Craig Martin chairs Dynam Capital, the fund manager of Vietnam Holding (VNH ), which last week won Best Emerging Market Single Country Trust in the Citywire Investment Trust Awards. In this video Martin talks about the opportunities he’s seeing and why he expects companies in the portfolio to grow their earnings by up to 20% over the next 12 months.

Can’t watch now? Read the transcript

What opportunities are you seeing in Vietnam? 

Craig Martin:

Well, Vietnam has been a multi-decade story: high gross domestic product (GDP) growth, massive levels of foreign direct investment and that story’s continuing. What’s very interesting is how Vietnam is perceived as China-plus-one. Whatever happens in the US election, having an alternative to China I think is very interesting for manufacturers, so Vietnam’s going to develop and continue in that strength, attracting global companies to build their factories in Vietnam. For us, we’re an equity investor, so we’re seeing the opportunities in the business-to-business services to support that foreign direct investment.

What are your key three themes? 

Craig Martin:

Vietnam Holding is nimble. We’re nimble across investment size, from the small, medium and large-cap, we’re both top-down driven by the attractive investment themes in Vietnam, but really, we’re fundamental bottom-up stockpickers. We’re looking for high-quality management teams, businesses that can compound their earnings at 20% per annum, and really looking to develop off the rise of the domestic consumer, the growth of the industrialisation of the economy in Vietnam, and the urbanisation as more people want to move to live in the cities. So, it’s a tremendous generational change and we’re looking to find great businesses that can play off those mega-trends in Vietnam.

What’s so attractive about Vietnam’s banks? 

Craig Martin:

Banks are about 30% of our fund investment at the moment. We’re actually underweight – the index is probably at 40%. Banks are a very interesting play on the broader economic growth in a country like Vietnam. So, not every opportunity is captured in the stock market, but banks play to all of those opportunities. Vietnam is under-banked. Until about two years ago, there were more Facebook accounts than bank accounts, but now that’s changing. Vietnamese banks are actively looking at digitalisation tools and drawing more people into the banking system. So it’s high growth and yet the banks themselves are very attractively priced on maybe one times price-to-book. So, good value and good growth. If you’re very selective, you can find some great opportunities in the banking sector. 

How is the trust playing the AI theme?

Craig Martin:

Our largest position, FPT [FPT Corporation], our number one position for the last 5-6 years, is a huge player in digitalisation and software. It’s making all of its employees study AI, it’s teaming up with some of the founding fathers of AI, people like Andrew Ng, who co-founded Coursera, and Yoshua Bengio – these are the deep learning godfathers. FPT is teaming up with these kinds of people to develop training material for its staff, but also looking to design software solutions to support the growth in AI. It’s also looking to partner with people like Nvidia and other designers who are trying to build the next-generation graphics processing unit (GPU) and hardware to support the growth in AI. So that’s our main play in Vietnam: FPT.

What’s driving Vietnam’s 20% earnings growth next year? 

Craig Martin:

In Vietnam, you’ve got a fundamental high level of per capita growth and GDP growth. It’s averaged about 6.5% per annum for the last 30 years, so that’s the base level of growth. A number of our companies are leveraged into that growth opportunity – they’re in the service sector, they’re business-to-business opportunities, so we’re seeing top-level growth and a modest increase in their underlying operational cost structure, so that’s generating a high return on capital employed. Some of our names, 20-25% average return on common equity, so that’s leading forward to high levels of earnings per share growth. So the market’s round about 15%, but our portfolio, we’re looking at about 20% earnings per share growth for the next 12 months or so. 

How big would you like the trust to be? 

Craig Martin:

Well, our fund strategy could accommodate a doubling or trebling of our existing fund size. We’re a very nimble fund – some say we’re small – but we reckon that that helps us in terms of delivering market-leading performance. So, we’re looking to grow. Today, our fund trades at a premium to net asset value, which is pretty uncommon for a closed-end fund, and if that trend can continue, then we can look to grow by issuing more shares in the future. That’s an aspiration rather than a reality today, but we’re perfectly happy to look to grow and manage more money, but managing really to deliver value to our shareholders and looking to continue to develop and grow strong alpha, strong outperformance to the underlying opportunity in Vietnam.