the Fund in a basket
of stocks in PVN-10 stocks the shares of the company
under the Vietnam Oil and Gas Group (PVN) that have
high liquidity solid fundamental numbers and attractive
dividend rate
- Up to 70 of net asset value of the Fund will invest in
securities which have a fixed interest rate (including
government bonds corporate bonds project bonds )
On the basis of the growth of PVN-10 Index and
assessment of market conditions the fund will determine
the proportion of assets in the portfolio to ensure
profitability and liquidity of funds
Investment
restrictions
- Cannot invest more than 10 of the net asset value of
the Fund in securities of one single issuing organization
- Cannot invest more than 30 of the net asset value of
the Fund in the total outstanding shares of one single
issuing organization
- The structure of the funds investments is permitted that
deviation shall not exceed fifteen percent (15) than the
prescribed regulation
Expected time of
fund establishment
Quarter 1 - 2 2015
622 Fund Raising Plan
With the objectives of fund as described above PVFC Capital determine that
investors will be the low-risk taker with the amount of cash and desire to invest
to achieve higher returns than bank interest rates which are very low during this
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
35
time (~ 7 year) At the same time they need to ensure capital adequacy with
interest rate target of about 8-10year
The investment objective of the fund is the same as the goal of using the charter
capital of the company Therefore PVFC Capital should contribute charter
capital as counterpart funds in the fund to give confidence to investors
Table 62 Fund Raising Plan of Open-ended fund (Plan 1)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank The charter capital
as counterpart funds
5 10
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
10 20
Foreign investors Idle cash 20 20 -
40
Mobilizing from individuals
- Individuals from PVFC
Capital
- Individuals from PVcomBank
(to ensure the adequate number
of more than 100 investors)
Idle cash
- around 30
individuals
- - around 70
individuals
5
10
TOTAL 50 100
63 Action Plan 2 Exchange Traded Fund
631 Fund Structure
In the current situation that capital raising is facing many difficulties due to the
fact that stock market implicit many risky factors PVFC Capital determine that
in the first phase of the fund establishment fund size will be in small scale of 50
billion VND which is the minimum fund size prescribed by the State Securities
Commission Once fund operates on the basis of fund effectiveness PVFC
Capital can increase the size of the fund
ETFs structured as follows
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
36
Table 63 Fund structures of Exchange Traded Fund (Plan 2)
The name (expected) PVFCC PVN-10 Index ETF
Abbreviation PVN-10 ETF Fund
Forms of funds Exchange traded fund (ETF) is established and
operated under the current law of Vietnam
Reference Index PVN-10 Index
Investment objectives Passive investment strategy simulation of PVN-10
index in order to achieve the Funds growth equivalent
to growth rate of the index
Portfolio Investments in shares in the portfolio of PVN-10
index In particular the portfolio will include 10
stocks in the PVN-10 index with structure and
proportion accordingly to ensure the specified
deviation
Fund size In the first stage at least 50 billion VND (~ 5000000
fund certificates)
In the capital raising stage after 6 months of
operation will increase its capital to 100 billion VND
Investors Foreign and local investors legal entitiesindividuals
Fund management
comapny
PVFC Capital
Fund establishing
members
- Petrovietnam Securities Incorporation (PSI)
- Custodian Bank
Supervison Bank HSBC or Deutsche Bank
Expected time of fund
establishment
Quater 1 2015
632 Capital Raising Plan
PVFC Capital determines that raising capital initially for the fund will require
counterpart funds from the charter capital of the PVFC Capital contributing
capital from PVcomBank PSI and companies within PVN Group PVcomBanks
participation as well as other unit of the group will create confidence and attract
the participation of other investors to raise additional capital in future for the
fund
Thus PVFC Capital plans fund raising for early stage as follows
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
37
Table 64 Fund Raising Plan of Exchange Traded Fund (Plan 2)
Investors Capital raising Mobilization
target (VND
billion)
of
Fund
PVFC Capital The charter capital
as counterpart funds
10 20
PVcomBank counterpart funds 5 10
PSI counterpart funds 5 - 10 10 -
20
The companies in the oil amp gas
sector within PVN Group such
as DPM PTSC PV Oil PVD
15 - 20 30 -
40
Foreign investors Idle cash 10 20
TOTAL 50 - 60 100
64 Recommendation
The establishment of a fund with small scale initially but increase fund size
after a duration of operation based on its efficiency In its early stage of
establishing funds counterpart funds from PVFC Capital and some strategic
investor is critical to create the basis for trust investors attracting the
participation of others
Therefore there are some recommendations that PVFC Capitallsquos
management board should consider
- Approved plans to establishing PVGF as discussed above with action plan
(how to do) in details
- Approved using the company lsquos chartered capital to contribute to the
PVGF
- Recommend shareholders (SOVICO Group PVcomBank) support fund
establishment particularly
Report to PVcomBank (mother-company of PVFC Capital) the
proposal of contributing capital plan and support PVFC Capital
approach and working with subsidiaries affiliates partners of
PVcomBank to raise more capital
Recommend to SOVICO Group and HD Bank (within the
SOVICO Group and same owners) and other companies within
SOVICO network participating in the fund raising process
The responsibility of the PVFC Capital executives in managing a new open-
ended fund (PVGF) would be guided by an articulated set of criteria The specific
steps of the investment process of PVGF would be carefully constructed to
ensure PVGF investment activities comply with current laws and investment
management agreement
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
38
Table 65 Process of investment management control and coordinate
Activities Performer
Step 1
PVFC Capital Board of
Fund Representatives
Step 2
Board of Fund
Representatives
Step 3
Board of Fund
Representatives
Step 4
Board of Fund
Representatives
Step 5
Board of Fund
Representatives
Source PVFC Capital Step 1 Propose investment
- Based on the market assessment or on the recommendation of members from
Board of Fund Representatives PVFC Capital will make investment proposals to
the Board for approval
- Proposal must outline clearly the investment opportunities volume price range
duration
Step 2 Investment approval
Within 3 working days the Board of Fund Representatives resubmit results of
investment approval to PVFC Capital
Step 3 Implement the Investment
PVFC Capital is responsible for distributing the necessary resources and
coordinate with relevant parties such as custodian banks securities companies
brokers to implement investment proposals which was approved
Step 4 Tracking Portfolio
PVFC Capital is responsible for monitoring the investments in the PVGFs
portfolio update the information related to investments and investment
companies If there is positive or negative news about the market PVFC Capital
shall report immediately to the investor to restructure the portfolio or close
investment status and wait for new signals
Step 5 Report and after-investment management
PVFC Capital shall periodically report (monthlyquarterlyyearly) on the active
status of management portfolio and evaluate the effectiveness of the portfolio to
the Board of Fund Representatives Since then PVFC Capital proposes to adjust
the portfolio (if necessary) to achieve investment objectives of the fund
The prospect of the PVGF will come from the commitment of the whole team
from the top of Management Board to every Department staff With the favorable
external factors such as the improved economy and prospective business
environment particularly in the capital market the challenges could be overcome
to achieve the companylsquos mission
Propose investment Investment approval
Implement the Investment
Tracking Portfolio Investment
Periodic reports Portfolio Investment
Ask for additional information (if necessary)
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
39
Appendix 1
List of Open-end Fund in Vietnam (as of July 2014)
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
No
Fund Name Fund
Manager License
Establish
ment
Scale
(bil
VND)
Invest
ment
Obj
1
MB Capital
Vietnam Bond
Fund
MB
Capital 01GCN-UBCK 1332013
54 Bond
2
VinaWealth
Enhanced
Fixed Income
Fund
Vinawealth 02GCN-UBCK 142013
54 Bond
3
Vietnam
Active Fund
(VFMVFA)
Vinafund 03GCN-UBCK 1842013
240 Stock
4
Vietnam Fund
Bond (VFB) Vinafund 04GCN-UBCK 2452013
100 Bond
5
Vietnam Fund
1 (VFMVF1) Vinafund 05GCN-UBCK 8102013 1000 Stock
6
Vietnam Fund
4 (VFMVF4) Vinafund 06GCN-UBCK 16122013
806 Stock
7
Vietcombank
Tactical
Balanced Fund
- VCBF
VCBF 07GCN-UBCK 24122013
60 Bond
8
Baoviet Equity
Dynamic
Open-ended
Fund
(BVFED)
BVF 08GCN-UBCK 812014
71
Stock
bond
9
Viet Capital
Balanced
Fund
(VCAMBF)
Bản Việt
Capital Offering since
1012014 Bond
10
Eastspring
Investments
Fund (ENF)
Eastspring
Investments
Offering since
24122013
Stock
Bond
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
40
Appendix 2
PERFORMANCE OF MB Capital Vietnam Bond Fund (as of July 2014)
Bond Holdings
Fund Activities
By the end of July NAV of MBBF increased by 082 compared to the same
period last month Thus in the first 7 months of the year NAV of the fund
increased by 606 with an annualize rate of 1038 The contribution for
positive return in this month were from realized and unrealized gains from term
deposits and interest payments
Fund Strategy
MBBF seeks to maximize total return while preserving investorrsquos principal by
investing in bonds and other debt instruments issued in Vietnam
The Fund will seek to achieve the Fundrsquos objective by investing in a diversified
portfolio of debt instruments including government bonds government-
guaranteed bonds bank-insured corporate bonds collateral-backed corporate
bonds corporate bonds certificates of deposit and cash deposit contracts
Source Military Bank (MB Bank)
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
41
Appendix 3
PERFORMANCE OF Vietnam Active Fund (VFMVFA) (as of July 2014)
Source Vinafund
Investment Objectives
The main objective of VFMVFA would be to capture
medium to long-term capital appreciation on
Vietnam market accompanied by capital
preservation during adverse market conditions based
on the main strategy of trend-following which is one
of Quantitative Investment method
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
42
Appendix 4
PERFORMANCE OF VIETNAM FUND 1 (VFMVF1) (as of July 2014)
Source Vinafund
Investment Objectives The objective of
VFMVF1 is to seek long-term earnings from
equity growth and income through investing into
a balanced and diversified portfolio including
equity convertible and debt securities in
Vietnam
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
43
Appendix 5
Performance of VCBF Tactical Balanced Fund (as of July 2014)
VCBF Factsheet
Performance of NAV
Source VCBF
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
44
Appendix 6
PERFORMANCE OF EASTSPRING INVESTMENTS FUND (ENF) (as of October 2014)
Source Eastspring Investments Vietnam
Eastspring Investments Vietnam Navigator Fund
(theldquoNavigator Fundrdquo or ldquoENFrdquo) is Mutual Fund
licensed by Vietnam State Securities Commission
under license No 09GCN-UBCK
(March 25th 2014)
Fund Manager Eastspring Investments Fund
Management Limited Liability Company
(ldquoEastspring Investments Vietnamrdquo)
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
45
Appendix 7
Reference Index PVN10
Source Petrovietnam Finance Fund Incorporation (PVFC Capital)
Full name PVN 10
PVN 10 index is designed to be a tradable index It
represents the largest and most liquid stocks on Ho Chi
Minh (HSX) and Hanoi (HNX) Stock Exchanges
Price or
Total Return Total return
UCITS IV
Compliant Yes
Constituent
numbers 10
Capping 15
INDEX COMPOSITION
Ticker Company Name Weight
PVD Petrovietnam Drilling amp Well Services Corporation 1831
GAS PetroVietnam Gas Joint Stock Corporation 1757
PVS PetroVietnam Technical Services Corporation 1478
DPM PetroVietnam Fertilizer and Chemicals Corporation 1379
PET Petrovietnam General Services Joint Stock
Corporation
766
PVX Petrovietnam Construction Joint Stock Corporation 681
PGD PetroVietNam Low Pressure Gas Distribution Joint
Stock Company
635
PVF Petrovietnam Finance Joint Stock Corporation 602
PVT Petrovietnam Transportation Corporation 561
PGS PetroVietNam Southern Gas Joint Stock Company 410
Qualification
criteria
Liquidity amp
Market cap
Composition
review Semester
Shares
review Quarterly
Free float
review Quarterly
Free float
banding 5 up
Base value 1000
Base date 2008-12-31
Historical
since 2008-12-31
Launching
date
382012
Internal code PVN10
Bloomberg PVN10TR
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
46
Appendix 8
Vietnam Stock Market in the period 2012-2013
Source State Securities Commission (SSC)
Vietnam Stock Market in the period 2012-2013
2013 2012 IncreaseDecrease
VN ndash Index
(8102013) (points)
50222 41835 205
Market Capitalization
(as of 31082013)
(VND bil)
881960 764946 1530
Liquidity (first 09
months of 2013)
Volume 16959937386 20060315484 -1546
Value (VND bil) 224724 259195 -1330
No of Investor
Account (as of
31072013)
Total 1268133
Local 1252727
Individual 1247732
Institutional 4995
Overseas 15406
Individual 13856
Institutional 1550
CPI Index (092013
compared to the
beginning of the year
2013)
463
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
47
REFERENCE
Reference website
httpcafefvn
httpwwweastspringcomvnvn
httpwwwprofundscom
httpwwwpvnvn
httpwwwpvnindexvn
httppvfccapitalcomvn
httpwwwgsogovvn
httpmbcapitalcomvn
httpwwwsscgovvnubck
httpwwwvcbfcomen
httpvinafundcom
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52
48
Reference journals amp book
Nguyen D K (2012) Value Analysis Connecting (VAC) method and
evaluationf traffic safety projects performance The Vietnam Bridge and Road
Journal 4 p50-53
Nguyen D K (2012 August) Paper ID SCS12-019 ldquoValue Analysis
Connecting (VAC) method and evaluation of traffic safety projects performancerdquo
Main Symposium Session 5th ATRANS Symposium held by the Asian
Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012) Value Incremental Comprehension (VIC) nomograph to
evaluate socio-economic effectiveness of traffic safety projects The Transport
Journal 4 p52-53
Nguyen D K (2012 August) Paper ID SCS12-020 ldquoValue Incremental
Comprehension (VIC) nomograph to evaluate socio-economic effectiveness of
traffic safety projectsrdquo Main Symposium Session 5th ATRANS Symposium held
by the Asian Transportation Research Society Bangkok 24 August 2012
Nguyen D K (2012 September) Value Analysis Connecting (VAC) method amp
Value Incremental Comprehension (VIC) nomograph APEC Workshop on
Improving Traffic Safety Data Systems co-organised by US Department of
Transportation -NHTSA and MoT amp NTSC Hanoi September 2012
Nguyen D K Nguyen H T amp Le L T (2012 August) VAC Method amp VIC
Nonograph for Socio-Economic Evaluation of Project (ISBN 978-3-659-22173-
6) LAP - LAMBERT Academic Publishing Germany
Nguyen D K (2012) Nummary Tactical Keynote (NTK) solution amp attracting
Public Private Partnership (PPP) investment in road infrastructure in Vietnam
The Transport Journal 9 p13-15
Nguyen D K (2012) ldquoLinear Pragmatize Supply Demandrdquo (LPSD) algorithm amp
optimize locally funds of Public Private Partnership (PPP) in road infrastructure
projects The Vietnam Bridge and Road Journal 10 p40-44
Nguyen D K (2012) Nummary Tactical Keynote Plus (NTK+) algorithm amp
Public-Private Partnership (PPP) investment projectin road infrastructure
projects The Transport Journal 12 p49-52