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Asia Fixed Income

Matthews Asia Credit Opportunities Fund MCRDX

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

-2.62%

YTD Return

(as of 01/26/2022)

$8.90

Price

(as of 01/26/2022)

$41.43 million

Fund Assets

(as of 12/31/2021)

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.

These and other risks associated with investing in the Fund can be found in the prospectus.

Fund Facts
Inception Date 04/29/2016
Fund Assets $41.43 million (12/31/2021)
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
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As of 12/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Credit Opportunities Fund
MCRDX
1.27% -5.15% -6.35% -6.35% 2.61% 2.51% n.a. 3.03% 04/29/2016
J.P. Morgan Asia Credit Index
-0.24% -1.36% -2.44% -2.44% 4.92% 3.93% n.a. 3.71%
As of 12/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Credit Opportunities Fund
MCRDX
1.27% -5.15% -6.35% -6.35% 2.61% 2.51% n.a. 3.03% 04/29/2016
J.P. Morgan Asia Credit Index
-0.24% -1.36% -2.44% -2.44% 4.92% 3.93% n.a. 3.71%
For the years ended December 31st
Name 2021 2020 2019 2018 2017
Matthews Asia Credit Opportunities Fund
MCRDX
-6.35% 1.80% 13.34% -2.88% 7.86%
J.P. Morgan Asia Credit Index
-2.44% 6.33% 11.35% -0.77% 5.77%

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 12/31/2021)

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 12/31/2021)
8.01% Yield to Worst
5.87% 30-Day SEC Yield
6.33% 30-Day SEC Yield (excluding expense waiver)

30-Day SEC Yield Source: BNY Mellon Investment Servicing (US) Inc.

Ratings

  • OVERALL
  • out of 262 funds
  • 3 YEAR
  • out of 262 funds
  • 5 YEAR
  • out of 219 funds
  • 1 YEAR
  • 4th
  • 92 out of 99 funds
  • 3 YEAR
  • 3rd
  • 66 out of 89 funds
  • 5 YEAR
  • 3rd
  • 54 out of 85 funds
  • SINCE INCEPTION
  • 3rd
  • 54 out of 85 funds

Ratings agency calculation methodology

Portfolio Managers

Teresa  Kong, CFA photo
Teresa Kong, CFA

Lead Manager

Satya  Patel photo
Satya Patel

Lead Manager

Portfolio Characteristics

(as of 12/31/2021)
2.6
Modified Duration
42
Number of Positions

Source: BNY Mellon Investment Servicing (US) Inc.

Risk Metrics (3 Yr Return)

(as of 12/31/2021)
-4.66%
Alpha
1.74
Beta
108.17%
Upside Capture
167.21%
Downside Capture
0.16
Sharpe Ratio
-0.36
Information Ratio
6.42%
Tracking Error
72.30

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Positions

(as of 12/31/2021)
Name Sector Currency % Net Assets
PB International BV, 7.625%, 01/26/2022 Industrial U.S. Dollar 6.0
Sino-Ocean Land Treasure III, Ltd., 4.900%, 03/21/2068 Agency U.S. Dollar 4.9
Luye Pharma Group, Ltd., Cnv., 1.500%, 07/09/2024 Industrial U.S. Dollar 4.4
Baozun, Inc., Cnv., 1.625%, 05/01/2024 Industrial U.S. Dollar 3.4
ABJA Investment Co. Pte, Ltd., 5.450%, 01/24/2028 Industrial U.S. Dollar 3.4
Theta Capital Pte, Ltd., 6.750%, 10/31/2026 Financial Institutions U.S. Dollar 3.4
Network i2i, Ltd., 5.650%, 04/15/2068 Industrial U.S. Dollar 3.3
Shriram Transport Finance Co., Ltd., 4.400%, 03/13/2024 Financial Institutions U.S. Dollar 3.2
Indika Energy Capital III Pte, Ltd., 5.875%, 11/09/2024 Industrial U.S. Dollar 3.2
HDFC Bank, Ltd., 3.700%, 02/25/2069 Financial Institutions U.S. Dollar 3.1
TOTAL 38.3

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 12/31/2021)
  • Sector Allocation
  • Country Allocation
  • Currency Allocation
  • Quality Distribution
  • Asset Type Breakdown
Sector Fund
Other Financial 24.5
Banking 14.8
Consumer Cyclical 14.7
Basic Industry 9.7
Government Owned, No Guarantee 8.8
Consumer Non-Cyclical 7.6
Communications 6.2
Technology 5.6
Finance Companies 3.2
Sovereign 3.0
Cash and Other Assets, Less Liabilities 1.9

Cash and Other Assets may include the mark-to-market value of forward currency exchange contracts and certain derivative instruments.
Sector data based on Bloomberg B Class Sector.
Source: Bloomberg

By issuer's country of risk Fund
China/Hong Kong 53.1
India 21.5
Indonesia 12.6
Thailand 3.0
Vietnam 3.0
Malaysia 2.0
South Korea 1.4
Taiwan 1.0
Singapore 0.4
Cash and Other Assets, Less Liabilities 1.9

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).

Currency Fund Contribution To Duration
U.S. Dollar 100.0 2.6

Cash and other assets may include forward currency exchange contracts and certain derivative instruments that have been marked-to-market.

Quality Distribution Fund
BBB- 4.8
BB+ 5.8
BB 20.6
BB- 17.3
B+ 11.3
B 3.3
B- 3.4
CCC+ 6.0
Not Rated 25.6
Cash and Other Assets, Less Liabilities 1.9

Credit quality is provided for the underlying bond holdings of the Fund and does not include common equities, cash and other assets and percentage values will not total 100%. Credit quality rating symbols reflect that of S&P and generally credit ratings range from AAA (highest) to D (lowest). When ratings from Moody's, S&P and Fitch are available for a bond in the Fund, the middle rating of the three is used. When two ratings are available, the lowest rating is used. When only one rating is provided, that one is used. Foreign government bonds without a specific rating are assigned the country rating provided by one of the three agencies. Securities that are not rated by any one of the three agencies are reflected as such.
Sources: FactSet Research Systems, Moody's, S&P and Fitch

Asset Type Fund
Corporate Bond 70.6
Convertible Bonds 24.5
Government Bond 3.0
Cash and Other Assets, Less Liabilities 1.9

Cash and Other Assets may include the mark-to-market value of forward currency exchange contracts and certain derivative instruments.

Source: FactSet Research Systems unless otherwise noted.

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

Record Date Ex, Pay and
Reinvest Date
Ordinary
Income
Short Term
Capital Gains
Long Term
Capital Gains
Total Distributions
Per Share
% of NAV Nondividend Distribution (Return of Capital)
01/24/2022 01/25/2022 $0.02003 $0.00000 $0.00000 $0.02003 0.2% N.A.
12/14/2021 12/15/2021 $0.06569 $0.00000 $0.00000 $0.06569 0.7% N.A.
11/17/2021 11/18/2021 $0.06521 $0.00000 $0.00000 $0.06521 0.7% N.A.
10/25/2021 10/26/2021 $0.03497 $0.00000 $0.00000 $0.03497 0.4% N.A.
09/27/2021 09/28/2021 $0.03291 $0.00000 $0.00000 $0.03291 0.3% N.A.
08/25/2021 08/26/2021 $0.03206 $0.00000 $0.00000 $0.03206 0.3% N.A.
07/26/2021 07/27/2021 $0.03266 $0.00000 $0.00000 $0.03266 0.3% N.A.
06/28/2021 06/29/2021 $0.03356 $0.00000 $0.00000 $0.03356 0.3% N.A.
05/25/2021 05/26/2021 $0.02845 $0.00000 $0.00000 $0.02845 0.3% N.A.
04/26/2021 04/27/2021 $0.03737 $0.00000 $0.00000 $0.03737 0.4% N.A.
03/24/2021 03/25/2021 $0.03841 $0.00000 $0.00000 $0.03841 0.4% N.A.
02/22/2021 02/23/2021 $0.02591 $0.00000 $0.00000 $0.02591 0.3% N.A.
01/25/2021 01/26/2021 $0.04658 $0.00000 $0.00000 $0.04658 0.5% N.A.
12/15/2020 12/16/2020 $0.05833 $0.02672 $0.00000 $0.08505 0.8% N.A.
11/18/2020 11/19/2020 $0.04203 $0.00000 $0.00000 $0.04203 0.4% N.A.
10/26/2020 10/27/2020 $0.03420 $0.00000 $0.00000 $0.03420 0.3% N.A.
09/28/2020 09/29/2020 $0.03784 $0.00000 $0.00000 $0.03784 0.4% N.A.
08/27/2020 08/27/2020 $0.04322 $0.00000 $0.00000 $0.04322 0.4% N.A.
07/27/2020 07/28/2020 $0.03875 $0.00000 $0.00000 $0.03875 0.4% N.A.
06/24/2020 06/25/2020 $0.03634 $0.00000 $0.00000 $0.03634 0.4% N.A.
05/26/2020 05/27/2020 $0.04014 $0.00000 $0.00000 $0.04014 0.4% N.A.
04/27/2020 04/28/2020 $0.03833 $0.00000 $0.00000 $0.03833 0.4% N.A.
03/25/2020 03/26/2020 $0.03086 $0.00000 $0.00000 $0.03086 0.3% N.A.
02/26/2020 02/27/2020 $0.03930 $0.00000 $0.00000 $0.03930 0.4% N.A.
View History

 

There is no guarantee that the Fund will pay or continue to pay distributions. 

Past performance 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.

Commentary

Period ended December 31, 2021

For the year ending December 31, 2021, the Matthews Asia Credit Opportunities Fund returned -6.35% (Investor Class) and -6.24% (Institutional Class), while its benchmark, the J.P. Morgan Asia Credit Index, returned -2.44% over the same period. For the fourth quarter of the year, the Fund returned -5.15% (Investor Class) and -5.14% (Institutional Class), while the benchmark returned -1.36%.

Market Discussion:

In retrospect, 2021 was a year with two distinct periods for Asia credit markets. From the beginning of the year to late May, the Asia high yield market continued its steady recovery from the COVID-induced selloff in 2020, with spreads steadily tightening and the new issue market open for business. Following news in May that several of China Evergrande Group’s project companies were late on commercial paper payments, spreads within the high yield China property sector have been under pressure, with very little ability to issue new U.S. dollar-denominated bonds in the primary market. It is worth noting the unique nature of the market selloff in 2021; it was unusual because of how localized the disruption was to sub-investment grade rated property developers in China. Chinese companies outside of the property sector have largely avoided getting dragged down by the country’s property developers. Additionally, high yield issuers from the rest of the region—be it in India, Indonesia or elsewhere—have also largely marched to the beat of their own drum, without experiencing contagion from the China property sector.

Asia credit outside of China performed well in 2021. India and Indonesia, two of the countries most severely impacted by the COVID-19 pandemic, saw spreads tighten meaningfully in 2021. Credit spreads for Indian and Indonesian issuers tightened by 50 and 20 basis points (0.50% and 0.20%), respectively. Both countries were forced to impose large-scale social restrictions in the first half of the year, followed by significant rebounds in economic activity in the second half of the year. Indian issuers also benefited from the growth of the ESG-labeled bond market in Asia, with several companies across industries tapping into demand for ESG issuance.

Performance Contributors and Detractors:

In general, Chinese companies underperformed, led by those in the property sector. Additionally, the portfolio’s overweight to high yield credit relative to investment grade credit, which had outperformed in the year, also detracted from performance for the full year. On the other hand, security selection in the investment grade space did help the Fund.

In terms of country allocation, the top contributors came from our overweight to India and Vietnam, while China, which is now 50% of the index, detracted from relative performance because of our overweight to the high yield China property sector. Indonesia also detracted. The new funding market for Indonesian high yield companies has been fairly constrained since the beginning of the coronavirus pandemic, hindering efforts to refinance maturing bank loans and bonds.

From a security selection perspective, bonds issued by Huarong Finance, Lippo Karawaci (Theta Capital) and Khazanah Nasional (Cerah Capital) were among the biggest contributors to performance. Huarong Finance, one of the major Chinese asset managers, continued to rebound after policymakers in China helped to orchestrate its rescue and recapitalization. Lippo Karawaci, an Indonesian property developer, continued to show robust results in its new property sales, as well as in its hospitals business. And the exchangeable bond of Khazanah Nasional, which is linked to the bank CIMB Group in Malaysia, performed well as the company continued to execute on its operational turnaround. On the other hand, Chinese property companies like KWG Property, Times Property Holdings and China SCE were among the largest detractors to performance. All three are relatively high quality, private property developers who were dragged down with the weakness in the sector. The convertible bonds of Chinese pharmaceutical research and development (R&D) service platform Pharmaron Beijing and gaming and e-commerce company Sea Ltd. also underperformed, largely due to concerns over China’s regulation of innovative sectors and the potential impact of further deterioration of U.S.-China relations.

Notable Portfolio Changes:

2021 was a year of many surprises and required continual rotation in search of value. Our strategy was to sell names that had reached our price targets and redeploy capital into good companies where we saw value with potentially limited downside. Over the course of the year, this meant selling relatively high quality companies in the Philippines like Jollibee Foods, and redeploying into companies like Axis Bank in India, Kasikornbank in Thailand and JSW Steel (Periama Holdings) in India.

During the fourth quarter, we exited International Container Terminal Services, Inc., a port operator in the Philippines, as the company tendered for our perpetual bonds as part of its deleveraging strategy. We also sold bonds issued by China Huarong, as they reached our price target following the government’s strong support throughout the second half of the year. We added to a number of high quality names in the quarter, including ESR Cayman, a leading commercial real estate company in Asia with an exceptionally strong network of warehouses, as well as Shriram Transport Finance, a strong non-bank financial company in India whose business and capital structure are continuing to improve.

Outlook:

Having gone through two straight years with significant selloffs—the pandemic in 2020 and the string of defaults in the China property sector in 2021—we expect Asia’s high yield market to continue to recover as policy easing and support from the Chinese government clears the way for an operational recovery in the China property sector. We have begun to see the first steps in easing coming from the government. There have been reports that banks are being encouraged to facilitate mortgage and construction loans and support the domestic bond market. We have also seen the government move to support mergers and acquisitions by carving out the acquisition of distressed assets from calculations for the Three Red Lines requirements (financial regulatory guidelines relating to the ratio of debt to cash, equity, and assets) and by circulating a target list of developers to receive liquidity support from state owned enterprise (SOEs) through asset sales.

Ultimately, we expect to see continued defaults over the short term as the weaker developers find it hard to access liquidity through bond markets and to generate sufficient cash to meet their debt obligations through their operations. As policy easing supports both bond issuance and operational recovery in the coming months, we expect to see companies start to recover and for differentiation in performance to increase. We do not expect this recovery to be “V” shaped, where all companies rally in lockstep, but rather “K” shaped, where the higher quality companies recover but many of the lower quality companies restructure. We believe our portfolio of Chinese property companies are in the higher quality camp that could recover over the coming quarters.

Away from the China property sector, we expect economies around the region to continue their recoveries over the coming year. While inflation is a concern in developed countries, particularly the U.S., the scope of accommodation was lower in Asian countries, and we believe Asian policymakers will navigate the Federal Reserve’s rate hike cycle without being forced to dramatically tighten monetary policy.

We continue to monitor other key risks, including the spreads of the omicron variant of the coronvirus and its impact on manufacturing, tourism and services. In addition, we are also watching the change in COVID-19 policies around the region. Many Asian countries should reach a high level of vaccination in 2022, which may lead to a further rebound in economic activity, while China and Hong Kong remain the last holdouts of the zero COVID policy.  

We enter 2022 with a view that Asian markets will continue to be under pressure in the near term, but over the course of the year will present a significant buying opportunity. Asia high yield spreads today are over 200 basis points (2.00%) higher than their long-run average, while U.S. high yield, European high yield and Latin America high yield spreads are all over 200 basis points (2.00%) lower than their long-run average. Investors with a medium-term horizon have historically generated double digit annual returns when spreads have reached these levels, and while the very short run is riddled with uncertainty, we expect in the long run that Asia high yield will rebound from its currently stressed levels.

As of Dec 31, 2021, the securities mentioned comprised the Matthews Asia Credit Opportunities Fund in the following percentages: Huarong Finance 2019 Co., Ltd., 4.250%, 03/30/2068, 1.9%; Theta Capital Pte, Ltd., 6.750%, 10/31/2026, 3.4% (Lippo Karawaci);  Cerah Capital, Ltd., Cnv., 0.000%, 08/08/2024, 2.0% (Khazanah Nasional); Sea, Ltd., Cnv., 0.250%, 09/15/2026, 0.4%; Axis Bank Gift City, 4.100%, 09/08/2026, 3.1%; Kasikornbank Public Co., Ltd., 5.275%, 04/14/2068, 3.0%; Periama Holdings LLC, 5.950%, 04/19/2026 (JSW Steel); ESR Cayman, Ltd., Cnv., 1.500%, 09/30/2025, 2.3%; and Shriram Transport Finance Co., Ltd., 4.400%, 03/13/2024, 3.2%. KWG Group Holdings, Ltd., 7.400%, 01/13/2027, 3.1%; Times China Holdings, Ltd., 6.200%, 03/22/2026, 2.3%; China SCE Group Holdings, Ltd., 7.000%, 05/02/2025, 2.8%; Pharmaron Beijing Co., Ltd., Cnv., 0.000%, 06/18/2026, 1.4%

The Fund held no positions in: China Evergrande Group, CIMB Group Holdings, Jollibee Foods Corporation, Terminal Services, Inc., China Huarong Asset Management.  

Current and future holdings are subject to change and risk.

 

Average Annual Total Returns - MCRDX as of 12/31/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
-6.35% 2.61% 2.51% N.A. 3.03% 04/29/2016

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
Gross Expense Ratio 1.14%
Net Expense Ratio 1.14%

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 12/31/2021
Yield to Worst 8.01%
30-Day SEC Yield 5.87%
30-Day SEC Yield (excluding expense waiver) 6.33%

The 30-Day SEC Yield represents net investment income earned by the Fund over the 30-day period ended 12/31/2021, 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  (“YTW”) is the lowest potential yield a bond can receive without defaulting and is for the underlying bond-only portion of the portfolio, excluding securities that trade without accrued interest. YTW 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. YTW 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.

 

Visit our Glossary of Terms page for definitions and additional information.

Index Definitions

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.