Ian Cowie: income doubled over five years, yet big discount remains

How do you fancy an unfashionable single-country investment trust which doubled shareholders’ income during the last five years, delivered double-digit capital growth last year and still trades at an -18% discount to its net asset value (NAV)?

With the technology giants Apple Inc (NASDAQ:AAPL), Alphabet Inc Class A (NASDAQ:GOOGL) and Microsoft Corp (NASDAQ:MSFT) said to be considering switching more production from China to this much smaller Asian state, it was no surprise to see the Microsoft co-founder Bill Gates visit this country for the second time last month.

Vietnam is on very few British investors’radar, perhaps due to many Boomers’ unhappy memories of Ho Chi Minh and a communist military victory that condemned the country to poverty for several decades. Now it is a beneficiary of an ill wind, which is filling many American mega-corporations with an urgent desire to diversify away from an increasingly assertive China.

Better still, several investment trusts have demonstrated the ability to deliver decent returns from these mega-trends. Step forward, VinaCapital Vietnam Opportunity Fund (LSE:VOF), which achieved total returns of 14%, 62% and 288% over the last year, five years and decade, according to independent statisticians Morningstar.

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To put that performance in perspective, the Association of Investment Companies (AIC) ‘UK All Companies’ sector delivered average returns of 10%, 24% and 79% over the same three periods.

As alluded to earlier, VOF has increased its dividend distributions by an annual average of 15.2% over the last five years, doubling shareholders’ income, and continues to offer buyers today a modest yield of 2.3% paid twice a year. For income seekers who must maximise cash today, that’s not as good as UK All Companies’ average yield of 3.1%, but much better than annual dividend growth of 5.1%.

Meanwhile, the UK equity income sector average dividend growth over the past five years is 3.3%, while the average yield is 4.2%.

Despite VOF’s impressive combination of rising income and capital growth, the shares remain priced on a discount of -18%. So you can‘t say I only tell you about these things when it is too late to take advantage of them.

Six years ago, when I began to become alarmed about reports of China’s maltreatment of its Muslim minority, the Uyghurs, and other human rights abuses, I first invested in another single-country fund, Vietnam Enterprise (LSE:VEIL) Investments, paying 404p per share in July 2018.

Unfortunately, as someone whose main aim in investment is to prepare to fund an enjoyable retirement, I became fed up with VEIL’s insistence that it would pay no dividend income.

So, I sold those shares at 542p in October 2022, as reported here at that time, and flipped the funds raised into VOF at 426p. Since then, the divis have turned up on time, the share price has advanced to 469p and there are reasons to hope both have further to go.

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At this point, it is only fair to give a favourable mention to VietNam Holding Ord (LSE:VNH), which is the top performer in its sector with eye-stretching total returns of 37%, 105% and 303% over the usual periods. Once again, VNH pays no dividend, yearly charges are steep at 3%, compared to 1.9% for VEIL and 1.7% for VOF, but all of them demonstrate the rapid economic growth of this country, plus the potential for more to come.

For example, I was impressed by news from a recent Microsoft conference in Ho Chi Minh City about the commercial opportunities being created by artificial intelligence (AI).

Nguyen Quynh Tram, the general manager of Microsoft Vietnam, claimed: “AI is the defining technology of our era which will empower us to perform tasks better and faster than ever before. In the age of AI, the more an organisation learns and adopts AI, the more it will thrive.”

She added: “At Microsoft, our technological innovations are driven by our mission of supporting every Vietnamese organisation and business in harnessing the potential value of AI to enhance their performance and growth, then to foster the digital economy of Vietnam.”

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Against all that, it could be argued that Microsoft is merely talking its own book, because the software giant invested $13 billion last year in OpenAI, the unlisted creator of ChatGPT, the fastest-growing app ever. Or they might just be right about AI and other technologies’ ability to accelerate progress - especially in emerging markets, which can leapfrog some of the obstacles afflicting more developed economies.

Your humble correspondent lacks the digital knowledge to have a meaningful opinion on this issue. However, after 30 years as a stock market investor, I would much rather follow Gates and the AI enthusiasts with some of my life savings than place my faith in the cynics of cyberspace, who continue to predict doom and call the top of the market all the way up.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Apple (AAPL), Microsoft (MSFT) and VinaCapital Vietnam Opportunity Fund (VOF) as part of a globally diversified portfolio of investment trusts and other businesses.