Snapshot
- Bottom-up Asia credit strategy, with a focus on risk-adjusted returns
- Invest primarily in USD-denominated high yield Asian bonds
- Flexibility to invest across the spectrum of credit quality and issuers’ capital structure
04/29/2016
Inception Date
-1.16%
YTD Return
(as of 09/28/2021)
$9.84
Price
(as of 09/28/2021)
$99.83 million
Fund Assets
(as of 08/31/2021)
Objective
Seeks total return over the long term.
Strategy
Under normal circumstances, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in debt and debt-related instruments issued by companies as well as governments, quasi-governmental entities, and supranational institutions in Asia. Debt and debt-related instruments typically include bonds, debentures, bills, securitized instruments (which are vehicles backed by pools of assets such as loans or other receivables), notes, certificates of deposit and other bank obligations, bank loans, senior secured bank debt, convertible debt securities, credit-linked notes, inflation-linked instruments, repurchase agreements, payment-in-kind securities and derivative instruments with fixed income characteristics.
Risks
Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Fixed income investments are subject to additional risks, including, but not limited to, interest rate, credit and inflation risks. Investing in emerging markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets.
The risks associated with investing in the Fund can be found in the prospectus.
Fund Facts
| Inception Date | 04/29/2016 | |
| Fund Assets | $99.83 million (08/31/2021) | |
| Currency | USD | |
| Ticker | MCRDX | |
| Cusip | 577-130-677 | |
| Portfolio Turnover | 48.5% | |
| Benchmark | J.P. Morgan Asia Credit Index | |
| Geographic Focus | Asia - Consists of all countries and markets in Asia, including developed, emerging, and frontier countries and markets in the Asian region | |
Fees & Expenses
| Gross Expense Ratio | 1.14% | |
| Net Expense Ratio | 1.14% | |
Performance
- Monthly
- Quarterly
- Calendar Year
As of 08/31/2021
As of 06/30/2021
For the years ended December 31st
Source: BNY Mellon Investment Servicing (US) Inc., Index data from J.P. Morgan. All performance is in US$.
Assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund’s fees and expenses had not been waived. Performance differences between the Institutional class and the Investor class may arise due to differences in fees charged to each class.
Additional performance, attribution, liquidity, value at risk (VaR), security classification and holdings information is available on request for certain time periods.
Growth of a Hypothetical $10,000 Investment Since Inception
(as of 06/30/2021)Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.
The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gain distributions or redemption of fund shares.
Yield
(as of 06/30/2021)
11.77%
Yield to Worst
9.87%
30-Day SEC Yield
9.87%
30-Day SEC Yield
(excluding expense waiver)
30-Day SEC Yield Source: BNY Mellon Investment Servicing (US) Inc.
Ratings
(as of 06/30/2021)
CATEGORY: Emerging Markets Bond
(as of 06/30/2021)
CATEGORY: Alternative Credit Focus
Ratings agency calculation methodology
Past performance is no guarantee of future results. High ratings and rankings does not assure favorable performance.
The Overall Morningstar® Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and (if applicable) ten-year ratings.
Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.
Lipper Analytical Services, Inc., rankings are based on total return, including reinvestment of dividends and capital gains for the stated periods. Funds are assigned a rank within a universe of funds similar in investment objective as determined by Lipper. For the absolute rankings shown the lower the number rank, the better the Fund performed compared to other funds in the classification group. Lipper also calculates a quartile ranking which divides the peer group into quartiles to identify funds of similar quality. Funds in the 1st or 2nd quartile had outperformed the average fund in the peer group while funds in the 3rd or 4th quartile had underperformed.
Portfolio Managers
Teresa Kong, CFA
Lead Manager
Teresa Kong, CFA
Portfolio Manager
Teresa Kong is a Portfolio Manager at Matthews Asia and manages the firm’s Asia Total Return Bond and Asia Credit Opportunities Strategies. Prior to joining Matthews Asia in 2010, she was Head of Emerging Market Investments at Barclays Global Investors, now known as BlackRock, and responsible for managing the firm’s investment strategies in Emerging Asia, Eastern Europe, Africa and Latin America. She developed and managed strategies spanning absolute return, active long-only and exchange-traded funds. In addition to founding the Fixed Income Emerging Markets Group at BlackRock, she was also Senior Portfolio Manager and Credit Strategist on the Fixed Income credit team. Previously, Teresa was a Senior Securities Analyst in the High Yield Group with Oppenheimer Funds, and began her career with J.P. Morgan Securities Inc., where she worked in the Structured Products Group and Latin America Capital Markets Group. She received both a B.A. in Economics and Political Science and an M.A. in International Development Policies from Stanford University. She speaks Cantonese fluently and is conversational in Mandarin.
Satya Patel
Lead Manager
Satya Patel
Portfolio Manager
Satya Patel is a Portfolio Manager at Matthews Asia and manages the firm's Asia Credit Opportunities Strategy and co-manages the Asia Total Return Bond and Asian Growth and Income Strategies. Prior to joining Matthews Asia in 2011, Satya was an Investment Analyst with Concerto Asset Management. He earned his MBA from the University of Chicago Booth School of Business in 2010. In 2009, Satya worked as an Investment Associate in Private Placements for Metlife Investments and from 2006 to 2008, he was an Associate in Credit Hedge Fund Sales for Deutsche Bank in London. He holds a Master's in Accounting and Finance from the London School of Economics and a B.A. in Business Administration and Public Health from the University of Georgia. Satya is proficient in Gujarati.
Portfolio Characteristics
(as of 06/30/2021)2.7
Modified Duration
42
Number of Positions
Source: BNY Mellon Investment Servicing (US) Inc.
Top 10 Positions
(as of 08/31/2021)Top 10 holdings may combine more than one security from the same issuer and related depositary receipts.
Source: BNY Mellon Investment Servicing (US) Inc.
Portfolio Breakdown (%)
(as of 06/30/2021)- Sector Allocation
- Country Allocation
- Currency Allocation
- Quality Distribution
- Asset Type Breakdown
"Foreign Government Bonds" category includes supranationals.
Cash and Other Assets may include the mark-to-market value of forward currency exchange contracts and certain derivative instruments.
Sector data (excluding Government Bonds) based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.
Not all countries are included in the benchmark index. Cash and Other Assets may include the mark-to-market value of forward currency exchange contracts and certain derivative instruments.
Supranational is an international organization in which member states transcend national boundaries, (ex. IMF).
Source: FactSet Research Systems.
Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Percentage values may be derived from different data sources and may not be consistent with other Fund literature.
Distributions
LATEST FIXED INCOME INSIGHTS
Visit our Glossary of Terms page for definitions and additional information.
The Markit iBoxx Asian Local Bond Index tracks the total return performance of a bond portfolio consisting of local-currency denominated, high quality and liquid bonds in Asia ex-Japan. The Markit iBoxx Asian Local Bond Index includes bonds from the following countries: China (on- and offshore markets), Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand.
The J.P. Morgan Asia Credit Index (JACI) tracks the total return performance of the Asia fixed-rate dollar bond market. JACI is a market cap-weighted index comprising sovereign, quasi-sovereign and corporate bonds and is partitioned by country, sector and credit rating. JACI includes bonds from the following countries: China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea and Thailand.
The MSCI All Country Asia ex Japan Index is a free float–adjusted market capitalization–weighted index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI All Country Asia Pacific Index is a free float–adjusted market capitalization–weighted index of the stock markets of Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Index is a free float-adjusted market capitalization-weighted index of Chinese equities that includes H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges, Hong Kong-listed securities known as Red chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China) and foreign listings (e.g. ADRs).
The MSCI China All Shares Index captures large and mid-cap representation across China A shares, B shares, H shares, Red chips (issued by entities owned by national or local governments in China), P chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g. ADRs). The index aims to reflect the opportunity set of China share classes listed in Hong Kong,Shanghai, Shenzhen and outside of China.
The MSCI Emerging Markets (EM) Asia Index is a free float-adjusted market capitalization weighted index of the stock markets of China, India, Indonesia, Malaysia, Pakistan, Philippines, South Korea, Taiwan and Thailand. The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets Small Cap Index is a free float-adjusted market capitalization weighted small cap index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungry, India, Indonesia, Kuwait, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan Thailand, Turkey and United Arab Emirates.
The S&P Bombay Stock Exchange 100 (S&P BSE 100) Index is a free float–adjusted market capitalization–weighted index of 100 stocks listed on the Bombay Stock Exchange.
The MSCI Japan Index is a free float–adjusted market capitalization–weighted index of Japanese equities listed in Japan.
The Korea Composite Stock Price Index (KOSPI) is a market capitalization–weighted index of all common stocks listed on the Korea Stock Exchange.
The MSCI All Country Asia ex Japan Small Cap Index is a free float–adjusted market capitalization–weighted small cap index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Small Cap Index is a free float-adjusted market capitalization-weighted small cap index of the Chinese equity securities markets, including H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges,Hong Kong-listed securities known as Red Chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g., ADRs).
The information contained herein has been derived from sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Neither the funds nor the Investment Advisor accept any liability for losses either direct or consequential caused by the use of this information.
The views and opinions in the commentary were as of the report date, subject to change and may not reflect current views. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the Fund's future investment intent. It should not be assumed that any investment will be profitable or will equal the performance of any securities or any sectors mentioned herein. The information does not constitute a recommendation to buy or sell any securities mentioned.
Commentary
Period ended June 30, 2021
For the first half of 2021, the Matthews Asia Credit Opportunities Fund returned -2.14 (Investor Class) and -2.06% (Institutional Class) while its benchmark, the J.P. Morgan Asia Credit Index, returned -0.12%. For the quarter ending June 30, the Fund returned 0.61% (Investor Class) and 0.65% (Institutional Class) compared to the benchmark return of 1.07% over the same period.
Market Discussion:
After a dramatic first quarter of ups and downs, the second quarter felt like a period of normalization. The market was coming to terms with froth in the most expensive parts of the growth market, adjusting their valuations lower and simultaneously repricing new growth opportunities higher, including cyclicals, as the global economy recovers. These cyclical industries, such as semiconductors, commodities and basic materials, were boosted by increased coronavirus vaccination across the developed world and the rapid resumption of economic activity.
The good performance of asset classes was driven by the market coming to terms with the growth and value rotations in terms of valuation. Moreover, the market is understanding that the global economy is improving rather than deteriorating, and that the policy stance from global central banks and governments will continue to be supportive. These factors meant that it was generally a good second quarter for equities as well as bonds. The MSCI Emerging Markets Index returned 5.2% while the J.P. Morgan Asia Credit Index (JACI) returned 1.1% on the quarter.
Within China, concerns about certain highly levered Chinese developers led to market repricing of China property developer risk. This is most apparent in more highly levered property developers in China, which came under pressure in June and drove high yield credit spreads around 20 basis points (0.20%) wider in the quarter.
Performance Contributors and Detractors:
For the first half of 2021, our holdings in the real estate sector, which consists mainly of Chinese real estate developers, and in the communications sector contributed to performance. On the other hand, detractors over the same period came largely from distress in two holdings within the Indonesian textile industry, PB International (Pan Brothers) and Sri Rjeki Isman Tbk PT. Both companies had trouble refinancing their bank loans as Indonesian banks grew more skeptical of the industry after the default of Duniatex, another textile manufacturer in Indonesia.
During the second quarter, real estate developers and basic industry were top contributors to relative performance. Positioning in the tech sector and lack of exposure to governments/quasi-sovereigns detracted from performance. The top contributors to performance came from convertible bonds, such as Kakao Corp., a South Korean social media and e-commerce platform and NIO Inc., a Chinese electronic vehicle maker. The top detractors came from exposure to Huarong Finance, a Chinese asset manager, and Sri Rejeki Isman Tbk PT, an Indonesian textile manufacturer. We initiated a position in Huarong after the bonds sold off on news of possible losses from non-core overseas investments and the delayed publication of annual results. We believe the bonds were oversold given we deem this to be one of China’s systematically important financial institutions. In our base case, Huarong may experience some combination of asset sales, government bailout and corporate restructuring such that bondholders will be made whole.
Notable Portfolio Changes:
During the second quarter, we added exposures to the Chinese real estate and internet sectors. Within real estate, we added CIFI Holdings, a high-quality developer we previously held. Within Chinese internet, we initiated positions in the convertible bonds of Meituan, a web-based shopping platform company, and Weimob, an e-commerce and marketing solutions company. We believe regulatory risks and competition within the internet space have put price pressure on these names; however, over the long term, we believe their businesses will scale to drive profitability. We also added Huarong Finance for the special situations opportunity as the company works through asset sales or a corporate restructuring.
We exited Indonesia textile manufacturer Sri Rejeki Isman Tbk PT in the quarter. Sri Rejeki Isman had shown reasonable operating results throughout the COVID-crisis. However, the company failed to refinance its bank loans earlier in the year and seemed to signal a lack of willingness, rather than ability, to treat debtholders fairly. As a result, we exited the position. We also exited Thailand’s state-owned commercial bank Krungthai Bank in the quarter as the economic recovery in Thailand seemed continually pushed out with new waves of COIVD resurgence.
Outlook:
Looking ahead, with new confirmed COVID cases subsiding in major economies such as U.S. and Europe, we believe the U.S. and global economies will be on better footing in the next 12 months. We will continue to monitor the effectiveness of vaccines against new variants of the coronavirus. Due to the difference in administrative organizational capabilities of different countries, we still expect to see greater dispersion going forward. The likelihood and timing of the Fed “tapering” continues to be a point of focus, though we do not expect the Fed to move rapidly into a hawkish taper.
Within this global context, China has always marched to the beat of its own drum. China was the first to control COVID, and thus required the least policy easing to support its economy. Having seen its economy rebounding, China policymakers are no longer in crisis-fighting mode and are looking more to normalize their policies compared to policymakers in the rest of the world. We see anti-trust, consumer protection and privacy legislations curbing the powers of big internet platforms. More industries could be implicated including the real estate sector, which has already seen financial leverage curbs and price controls since 2018, and the financial sector, as it grapples with possible bad debts stemming from the COVID-crisis and the previous shadow-banking excesses. Another key uncertainty is U.S. – China relations. Diplomatic tensions over various human rights issues, for instance, continue to ratchet up, with the risk of the U.S. government expanding prohibitions against U.S. commercial and financial dealings with Chinese companies and industries. While we are more cautious regarding China, we see changes in macro and industrial trends presenting opportunities for us as active investors.
As of June 30, 2021, the securities mentioned comprised the Matthews Asia Credit Opportunities Fund in the following percentages: PB International BV (Pan Brothers), 7.625%, 01/26/2022; Kakao Corp., Cnv., 0.000%, 04/28/2023, 1.8%; Kakao Corp., Cnv., 0.000%, 04/28/2023, 0.9%; NIO, Inc., Cnv., 0.500%, 02/01/2027, 1.1%; Huarong Finance 2017 Co., Ltd., 4.000%, 05/07/2068, 1.0%; Huarong Finance 2019 Co., Ltd., 4.250%, 03/30/2068, 1.0%; Huarong Finance 2017 Co., Ltd., 4.500%, 07/24/2068; Huarong Finance 2017 Co., Ltd., 4.500%, 07/24/2068, 0.5%; CIFI Holdings Group Co., Ltd., 4.800%, 05/17/2028, 2.4%; Meituan, Cnv., 0.000%, 04/27/2028; Weimob Investment, Ltd., Cnv., 0.000%, 06/07/2026, 0.8%.
The Fund held no positions inSri Rjeki Isman Tbk PT; PT Duniatex; and Krungthai Bank. Current and future portfolio holdings are subject to change and risk.
Average Annual Total Returns - MCRDX as of 06/30/2021
All performance quoted is past performance and is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. Please see the Fund's most recent month-end performance.
Fees & Expenses
Matthews has contractually agreed to waive fees and reimburse expenses to limit the Total Annual Fund Operating Expenses until April 30, 2022. Please see the Fund’s prospectus for additional details.
Yields as of 06/30/2021
The 30-Day SEC Yield represents net investment income earned by the Fund over the 30-day period ended 06/30/2021, expressed as an annual percentage rate based on the Fund’s share price at the end of the 30-day period. The 30-Day SEC Yield should be regarded as an estimate of the Fund’s rate of investment income, and it may not equal the Fund’s actual income distribution rate. Source: BNY Mellon Investment Servicing (US) Inc.
Yield to worst is the lowest potential yield a bond can receive without actually defaulting – is for the underlying bond-only portion of the portfolio, and as of May 2020, is calculated by making worst-case scenario assumptions using the weighted averages of the underlying security-level yields, weighted according to each security’s market value. It does not represent or predict the yield on any fund. Source: FactSet Research Systems
Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Fixed income investments are subject to additional risks, including, but not limited to, interest rate, credit and inflation risks. Investing in emerging markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets.