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Vietnam Holding: Nearly Triple The Return Of The VN Index

Summary Vietnam Holdings Ltd. had a 1 Year Return of 23.25%, which is substantially higher than the VN Index gain of 8.88%. A further increase in the fund’s price is highly likely for the following reasons: low valuation, recovery of multiple industries, and irrational drops in stock prices that will recover. Vietnam Holdings Ltd. is the best option for investors to gain exposure to Vietnam through US Exchanges. In a previous article , I mentioned the opportunities of investing in Vietnam, and how the Market Vectors Vietnam ETF (NYSEARCA: VNM ) was not the best means to profit off of the growth in Vietnam. When an investment fund is unable to outperform the index and has a negative return in a country with substantial growth, skepticism is befitting. The Market Vectors Vietnam ETF has had a 1 year return of -6.82% , while VN index has had a return of 8.88% . While the most successful funds are generally not listed on US Exchanges, Vietnam Holding Ltd.(OTC: VNMHF ) is a superior alternative that has outperformed the VN Index. Investors, who are bullish on Vietnam and want to trade on US Exchanges, should consider this fund as the most appropriate vehicle. Vietnam Holdings Ltd. is a closed end investment holding company in Vietnam that is listed on the US OTC market. The advantages of this fund include more attractive valuation, consistently higher returns, and its investment in two companies fully held by foreign investors. Performance Comparison Market Vectors Vietnam ETF Vietnam Holdings Ltd. P/E Ratio 15 5.33 Number of companies held with full foreign ownership None 2 1 year return -8.53% 23.25% 3 year return 2.68% 19.4% 5 Year Return -3.70% 14.7% ROE 12% 24.35% Vietnam Holding Ltd. has a very strong portfolio, with extreme low valuation, and more than double the ROE of the top listed equity holdings of the Market Vectors Vietnam ETF. Moreover, the fund’s financial performance has been excellent, particularly in the past year with a return of 23.25% . The current low valuation, coupled with specific companies that demonstrate high potential, will attribute to future success. Its success is mostly attributed to very recent successful performance in the past year, and the growth appears to be in the initial stages. The portfolio is holistically very strong, while I would say that the greatest potential will result from the performance of DHG Pharmaceutical, Petrovietnam Drilling and Well Services, Vinamilk, and Hoa Phat Group. Hoa Phat Group Hoa Phat Group is the most undervalued company, as its share prices have dropped substantially over the past months. The company is currently rated as one of the top 50 best listed companies in Vietnam Forbes and No. 7 for enterprises with the largest turnover. The company has the largest market share for steel production and steel pipe segments, with approximately 18% and 19.8%, respectively . The stock’s price has been constantly declining, although the sharp decline in the middle of May represents an adjustment of stock price due to the issuance of dividends and bonus stocks. I am currently holding Hoa Phat Group at a 9.15% loss, after investing initially in late April and buying down after this drop. Financial performance of the company has been consistent, with strong growth in net income, net revenue, and ROE since 2012. Moreover, Net Income increased by 37% in the 1st quarter of 2015. An increase in steel prices is projected for the future, which will result in recovery of the stock’s price. Vinamilk and DHG Pharmaceutical JSC Although it does not represent a large portion of the fund’s portfolio, the holding of Vinamilk and DHG Pharmaceutical JSC is very strategic, as these companies are fully held by foreign investors. Vinamilk is one of the most sought after companies by foreign investors, as many foreign investors are willing to pay a premium of up to 20% for shares of this company. The slight decline in net income in 2014, coupled with valuation that is not relatively attractive for Vietnam, has not been enough to deter investment away from this company; considerable growth is ahead for the company and its share price will surely increase. Its key position in the dairy market in Vietnam is crucial, as the industry is expected to grow by 9% up to 2020 . DHG Pharmaceutical is another very strategic holding of this portfolio, with average valuation for Vietnam and consistent growth. The company’s EPS is projected to grow by 34% in 2015 , making a rebound in its stock price extremely likely. These two holdings can be considered a major strength of this portfolio, although they only represent 13.7% of the fund’s portfolio. Moreover, there are certainly other companies fully held by foreign investors with better valuation and more potential for growth; some of these include Refrigeration Electrical Engineering Company, Military Commercial Joint Stock Bank, and FPT Corporation. The removal of the foreign ownership limitation in Vietnam, which will begin in some industries in September , will be extremely beneficial for this fund. Both companies are trading very near to their 52 week lows, and an increase in share price in the near future is highly likely, due to company’s valuation, projected growth, and prestige of being fully held by foreign investors. Petrovietnam Drilling and Well Services Petrovietnam Drilling and Well Services is another holding that is extremely undervalued and holding this company will be beneficial, as a rebound in price is inevitable. The sharp drop in price has been very irrational, resulting from the fear of the declining price of oil and some large investment funds selling holdings of this company. Despite the sharp drop in its share price, a large number of foreign investment funds are still keeping this company in their portfolio, in anticipation of a rebound in price. Beyond having extremely attractive valuation, the company has had consistent growth in net revenue since 2003 , even when oil prices fell below $40/barrel in 2009; net revenue increased by 9.9% and net income only fell by 9.5% in 2009. History has shown that the company is capable of continual growth, and its financial performance will not suffer if the price of oil plunges further. Currently trading at 53,000 dong, opportunity for a rebound is substantial as the company is extremely undervalued; the company’s share price dropped to its 52 week low at 42,800 dong earlier this year. General Strengths A large number of companies that this investment fund holds will have a significant increase in their share prices. This will result from a wide variety of factors, including: High value of companies fully held by foreign investors, and the removal of the foreign ownership limitation for some industries beginning in September . Adverse performance of industries, which are on track for recovery. Irrational drops in stock prices, which will be reconciled. A portfolio of companies with low valuation, that have demonstrated consistent financial performance. Favorable outlook for Vietnam stocks, as the VN Index was projected to increase to a seven year high to 655 : it is currently at 605.7 Conclusion I recommend Vietnam Holdings Ltd. as the best option for US investors wishing to invest in Vietnam. Moreover, investment into this fund should be a long-term endeavor, to ensure that investors profit off of the recovery of all industries and the reconciliation of companies that are undervalued. For those wishing to venture further and explore options not listed on US Exchanges, the following investment funds are most suitable: PXP Vietnam Emerging Equity Fund, Asia Frontier Capital’s Vietnam Fund, Tundra Vietnam Fund, and PYN Elite Fund. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Major Asset Classes, June 2015: Performance Review

Portfolio News Articles StockTalk Marketplace PRO Seeking Alpha WHERE DO YOU WANT TO GO? Seeking Alpha home page » My portfolio page » Latest Financial Analysis & Opinion » TOP NEWS Averages post solid gains U.S. sues to block Electrolux/GE deal Animal spirits lifted in P&C after Chubb deal Airline stocks fall; DOJ probes price collusion EU on Greece: “No grounds” for further talks ISM Manufacturing edges higher ADP: Jobs up 237K in June, beating forecasts See latest news » TOP ARTICLES Top Authors   |      RSS Feeds   |  Sitemap   |  About Us   |  Contact Us Terms of Use | Privacy | Xignite quote data | © 2015 Seeking Alpha

The Bruce Fund: A Great Long-Term Investment

Summary Fund management is very frugal and the expense ratio is only 0.70%. The fund has earned 16% a year over the last 15 years. The fund tends to be relatively uncorrelated with other equity investments. Bruce Fund: Overall Objective and Strategy The primary objective of the Bruce Fund (MUTF: BRUFX ) is to achieve long term capital appreciation by investing primarily in domestic common stocks and bonds, including convertible bonds and “zero coupon” Treasury bonds. Income is a secondary consideration. The fund has built an outstanding long term performance record using a “barbell” type strategy. They often accumulate long-dated zero coupon Treasuries to seek capital appreciation when they feel there is an absence of viable common stock opportunities. But they will also buy higher risk debt securities and own some defaulted bonds selling at a small fraction of their par value. Their strategy is to use primarily bonds which have a very high yield to maturity, or to use convertible bonds which fluctuate with the common stock. Most of these higher risk bonds carry no credit rating. The Bruce Fund invests in domestic common stocks of any market capitalization, although they seem to focus mainly on smaller companies, as well as micro-cap securities. Both growth and value criteria are used to select these stocks. They actively pursue unseasoned companies, out-of-favor, turnaround and distressed situations. The Fund may invest in foreign securities, either directly or through ADRs or GDRs. At times, they hold a large cash position for a transitional period of time and the Fund tends to have a low “beta”. Fund Expenses The expense ratio for BRUFX is 0.70% which is very low for a fund that uses “hedge fund” style strategies. The Bruce Fund management is very frugal. One reason for the low BRUFX expense ratio is that they do not market their fund through discount brokers like Fidelity or Schwab. These brokers generally charge a mutual fund 40 basis points a year for the “privilege” of being on their platforms. Most mutual funds on these platforms offer “special” share classes with higher expense ratios to cover this platform fee. The Bruce Fund refuses to do this, and the fund can only be purchased directly. A mutual fund has to pay a yearly “Blue Sky” fee to every state where they sell the fund. Some small startup mutual funds only register in states where they have enough investors to make it worthwhile. The Bruce Fund started the same way, and until a few years ago, it was not available to Texas or Nebraska residents. But now it is available in every state. Minimum Investment BRUFX has a minimum initial investment of $1,000. Past Performance BRUFX is classified by Morningstar in the “Moderate Allocation” or MA category. BRUFX has blown away the competition and often ranks as the #1 fund in their category. Over the last 15 years, BRUFX has earned 16.37% a year, which trounces the category average of 5.19%. Here are the annual performance figures computed by Morningstar since 2006. 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD BRUFX 17.72% -5.13% -27.27% 32.26% 23.96% 7.24% 7.86% 18.95% 13.68% 2.56% Category (MA) 11.29% 5.99% -28.00% 24.13% 11.83% -0.11% 11.72% 16.48% 6.21% 2.58% Percentile Rank 4% 99% 41% 8% 1% 2% 76% 1% 1% Source: Morningstar Mutual Fund Ratings -Forbes Honor roll BRUFX is a member of the Forbes Mutual Fund Honor Roll. Forbes Up Market Grade: A+ Forbes Down Market Grade: A -Morningstar Rating : 5 Stars Fund Management The fund is managed by a father and son team, Robert and Jeffrey Bruce. They rarely speak to the press and spend none of their time marketing the fund, although they are glad to speak with shareholders who call. Instead of marketing the fund, they prefer to increase the assets via fund performance. Robert Bruce is 83 years old and previously helped to establish a great performance record at the Mathers Fund (MUTF: MATRX ) over forty years ago. In 1973, he left the Mathers Fund to manage his own money and eventually formed the Bruce fund in 1983 with his son. Bruce Fund Portfolio Analysis (as of December 31, 2014) Common Stock 48.5% Convertible Pfd. 1.8% Corporate Bonds 4.2% Convertible Bonds 5.4% U.S. Treasuries 16.9% Money Market 23.0% Other 0.2% Top 8 Equity Holdings (as of March 31, 2015) Amerco Inc (NASDAQ: UHAL ) 12.01% Allstate Corp (NYSE: ALL ) 3.23% IBM (NYSE: IBM ) 2.92% Airboss of America ( OTC:ABSSF ) 2.63% Pfizer (NYSE: PFE ) 2.21% Merck (NYSE: MRK ) 2.09% NextEra Energy (NYSE: NEE ) 1.89% Flotek Industries (NYSE: FTK ) 1.85% Source: Morningstar Comments It is common on Wall Street to hear fund managers talk about creating shareholder value. But when push comes to shove, the vast majority of mutual fund managers seem more concerned with growing assets under management (and maximizing their own fees) than with maximizing returns for shareholders. That explains the widespread popularity of mutual funds with 12b-1 fees. I give the Bruce Fund a lot of credit for refusing to use 12b-1 fees. They could probably attract a lot more assets if it was available on the discount broker platforms, even with a higher expense ratio. This would benefit the Bruce Fund managers, but would be detrimental to long term shareholders, would have to pay the higher fees every year. I have had a Roth IRA at the Bruce Fund for over ten years. They charge an annual IRA maintenance fee of $15. At first, I found this fee a little annoying, but on second thought I think it is very fair. It costs the fund a little more to administer IRA accounts, but rather than hike the expense ratio for everyone, they just charge this fee to those with IRA accounts. They also allow you to pay this fee with money outside your IRA, so the fee is tax deductible. The Bruce Fund managers are very frugal, but in a good way. The largest equity holding in the Bruce fund is Amerco, which currently trades for $325 a share. There is an interesting story behind this stock. Amerco is the parent company of U-Haul which was experiencing major problems back in 2003 including lawsuits and accounting irregularities. But the Bruce Fund managers liked the underlying business of renting trailers and the company owned a lot of undervalued real estate. Amerco filed for Chapter 11 in June 2003, but their management intended to leave the common equity intact and restructure the debt. Most institutional investors dumped their Amerco shares during this time period when the stock dropped as low as $2 a share. But the Bruce Fund managers stuck with the company and continued to buy more shares through the bankruptcy process. The stock has appreciated about 150 times since then. Another thing I like about the Bruce Fund is its low beta and relative lack of correlation with other equity investments. It has many hedge fund like attributes in the good sense without having to pay 2%/20% management fees. There is also a low turnover ratio, so BRUFX can also be a good investment in taxable accounts. If you want to purchase this fund, you cannot use a broker, and must buy direct. The fund web site is here . Disclosure: I am/we are long BRUFX. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.