Apr 10, 2020 – Investor Letter
Dear valued Investors,
Due to massive impact from the Covid-19 pandemic, the stock market has significantly fluctuated since the beginning of the year. Besides the report on NAV changes, this time we would like to share AP Alpha’s view on the recent moves in the market, as well as our selections to adapt to this type of situation.
At first, we feel like it would never be enough to emphasize that the stock market should be a long-term investment channel. An investment portfolio would only be efficient and safe when the investor can hold the assets for at least 5-7 years. In our experience, an investment horizon of 5 years is the bare minimum to effectively evaluate the outcome of a portfolio.
Secondly, with a value-investing strategy, we are always excited to see opportunities to possess a part of the best companies in Vietnam at a discounted price. And this had occurred in March 2020. Not just one but lots of company leaders signed up for share acquisition during March. As said by a Founder of one of the largest retail firms in Vietnam when asked about the impact of Covid-19 and why he signed up for share acquisition: “It is a one-in-a-lifetime chance to increase my holdings in the Company”. We also share this point of view. Just imagine the case when your dream house is suddenly on sale at a 50% discount, compared to its price less than 3 months ago.
Thirdly, talking about the impact of the pandemic on the operations of the companies, we project that tough time should only last temporarily (within 1 to 2 years) for good companies who possess strong financial capabilities. This is a fantastic opportunity for companies with decent underlying basis to gain more market share, as natural selection process will filter out the smaller and weaker ones. The Covid-19 pandemic has also brought up wonderful chances to recreate consumers’ spending and shopping habits, for those companies who have been well-prepared with an E-commerce platform, or those in the Tech industry.
In March 2020, both the global and Vietnam stock markets witnessed many trading sessions with daily price range maxed out at both ends, stipulating an enormous confusion state within the investors. It only took the first 3 months of 2020 for the USA’s S&P 500 to lose 20% of its value, while many other markets suffered the same tragedy, including the Philippines (-31,9% YTD), Indonesia JCI (-27,9% YTD) and Thai SET (-28,7% YTD). Vietnam’s VN-Index has dropped 31% in value, effectively losing all growth progress from the previous 3 years (2017-2019).
For AP Alpha’s investment portfolio, counting 3 years after the first disbursement, growth rate is temporarily calculated at 18.1% as of 31st March 2020 (vs VN-Index growth rate of -6.9% within the same time period). Specifically, the portfolio’s growth rate was 54.9% in 2017 (vs VN-Index’s 38.3%), 2.2% in 2018 (vs VN-Index’s -9.3%), and 9.7% in 2019 (vs VN-Index’s 7.7%). Within the first 3 months of 2020, AP Alpha’s portfolio has a growth rate of -32% (vs VN-Index’s -31.1%).
What we have done and are conducting at this moment:
1. Increase our shares at 2 leading companies in the consumer goods and technology industries. These are all industry-leading companies, possessing financial strengths and will most likely be in advantageous positions once the pandemic is over.
2. Restructure the portfolio, with decrease in holdings at smaller companies who are more likely to suffer in the economic depression period.
3. Keep holding the companies who yield decent dividends. At the current prices, several companies in our portfolio are already achieving a dividend yield of 20%.
As of this moment (17th April 2020), as the pandemic reached its peak in the US and many nations are loosening the lockdown, the US stock market has recovered 27.2% compared to its all-time low set on the 23rd of March 2020; VN-Index has also increased for 19.8% from its bottom. AP Alpha’s portfolio also enjoyed a recovery of 18.6% from its low on 31st March 2020.
Covid-19 pandemic was a completely new experience that the world has never been through before. Very few can imagine that developed nations like the EU and the US are those who suffered the most in this pandemic era. However, there is one thing we can be sure of, is that the pandemic will eventually be over, the human race will survive and bounce back even stronger. We hope that our investors can keep faith. The economy has its ups and downs, and it is very risky trying to predict those. Disciplines in the long-term investment will help us get through the worst time and achieve our targeted returns.
With best regards,
Pham Anh Vu