ETF Basic

In stock investment, understanding stock indices is crucial for investors to make informed and effective investment decisions. Among them is the VN Diamond Index, a valuable gem that is garnering special attention from both domestic and international investor communities. Let’s explore what the VN Diamond Index is and how to use this information to make flexible and effective investment decisions, together with KIS Prime.

1. What is the Vietnam Diamond Index

• The VN Diamond Index, also known as the Vietnam Diamond Index, is a stock market index in Vietnam that comprises Diamond stocks managed and constructed by the Ho Chi Minh City Stock Exchange. A distinctive feature of the VN Diamond, compared to other indices in the Vietnamese stock market, is the application of the Foreign Ownership Limit (FOL) coefficient. Selected stocks must meet a minimum 95% FOL requirement to be considered for inclusion in the VN Diamond basket. This index typically consists of around 10 to 20 component stocks, and currently, it reflects the performance of 18 top shares ..
• Main keys of the VN Diamond Index: 
• Stock selection is based on market capitalization, trading value, and the Foreign Ownership Limit (FOL) as regulated by the Exchange. The number of component stocks ranges from 10 to 15 to maintain diversity and liquidity. The VN Diamond Index applies the market capitalization calculation method and the free-float stock ratio, along with the P/E ratio as stipulated in index rules. Stock Assessment: Prioritizes stocks with the highest foreign ownership ratio (FOL), the lowest market capitalization, and the highest average trading value. Information regarding changes in component stocks, updates on circulating volume, and the review period for effective changes in the VN Diamond Index:

Information	Timing
Change in Component Stocks	Announced on the Monday of the 3rd week of April and October annually.
Circulating Stock Volume	Updated every Monday in the 3rd week of April, October, January, and July annually.”
Data Review Period	End of each quarter in March, June, September, and December.
The effective date	1st Week of Monday on February, May, August, and November.

• Conditions to be selected into the VN Diamond Index basket:

Conditions/ Limits	Value/ Ratio
Market Capitalization – VNAllshare	Over 2,000 billion VND
Market Capitalization – Remaining group stocks	Over 5,000 billion VND
Maximum Foreign Investor Capitalization	200 billion VND
Minimum Transaction Value – Stocks in the VNAllshare group:	15 billion VND/(Per Day)
Minimum Transaction Value – Stocks in the VNAllshare group:	50 billion VND (Per Day)
Number of Component Stocks:	10 – 20 shares
Current Stock Components:	18
Individual Stock Market Cap Limit	15%
Sector-specific Stock Market Cap Limit	40%
Maximum Market Capitalization for Foreign Investors	500 billion/day
Minimum Transaction Value on the second trading (day) – Stocks outside VNAllshare	15 billion/day
Minimum Transaction Value Second Time (Day) – VNAllshare Stocks	5 billion/day
Foreign Ownership Limit (FOL) Ratio	Minimum 95%

• idmatbao.net
• Structure of the VNDiamond stock portfolio (source: DCVFM; 12/2023).

2. The significance of the Vietnam Diamond Index

• The VN Diamond Index holds considerable importance, featuring 18 leading companies driving Vietnam’s economy. The VN Diamond Index provides opportunities for foreign investors to conveniently invest in top stocks on the exchange through ETF products. 
• In terms of Economic Impact:, the VN Diamond Index and ETF funds create attraction for foreign investment, driving the growth of key companies and making a substantial contribution to overall economic development.
• For domestic investors: The ETF that replicates the VN Diamond Index offer a gateway for local investors to access the foremost stocks within the Vietnamese stock market. This accessibility provides investors with the opportunity to capitalize on the growth of companies wielding substantial influence over the national economy.
• As of December 2023, the Vietnamese market features two key Diamond ETFs: VFMVN Diamond (FUEVFVND) managed by DCVFM and MAFM VNDIAMOND (FUEMAVND) offered by Mirae Asset. These ETFs play a crucial role in allowing investors to monitor and assess the performance of VN Diamond, while also providing avenues for exploring new investment opportunities in the dynamic Vietnamese market.

3. VN Diamond Investment Objectives and Strategies. 

• Investment Objectives: closely mirroring the benchmark index of VN Diamond, enables investors to accurately monitor and assess their investment outcomes.
• Investment Strategy: adopts a passive investment approach, proactively adjusting its portfolio in alignment with the reference index. Its emphasis is on sustaining comparable results rather than actively mitigating risks during market fluctuations.
• Portfolio Composition: At least 50% of the fund’s securities portfolio must include underlying securities of the reference index, ensuring diversity and balance.
  
• Portfolio Value: The value of the structured securities portfolio is maintained not less than 95% compared to the value of the corresponding securities portfolio in the reference index..
• Example of VFMVN Diamond Fund’s Investment Portfolio: 

• Sector Allocation of Diamond ETF (FUEVFVND) Fund by DCVFM:
  
• Investment Asset Types Targeted by VN Diamond ETF 

1. 1. Listed Blue-Chip Stocks: The ETF invests in shares is well-known companies listed on the Vietnamese stock exchange. This ensures that the stocks can be easily bought or sold and that the investment process is clear and open
2. 2. Bank Deposits and Transferable Tools: Part of the ETF’s money is kept in bank accounts, and it invests in transferable tools according to the law. The fund management company is only allowed to deposit money and invest in market tools, including valuable papers and transferable tools at credit institutions approved by the fund’s representative board.
3. 3. Derivative Securities: ETF also invests in derivative securities, which are financial products with set values listed on the market. This helps minimize differences from the reference index and guards against risks when the market is changing. 
4. 4. Options and Derivative Assets: Utilizes options and derivative assets related to Diamond exchange stocks ( (future contracts, derivative securities, buying and selling options, and other financial tools) helping the ETF adjust risk levels and optimize the performance of the investment portfolio.

4. Advantages of the VN Diamond Index

• Advantages: Một số ưu điểm mà các nhà đầu tư sẽ nhận được khi đầu tư vào VN Diamond:

• 1. Low Risk: The VN Diamond Index is built from industry-leading companies, offering low-risk exposure. These companies typically have strong financials and significant market influence.
• 2. High Liquidity: Stocks in the VN Diamond group are listed on the stock exchange, ensuring transparency and high liquidity. Investors can easily trade these stocks whenever they wish.
• 3. Low Costs:  Passive investment strategies in VN Diamond result in lower transaction costs compared to actively managed funds, providing cost benefits.
• 4. Profit Growth:  The top companies chosen in VN Diamond offer good long-term profit growth potential.

• Cons: Despite having low risk, VN Diamond is still influenced by overall market volatility. General market downturns may affect the fund’s growth..

• Lower Profit Potential: Due to its passive and stable nature, the profits of VN Diamond funds may be lower compared to direct investments in high-growth stocks.

The VN Diamond Index not only provides investment opportunities but also enhances the credibility of the Vietnamese stock market and supports the development of leading companies. For investors, monitoring and evaluating information about this index is crucial for building a diverse and sustainable investment portfolio.

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How to invest in Vietnam Diamond Index ETF? >>>Guide to buying ETFs for beginners?

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