VF1 VIETNAM SECURITIES INVESTMENT FUND FUND · PDF filemarket leader Vinamilk (VNM) ... to...

VF1

www.vfm.com.vn

VIETNAM SECURITIES

INVESTMENT FUND

FUND DOCUMENT OF AGM 2016

VFMVF1 | DOCUMENTS OF THE 2016 AGM 1

TABLE OF CONTENT

FUND’S PERFORMANCE IN 2016 .............................................................................................................. 2

FUND’S OPERATION PLAN IN 2017 .......................................................................................................... 4

2016 DIVIDEND DISTRIBUTION ................................................................................................................. 5

BOR ACTIVITIES IN 2016 ............................................................................................................................ 6

SUPERVISORY REPORT OF SUPERVISING BANK IN 2016 ................................................................... 7

REPORT OF OPERATION EXPENDITURE OF BOR IN 2016 & PROPOSED OPERATION BUDGET FOR BOR IN 2017 ........................................................................................................................................ 8

PROPOSED FUND’S CHARTER AMENDMENTS ...................................................................................... 9

FUND’S AUDITOR SELECTION IN 2017 .................................................................................................. 13

FUND’S AUDITED FINANCIAL STATEMENTS IN 2016 .......................................................................... 14

REGULATION OF VOTING ........................................................................................................................ 15


FUND’S PERFORMANCE IN 2016

In 2016, VFMVF1 closely followed its investment strategy and plan approved by shareholders. We identified

2016 as the year of opportunities in equity. Therefore, we flexibly changed equity allocation around 80% of

the fund’s NAV to get an optimal asset mix in consideration of changes in economic market conditions.

Weighting of cash and fixed-income fluctuated from 15.2% to 30.8% NAV, average 48% of which was

allocated in certificates of deposit with attractive yield from 11.5% to 14%.

As of 31 December 2016, the Fund’s portfolio have 20 stocks in 11 industries, which is a more diversified

allocation compared to last year, which has 20 stocks in 8 industries. Our new 3 industries are Utilities,

Retailing and Pharmaceuticals. The Fund’s asset turnover achieved approximately 80% during 12 months

of 2016, in which there are 9 stocks sold off and 9 new bought in the year. Stocks listed on HOSE and

Large-cap stocks hold the majority allocation in VF1’s portfolio with the proportion of 66.1% and 61.2% NAV

respectively. There are three industries that are largest contributors to VFMVF1’s return: Materials, Capital

Goods and Retailing.

Capital Goods and Materials are benefited from the recovery of the Real Esate market, together with a

growth in public investment into infrastructure. The stocks picked by VFMVF1 related to the building

materials which are strongly support by the Real Estate growth and consumer retail such as steel, plastics,

lightning equipments... accounted for 20.5% of the NAV. In 2016, these industries contribute 1/3 to the

returns of the portfolio with two notable representatives: HSG and BMP, which has its share price grown by

106% and 52% respectively within a year.

Retailing ranks 2 in the top contributors, only behind Materials, with MWG as the market leader. This is the

company that holds Thegioididong.com and Dien May Xanh (dienmayxanh.com), which acquired 35%

marketshare of mobile phones retail and 17% of consumer electronics. The Compound Annual Growth

Rate (CAGR) of revenue and net profits of MWG exceed 50% during the 2010-2016 period. In 2016, the

investment in MWG contribute 18% to the fund’s return.

The Food & Beverages (F&B) sector continues to be emphasized in 2016 as the portfolio companies that

belong to this industry are benefited from the drop of materials’ prices while the output prices remain

constant, which improve profit margin under the circumstances of high demand for consumption. The

market leader Vinamilk (VNM) is always accounted for a significant allocation in the portfolio. The

divestment of SCIC from VNM will be a opportunity for them to attract new strategic investors, which have

alway be interested in the company. The stocks in Food & Beverage Sector contribute about 10% to

VFMVF1’s return with a 20% growth in price, which is similar to the market performance of this industry.

Real Estate is the industry that received a lot of benefits from policy changes in 2016 after the issuance of

Circular 32, amendment of real estate business law and housing law in 2014 under the circumstances of

low interest rate. Besides, the significant FDI inflow has fostered the rise in demand for real estate, including

industrial zones, residental and leisure housing. The real estate stocks in VFMVF1 portfolio all have

significant land banks, decent sales volume and healthy cashflows or benefited from the FDI inflows. Real

Estate industry achieved a total return of 15% in 2016, contribute 7.2% in VF1’s return.

With regards to Transportation sector, the Fund invests in companies in the fields of domestic

transportation, bridges and roads, seaports, benefiting from the FTAs, TPP, and FDI flows to Vietnam,

pushing the growth of import-export activities and logistics. We recognize that this is a sector with high

growth potential for the companies are undervalued compared to the intrinsic value; therefore, we have

increased gradually the weighting from 4.8% to 12% of NAV at the end of the year. In 2015, the sector has

impressive growth of 31.4%, contributing 6.5% to investment profit.


FUND’S PERFORMANCE IN 2016 (cont.)

Banking is the industry with highest market capitalization in 2016 but recorded a negative return this year,

causing negative effects on VN-Index. In 2016, there was a notable divergent of earnings in the banking

industry, however, the general situation of the sector is negative due to the fact that banks have to increase

their provision for non-performing loan (NPL) in 2016. The NPL ratio of the banking system remains high if

the VAMC bonds are included. In the same time, the resolution for NPl solely come from provision for

doubtful debts, as a result, the progress of resolving bad debts is slow without any strong movement.

Therefore, the Fund has been actively decrease the weighting of this sector from 12% to 5.6% NAV.

Considering the whole year of 2016, the Banking stocks in our portfolio still grows by 10.8% as VFMVF1

has chosen VCB to invest, which is the market leader with sound business results. In VN-Index, total

banking sector declined by 8.9%

The Consumer Discreationary industry and Pharmaceuticals with stocks such as PNJ, DHG are recently

invested and thus did not have any notable contribution to the Fund’s return. Besides, VFMVF1 also chose

to hold good-fundamental stocks belong to the industry that utilizes Vietnam’s competitive advantage such

as FPT (in Technology & Hardware Equipment) with an average weighting at approximately 6.6% and

achieved 11.3 % growth in 2016, outperforming the industry averages by 4%. The Fund also underweighted

Utilities industry due to gloomy outlook of oil price in 2017. However, during 2016 VFMVF1 has invested

into GAS to capture the oil price recovery. This generated a 63% return of this position and contributed

8.7% to the fund’s return.


FUND’S OPERATION PLAN IN 2017

Vietnam is still in the middle of a medium-term growth phase, starting from 2016. GDP growth target for

2017 that was approved by the National Assembly is 6.7%. This goal is a challenge under the circumstances

that Vietnam is experiencing abnormal political and economical changes in 2017. However, the expansion

of production, the attraction of FDI capital and a growing consumption power of the middle-class, together

with benefits from the Free Trade Agreements will become the main catalysts for the rapid growth of

Vietnam Economy. The most important goals of the Government are to maintain macro-economic stability

in 2017. Therefore, there would not be any extraordinary movement in terms of exchange rate or interest

rate policies in the first months of next year. The State Bank of Vietnam would continue to apply the central

rate policy and to assume its role as the buyer of last resort on the market to stabilize the exchange rate.

Deposit and lending rates are slightly increasing but are preserved by the good liquidity of interbank market.

The State Bank of Vietnam would maintain a loosening monetary policy to support growth. The equitization

and divestment of State-owned enterprise will be pushed. Public investment would become more rigorous

and efficient. Production activities would continue to expand together with consumption. GDP growth in

2017 will be higher than 2016 with the recovery of Agriculture and mining industries as well as the

determination of the Government, especially in changing the public administration mechanism.

2017 will be the year of blue-chip stocks. The reason for this is a wave of new listings, which create a much

more diversed investment universe for investors. Therefore, only the market-leading stocks with strong

business results would appear to be attractive to investors. At the same time, VFMVF1 will also invest into

mid-cap stocks with good liquidity. The Fund will focus on seeking new opportunities with good fundamental

factors, maintained growth, strong cash flows, adequate corporate governance and attractive to investors,

high dividend yield stocks are prioritized.

In terms of industry, VFMVF1 will look for opportunities in Consumer Goods and Retailing sector, which are

benefited from the growth of domestic consumption as a result of golden population demographics and

strong increase in earnings. Besides, in order to capture the benefit from new trade agreements and

increased volume of international trade, the industries related to infrastructure, construction, transportation,

logistic…. will be our main choices in seeking for investment opportunities of the Fund.

The Bond market in 2017 continue to be affected by the monetary policy, the bond yield is at a low level

and increase due to the pressure from inflation, foreign exchange movements and deposit rates. Under this

circumstance, VFMVF1 will focus on allocating into high-yield assets such as certificate of deposits, short-

term corporate bonds, and will decrease the proportion in cash at bank to increase the Fund’s return.


2016 DIVIDEND DISTRIBUTION

According to the 2016 Financial Statements of VFMVF1, the Fund did not fulfil the legal requirement to

distribute earnings.

Therefore, it is proposed that VFMVF1 will not distribute earnings of 2016.


BOR ACTIVITIES IN 2016

Global economy in Q4 and the year of 2016 has witnessed the huge and unstable fluctuations. The

remarkable events include: (i) surprising winning of Donald Trump in the presidential election of USA; (ii)

price of global energy and food has recovered stably; (iii) American interest rate has been raised in the

confidence of overcoming economic recession. Brexit has been also one of factors that create humors and

different predicts about the future.

Vietnam economy is on the recovery thanks to manufacturing industry and agricultural stability in Q4. The

growth rate of economy gained 6.68% in Q4 and 6.21% throughout the year of 2016. VEPI index

tremendously gained in Q4 that confirmed recovery trend of Vietnam economy.

In order to support maximum for the fund efficiency, BoR have conducted meetings during the year of 2016:

▪ On March 30th, 2016, BoR has had the preparatory meeting for Annual meeting 2015 which was

including: annual meeting schedule, the custodian report, audited financial report, auditor selection in

2016, revision of Fund Charter and candidate for BoR in new term.

▪ On March 31st. 2016, BoR approved the meeting via papers to agree fund activities in Q1, investment

plan in Q2, risk management report in Q1 and revision of Fund valuation book (Resolution no. 01.16/NQ-

BDD-VF1).

▪ On June 10th, 2016, BoR have met in Da Lat province to go through the fund report in Q2, investment

plan in Q3, risk management report in Q2, updates of negotiation trading scheme valid until July 2017,

chose PwC to be the auditor of the fund (Resolution no. 02.16/NQ-BDD-VF1).

▪ On October 18th, 2016, BoR meeting in Q3 has been organized via teleconference to understand the

quarterly report of the fund and investment plan in Q4, risk management report and budget proposal for

Annual report and meeting 2016.

▪ On January 20th, 2017, BoR approved via papers for the Q4 meeting those contents of fund report in

the whole year of 2016, profit distribution plan in 2016, investment plan in 2017, risk management report,

cost report of fund 2016, BoR costing report and BoR budget in the new year, auditor selection for 2017,

updates of annual report and meeting organization.

▪ Besides those meetings, BoR also support the investment process of the fund in the purpose of giving

best benefits to the fund, such as resolved several investment decision i.e Resolution no. 5, 7, 9a, 9,

11, 13, 15, 17, 19.16/NQ and Resolution No. 2 and 4.17/VF1-2017/NQ).


SUPERVISORY REPORT OF SUPERVISING BANK IN 2016

Please see the content of Supervisory report of Supervising bank in 2016 on VFM’s website at

www.vfm.com.vn.

http://www.vfm.com.vn/


REPORT OF OPERATION EXPENDITURE OF BOR IN 2016 & PROPOSED OPERATION BUDGET FOR BOR IN 2017

According to point b part 9 article 28, Circular 183/2011/TT-BTC regarding to the instruction of

establishment and fund management issued by Ministry of Finance on December 16th 2011 regulating the

budget of board of representatives’ activities, board of management of VFM would like to report of Board

of representatives activities in 2016 and propose budget of Board of representatives in 2017 as following:

1) Board of representatives’ activities cost in 2016 compared to approved budget:

No. Name of cost Actual 2016 Budget 2016 %

increase/decrease

I Remuneration 239,000,000 299,000,000 -20%

II Transportation 22,587,000 54,360,994 -58%

1 Air tickets 18,891,000 37,243,500 -49%

2 Hotel 3,696,000 14,219,494 -74%

3 Taxi 0 2,898,000 -100%

III Others (meeting

rooms, meals,..) 8,419,825 11,793,259 -29%

TOTAL 270,006,825 365,154,253 -26%

Note:

▪ The actual remuneration cost of 2016 was less than the budget as it was applied for only 4 members

and 1 secretary since April 1st, 2016.

▪ Organizing costs decreased (hotel fee, airtickets, meeting room rents) compared to approved budget.

2) Proposal of BOR budget in 2017:

No. Name of cost Budget 2017 Actual 2016 %

increase/decrease

I Remuneration 221,000,000 239,000,000 -8%

II Transportation 33,670,000 22,587,000 49%

1 Air tickets 14,670,000 18,891,000 -22%

2 Hotel 16,600,000 3,696,000 349%

3 Taxi 2,400,000 0 -

III Others (meeting

rooms, meals,..) 8,000,000 8,419,825 -5%

TOTAL 262,670,000 270,006,825 -3%

(% increase/decrease is the percentage differences between the actual 2016 and the budget 2017)

Note:

▪ Proposed budget in 2017 decreases 3% compared to the actual costs in 2016 and is based on the

followings:

- Transportation cost (air ticket, hotel, taxi) in 2017 is forcast to raise 49%.

- Other costs (meeting room, meals) may be decreased 5%.

- Number of face to face meetings istwo, others will be held via conference calls.

▪ The budget in 2017 intend to be used for 4 members and 1 secretary with the following structure:

- Chairman: 5 million VND / month

- Deputy Chairman: 4 million VND / month

- Member: 3 million VND / month

- Secretary: 2 million VND / month

▪ In case the number of BoR members changes, the budget will be renewed based on the reality.


PROPOSED FUND’S CHARTER AMENDMENTS

1. Amendment to Point a, Clause 3- Article 17 - Fund certificate transactions: to match with regulation

Article 17 - Fund certificate transactions

1. …

2. …

3. Distribution principles

a. Subscription orders

- Minimum required subscription amount is 1,000,000 (one million) Vietnam dong.

- Investors/ authorized person transfer the subscription amount to the Vietnam dong account of

VFMVF4 at Custodian Bank. Where orders of subscription of fund certificates and payment for such

orders are performed by individuals or organizations (domestic) other than domestic investors,

order forms and written confirmation of such payment must clearly include name, account number

and payment value of the interested domestic investor.

...

2. Amendment to Clause 2- ARTICLE 18. Partial redemption, suspension of trading of open-ended

fund transactions: to match with regulation

ARTICLE 18. Partial redemption, suspension of trading of open-ended fund transactions

1. ...

2. For the remaining part of redemption/switching orders that were partly executed as mentioned in

Clause 1, 2 of this Article, the fund management shall apply the pro-rata principle for fund certificates

alllotment as follows:

...

3. Supplement to Point b Clause 1- Article 40- Operations of the supervisory bank: to match with

regulation.

Article 40- Operations of the supervisory bank

1. The scope of supervision limits only within the fund management company's activities relating to the

fund for which the bank carries out the supervision function. In the operation of supervisory activities,

custodian bank shall:

a. …

b. To inspect, supervise investment activities and transactions of fund’s assets, including assets that

are not centrally registered at Vietnam Securities Depository; to inspect, supervise asset

transactions between fund, fund management company and affiliated persons. In case of

detecting violations of provisions of law, custodian bank shall report immediately to the State

Securities Commission and notify the fund management company within twenty four (24) hours,

upon the detection of such case, meanwhile request corrections or to conduct remedy activities

within the time limit.

If the ownership of the assets is registered, the registration must be undersigned by the

fund, unless it must be undersigned by the supervisory bank, the secondary depository

institution, or the fund management company as prescribed by relevant laws. The

originals of legal documents certifying the fund’s ownership of assets shall be adequately

deposited at the supervisory bank, except for the securities have been registered and

centrally deposited. To the extent of the book-entry securities, or incomplete assignment

of ownership of such securities, the original sale and purchase contract and payment

transactions must be deposited at the supervisory bank.


PROPOSED FUND’S CHARTER AMENDMENTS (cont.)

To the extent that registration for ownership of assets is not allowed, or ownership of such

assets has not been completed by the deadline stipulated in issuance agreements, the

assignment contract, investment contract or economic contracts of the equivalent value,

the supervisory bank shall be responsible for expressly certifying the asset depository

and registration status in periodic reports of the fund management company and

supervisory bank, and concurrently send a written notification to the board for

representations of the fund.

In respect of assets of which registration of ownership is not required, the supervisory

bank shall be responsible for checking with investment receivers, issuers and shareholder

register management organizations, or others of the same sort, volume and value of the

fund’s assets on a monthly basis, and ensuring compliance of asset depository with

subparagraph e paragraph 1 of this Article.

In respect of bank deposits, the supervisory bank shall have rights and responsibilities for

requesting the fund management company to provide adequate information about the

fund’s deposit agreements and deposit accounts. The supervisory bank shall be

responsible for checking deposit account balances, value of deposit agreements with

banks receiving the fund’s deposits on a monthly basis.

4. Amendment, supplement to Clause 1- Article 56 - Principles of Valuation Method of the Net Asset

Value: to update for suitable.

ARTICLE 56. Principles of Valuation Method of the Net Asset Value

1. Date of valuation

The trading frequency is daily, the Fund’s NAV is valuated on working day of week and each

month. The valuation day is working day of week (for daily term) and the first day of next month (for

monthly term).

For monthly term, the valuation date is always on the first day of the next month regardless it falls in

a holiday. In case the fund management company changes the valuation date, the company shall

get the approval from the Board of Representative before execution.

For monthly term, the valuation date is always on the first day of the next month regardless

it falls in a holiday.

5. Amendment, supplement to Point 8 and Point 9 Clause 2- Article 56 - Principles of Valuation

Method of the Net Asset Value: supplement principles of valuation method for Shares listed on Ho Chi

Minh City Stock Exchange or Hanoi Stock Exchange and Upcom Shares when moving from the upcom

to the listed.



8.

Shares listed on Ho Chi

Minh City Stock Exchange

or Hanoi Stock Exchange

- Closed price (or quote price) on the transaction system at

the Stock Exchanges on date having latest transaction prior

to valuation date

- In case of no transaction in more than two (02) weeks until

valuation date, it shall be prioritized prices as the following

order:

+ Closed price (or quote price) on the transaction system at

the Stock Exchanges on date having latest transaction

within 12 months prior to valuation date;

+ Purchase price;

+ Book value;

Price determined by the method which was approved by

the fund representative board

During the time of Shares change stock exchange

procedures, closed price on date having latest

transaction prior to valuation date will be used.

9.

Shares of public companies

registered for trading on

UpCom system

- Closed price (or other name depending on internal

regulations of the Stock Exchange) on date having latest

transaction prior to valuation date;

- In case of no transaction in more than two (02) weeks until

the date prior to the valuation date, closed price (or other

name depending on internal regulations of the Stock

Exchange) on date having latest transaction within 12

months prior to valuation date will be used; or

+ Purchase price (cost price); or

+ Book value; or

+ Price determined by the method which was approved by

the Fund Representative Board.

During the time of UPCOM Shares exchange

procedures for listing, closed price on date having

latest transaction prior to valuation date on Upcom will

be used.

6. Supplement to Article 61. Dividend policy: to match with law

ARTICLE 61. Dividend policy

1. The annual profit distribution is based on proposals of the BOR and approved by the General Meeting

of investors.

2. Profits may be distributed in cash or by fund units. Distributed profits shall be deducted from

remaining profit of fund. Fund management company shall only receive profit when fund already

completes or is financially capable of fullfilling tax duties and other financial duties in accordance with

regulations of laws; The amount paid to a fund unit is decided by the fund representative board.

3. Fund Management Company must deduct all taxes, fees, services fee regulated by laws when

paying dividend.



4. VFMVF1’s dividend shall be in cash or fund units. Only investors’ identity being on fund’s

investor list, at the ex-dividend date, shall have right to receive dividend, regardless of who

holds VFMVF1 unit after ex-dividend date.

5. After receiving dividend, Fund Management Company have to public the following

information:

- Dividend distribution in cash or in fund unit.

- Total profit during the reporting time and total accumulated profit since inception, detailing

each of profit’s categories.

- Total distributed dividend amount, total new issued fund units (if dividend distribution

would be in fund units).

- Net asset value per fund unit before and after dividend distribution.

- Other effects on VFMVF1’s net asset value

7. Amendment, supplement to Clause 1 Article 71 - Registration of the Charter: update charter

ARTICLE 71. Registration of the Charter

1. …

VFMVF1 Charter is amended and supplemented at the sixth time including 16 Chapters, 72

Articles and 3 Appendixes according to Resolution of the Annual Financial General Meeting of

Investors 2016 passed by absentee voting, dated on 04/04/2017 and takes effect from 04/04/2017.


FUND’S AUDITOR SELECTION IN 2017

VFM has received the 2017 audit proposals from the top 03 audit firms in Vietnam as follows:

Fund NAV @

31 Dec 2016 (bil VND)

Audit Fee for 2016 (mil VND)

Audit fee for 2017 (mil VND)

KPMG PwC E&Y

VF1 774 165 165 165 180

% change - - 9.09%

Note:

(1) The above fees exclude VAT.

(2) According to Circular 155/2015/TT-BTC dated 6 Oct 2015, starting from 2016 the fund’s half year

financial statements must be reviewed by auditors.

Based on the above proposals, VFM suggest investors authorize the Board of Representatives to select

the audit firm among PwC, KPMG and E&Y to audit the fund’s 2017 financial statements. The selection of

the audit firm will base on the followings:

- Continuity of the audit firm.

- Reasonable fee.

- Professional.

- Capability to meet fund’s requirements.


FUND’S AUDITED FINANCIAL STATEMENTS IN 2016

Please see the content of Fund’s Audited Financial Statement in 2016 on VFM’s website at

www.vfm.com.vn.

http://www.vfm.com.vn/


REGULATION OF VOTING

I. Purpose and Voting issues for approval of Resolution: approval of voting issues of the Annual

General Meeting of Financial Year 2016 of Vietnam Securities Investment Fund (VFMVF1).

II. The board of checking shall count the votes according to the following principles:

1. Principles of voting:

- Exactly, in accordance with the law, in accordance with the rules.

- The number of fund units voted by the number of fund units or ownership representatives.

- The voting results are calculated on the total number of outstanding fund units participating in

voting and on the total number of outstanding fund units at the time of voting.

2. Total number of votes received: is the total number of voting note sent by the fund management

company to investors in the database recorded at 27/02/2017.

3. Total number of collected votes: is the total number of voting note sent by investors to the fund

management company to express their opinions on voting contents and opinions.

4. Time for voting: from 20 March 2017 until 17:30pm, 30 March 2017.

5. Eligible voting note: Investors express their opinions on the voting note by choosing “Agree”,

“Disagree” or “No opinion”. Eligible voting note is the voting note:

• Is sent to investors by the fund management company;

• Is not erased, edited, modified;

• Is signed by the owner of the fund unit or an authorized person registered with the fund

management company or by a duly authorized representative in accordance with law.

• Is sent to the fund management company within the time period specified in the voting note.

6. Eligible voting opinion: voting opinion is eligible when investors select only one option “Agree”,

“Disagree” or “No opinion”.

7. Voting result: is consolidated on the eligible voting note of investors.

8. Approval and non-approval vote:

The "Agree" vote is considered as approval. Voting "Disagree" or "No opinion" is considered a non-

approval decision.

9. Do not participate in voting:

The voting note has been sent to the investor but is returned due to the incorrect registered address

of investors, or the voting note is sent to the fund management company after deadline; or the

voting note, which is not sent to the fund management company, is considered not to vote for

approval of voting issues.

10. Consolidating voting result: The board of checking is responsible for consolidating the voting

result for each issue and issueing the minutes of checking.

11. Voting result:

- Percentage voting is rounded to two (02) decimal places.

- Voting issues are approved when there are at least 51% of the total number of fund units voted

by the investors.

- Except in the case of voting to determine fundamental changes in the investment policy,

investment objectives of the fund; Increase the fee paid to the fund management company, the

custodian bank; Change the fund management company, custodian bank; Fund mergers and

mergers are only approved when there are at least 65% of the total number of fund units voted

by investors.

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