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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

-16.51%

YTD Return

(as of 06/27/2022)

$7.50

Price

(as of 06/27/2022)

$30.85 million

Fund Assets

(as of 05/31/2022)

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 $30.85 million (05/31/2022)
Currency USD
Ticker MCRDX
Cusip 577-130-677
Portfolio Turnover 79.8%
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 1.07%
Net Expense Ratio 1.07%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 05/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Credit Opportunities Fund
MCRDX
-2.61% -5.11% -12.06% -14.77% -3.75% -1.00% n.a. 0.67% 04/29/2016
J.P. Morgan Asia Credit Index
-0.28% -4.50% -8.65% -10.39% -0.26% 1.34% n.a. 1.92%
As of 03/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Credit Opportunities Fund
MCRDX
-2.33% -9.48% -9.48% -12.84% -2.66% -0.04% n.a. 1.19% 04/29/2016
J.P. Morgan Asia Credit Index
-2.04% -6.29% -6.29% -7.49% 1.05% 2.07% n.a. 2.42%
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 03/31/2022)

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 03/31/2022)
11.79% Yield to Worst
10.87% 30-Day SEC Yield
10.58% 30-Day SEC Yield (excluding expense waiver)

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

Ratings

  • OVERALL
  • out of 266 funds
  • 3 YEAR
  • out of 266 funds
  • 5 YEAR
  • out of 224 funds
  • 1 YEAR
  • 4th
  • 96 out of 96 funds
  • 3 YEAR
  • 4th
  • 88 out of 89 funds
  • 5 YEAR
  • 4th
  • 76 out of 82 funds
  • SINCE INCEPTION
  • 4th
  • 66 out of 82 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 03/31/2022)
2.2
Modified Duration
41
Number of Positions

Source: BNY Mellon Investment Servicing (US) Inc.

Risk Metrics (3 Yr Return)

(as of 03/31/2022)
-3.55%
Alpha
1.69
Beta
104.52%
Upside Capture
158.73%
Downside Capture
-0.33
Sharpe Ratio
-0.57
Information Ratio
6.47%
Tracking Error
73.78

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Positions

(as of 05/31/2022)
Name Sector Currency % Net Assets
PB International BV, 7.625%, 12/31/2025 Industrial U.S. Dollar 7.2
Luye Pharma Group, Ltd., Cnv., 1.500%, 07/09/2024 Industrial U.S. Dollar 5.8
Sino-Ocean Land Treasure III, Ltd., 4.900%, 03/21/2068 Agency U.S. Dollar 5.3
Network i2i, Ltd., 5.650%, 04/15/2068 Industrial U.S. Dollar 4.1
Theta Capital Pte, Ltd., 6.750%, 10/31/2026 Financial Institutions U.S. Dollar 4.1
Indika Energy Capital III Pte, Ltd., 5.875%, 11/09/2024 Industrial U.S. Dollar 4.1
Shriram Transport Finance Co., Ltd., 4.400%, 03/13/2024 Financial Institutions U.S. Dollar 4.0
Socialist Republic of Vietnam, 5.500%, 03/12/2028 Sovereign U.S. Dollar 3.9
Periama Holdings LLC, 5.950%, 04/19/2026 Industrial U.S. Dollar 3.8
Kasikornbank Public Co., Ltd., 5.275%, 04/14/2068 Financial Institutions U.S. Dollar 3.8
TOTAL 46.1

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 03/31/2022)
  • Sector Allocation
  • Country Allocation
  • Currency Allocation
  • Quality Distribution
  • Asset Type Breakdown
Sector Fund
Other Financial 20.9
Consumer Cyclical 16.4
Banking 15.2
Basic Industry 10.4
Government Owned, No Guarantee 8.4
Technology 7.7
Communications 7.2
Consumer Non-Cyclical 5.1
Finance Companies 3.6
Sovereign 3.5
Cash and Other Assets, Less Liabilities 1.6

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 48.4
India 22.8
Indonesia 14.3
Vietnam 3.5
Thailand 3.4
Malaysia 1.8
South Korea 1.6
Taiwan 1.1
New Zealand 1.0
Singapore 0.5
Cash and Other Assets, Less Liabilities 1.6

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 2.2

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

Quality Distribution Fund
BBB- 4.6
BB+ 5.9
BB 21.9
BB- 15.5
B+ 8.1
B 3.7
B- 4.3
CCC+ 6.8
CCC 0.6
CC 0.5
Not Rated 26.6
Cash and Other Assets, Less Liabilities 1.6

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 Bonds 69.9
Convertible Bonds 25.0
Government Bonds 3.5
Cash and Other Assets, Less Liabilities 1.6

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)
05/23/2022 05/24/2022 $0.03716 $0.00000 $0.00000 $0.03716 0.5% N.A.
04/25/2022 04/26/2022 $0.03990 $0.00000 $0.00000 $0.03990 0.5% N.A.
03/28/2022 03/29/2022 $0.03257 $0.00000 $0.00000 $0.03257 0.4% N.A.
02/22/2022 02/23/2022 $0.03104 $0.00000 $0.00000 $0.03104 0.4% N.A.
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.
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 March 31, 2022

For the quarter ending March 31, 2022, the Matthews Asia Credit Opportunities Fund returned -9.48% (Investor Class) and -9.33% (Institutional Class) while its benchmark, the J.P. Morgan Asia Credit Index returned -6.29% for the same period.

Market Discussion:

The Asia credit market continued to be driven by the sell-off in bonds issued by Chinese property developers that began in May 2021. While there have been signs of policy easing from local governments across China, uncertainty, driven by liquidity concerns, continues to weigh on the sector. Many companies are working to meet the cash needs of bond maturities at a time when capital markets are largely shut for the sector and the cash generated by operations has slowed along with property sales. With this backdrop, some developers are facing an added challenge—securing a clean bill of health from auditors as they prepare full year results for 2021.

Outside of China property, Asia credit also navigated headwinds driven by U.S. rates and the war in Ukraine. In the first quarter, there was an unprecedented repricing of U.S. rates expectations. The market shifted from pricing in three rate hikes by February 2023 at the beginning of the year to pricing in nine rate hikes by February 2023 at the end of the first quarter. This led to negative performance for rate sensitive assets, like investment grade credit. The war in Ukraine contributed to risk-off sentiment across Asia high yield. The direct economic linkages between Russia, Ukraine and Asia are generally limited, and while Asia high yield ex-China property was soft in the first quarter, most countries and sectors were fairly well-behaved.

Performance Contributors and Detractors:

Among the biggest contributors to returns were convertible bonds issued by Chinese e-commerce solution provider Baozun, Chinese online video platform company iQIYI, and Australian technology company Xero. All three are convertible bonds, but their performance was driven by different factors. Baozun bonds are puttable in May, and because the company has sufficient cash and liquidity to repurchase the bonds, they’ve accreted towards par. iQIYI announced a US$285 million fundraising from a consortium of investors, demonstrating shareholder support and access to liquidity. Xero’s bonds had sold off after a sharp repricing of technology stocks in the first quarter, and we re-initiated a position in the bonds late in the quarter.

Amongst the biggest detractors to returns were our sub-investment grade rated China property bonds. Issuers including Logan, KWG and Sunac were under pressure in the quarter. All three are large, private sector developers with bond maturities this year. Logan’s situation is particularly challenging, as the company is seeking to extend two onshore bonds, one of which became puttable in March and the other which matured in March. Sunac suffered a ratings downgrade that triggered a put in one of their onshore bonds; the company secured an 18-month extension from bondholders on the maturity.  KWG has avoided the liquidity challenges that other developers have faced.  However, it does have bond maturities later in the year, and as a single-B rated developer, KWG bonds moved down with the market.  

Notable Portfolio Changes:

We made limited changes to the portfolio in the first quarter. We added the convertible bonds of Xero after they sold off with the fall in tech stocks. We also exited the convertible bonds of Pharmaron and Hansoh Pharmaceutical. Both are Chinese healthcare companies. Pharmaron is a contract research organization (CRO) and provides laboratory and clinical development services to companies around the world. We exited when the company was thought to be at risk of landing on a U.S. government restricted list. We exited Hansoh Pharmaceutical bonds when we deemed the tail risk of regulatory pressure to outweigh the yield we were earning on the bond.

Outlook:

Having gone through two straight years with significant sell-offs—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 be under pressure in the short run, until policy easing from the Chinese government and the end of COVID lockdowns clear the way for an operational recovery in the China property sector. We are beginning to see an acceleration of easing measures 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 which define thresholds on borrowings, and by circulating a target list of developers to receive liquidity support from state-owned enterprises (SOEs) through asset sales. However, the full effect of these measures has been muted by the periodic lockdowns by local governments as China continues to pursue a dynamic zero COVID policy. Ultimately, we expect to see continued defaults in the short run as many private 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 the 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. The Fund’s Chinese property companies in our view are in the higher quality camp that we believe will recover over the coming quarters.

We expect Asian credit 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 300 basis points (3.0%) higher than their long-run average, while U.S. high yield, European high yield and Latin America high yield spreads are all over 150 basis points (1.5%) lower than their long-run average. 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.

View the Fund’s top 10 holdings as of March 31, 2022.

Average Annual Total Returns - MCRDX as of 03/31/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-12.84% -2.66% -0.04% N.A. 1.19% 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 1.07%
Net Expense Ratio 1.07%

Matthews has contractually agreed to waive fees and reimburse expenses to limit the Total Annual Fund Operating Expenses until April 30, 2023. Please see the Fund’s prospectus for additional details.

Yields as of 03/31/2022
Yield to Worst 11.79%
30-Day SEC Yield 10.87%
30-Day SEC Yield (excluding expense waiver) 10.58%

The 30-Day SEC Yield represents net investment income earned by the Fund over the 30-day period ended 03/31/2022, 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.