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Asia Growth & Income

Matthews Asian Growth and Income Fund MACSX

Snapshot
  • Seeks upside participation while aiming to provide some downside protection in Asia ex Japan
  • Utilize income-paying equities and convertible bonds to help mitigate downside risk and volatility
  • Offers a relatively stable means of participating in Asia’s long-term growth

09/12/1994

Inception Date

-2.24%

YTD Return

(as of 09/28/2021)

$17.53

Price

(as of 09/28/2021)

$1.23 billion

Fund Assets

(as of 08/31/2021)

Objective

Long-term capital appreciation with some current income.

Strategy

Under normal circumstances, the Matthews Asian Growth and Income Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in dividend-paying common stock, preferred stock and other equity securities, and convertible securities as well as fixed-income securities, of any duration or quality, of companies located in Asia. The Fund attempts to offer investors a relatively stable means of participating in a portion of the Asian region’s growth prospects, while providing some downside protection, in comparison to a portfolio that invests purely in common stocks. The strategy of owning convertible bonds and dividend-paying equities is designed to help the Fund to meet its investment objective while helping to reduce the volatility of its portfolio.

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. Investing in emerging and frontier 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 09/12/1994
Fund Assets $1.23 billion (08/31/2021)
Currency USD
Ticker MACSX
Cusip 577-130-206
Portfolio Turnover 36.3%
Benchmark MSCI All Country Asia ex Japan 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 1.09%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 08/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asian Growth and Income Fund
MACSX
1.95% -3.81% 1.89% 16.67% 9.53% 6.91% 5.80% 9.06% 09/12/1994
MSCI All Country Asia ex Japan Index
2.32% -5.38% 0.87% 17.92% 10.55% 11.75% 7.73% 5.30%
As of 06/30/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asian Growth and Income Fund
MACSX
-1.55% 2.03% 4.29% 30.01% 10.43% 7.82% 5.64% 9.21% 09/12/1994
MSCI All Country Asia ex Japan Index
-0.09% 3.66% 6.51% 40.03% 12.54% 14.82% 7.34% 5.55%
For the years ended December 31st
Name 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011
Matthews Asian Growth and Income Fund
MACSX
16.00% 17.26% -10.96% 21.85% 1.34% -4.50% -0.65% 4.83% 26.90% -10.62%
MSCI All Country Asia ex Japan Index
25.36% 18.52% -14.12% 42.08% 5.76% -8.90% 5.11% 3.34% 22.70% -17.07%

MSCI AC Asia ex Japan Index since inception value calculated from 8/31/94.

Source: BNY Mellon Investment Servicing (US) Inc. 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)
0.97% 30-Day SEC Yield
2.67% Dividend Yield

Dividend Yield (trailing) Source: FactSet Research Systems, Bloomberg, Matthews
30-Day SEC Yield Source: BNY Mellon Investment Servicing (US) Inc.

Ratings

  • OVERALL
  • out of 52 funds
  • 3 YEAR
  • out of 52 funds
  • 5 YEAR
  • out of 47 funds
  • 10 YEAR
  • out of 27 funds
  • 1 YEAR
  • 3rd
  • 21 out of 28 funds
  • 3 YEAR
  • 2nd
  • 13 out of 28 funds
  • 5 YEAR
  • 4th
  • 21 out of 26 funds
  • 10 YEAR
  • 3rd
  • 10 out of 16 funds
  • SINCE INCEPTION
  • 1st
  • 1 out of 4 funds

Ratings agency calculation methodology

Portfolio Managers

Robert J. Horrocks, PhD photo
Kenneth  Lowe, CFA photo
Kenneth Lowe, CFA

Lead Manager

Satya  Patel photo
Satya Patel

Co-Manager

Siddharth  Bhargava photo
Siddharth Bhargava

Co-Manager

Portfolio Characteristics

(as of 06/30/2021)
Fund Benchmark
Number of Positions 57 1,204
Weighted Average Market Cap $142.5 billion $183.0 billion
Active Share 75.4 n.a.
Price/Cash Flow 13.4 10.3
Price/Book 2.7 2.1
Return On Equity 18.2 13.0
EPS Growth (3 Yr) 5.9% 15.5%

Sources: BNY Mellon Investment Servicing (US) Inc., Factset Research Systems, Inc., Zephyr StyleADVISOR, Matthews Asia

Top 10 Holdings

(as of 08/31/2021)
Name Sector Country % Net Assets
Taiwan Semiconductor Manufacturing Co., Ltd. Information Technology Taiwan 7.5
Tencent Holdings, Ltd. Communication Services China/Hong Kong 5.3
Samsung Electronics Co., Ltd. Information Technology South Korea 3.9
AIA Group, Ltd. Financials China/Hong Kong 3.8
Housing Development Finance Corp., Ltd. Financials India 2.6
JD.com, Inc. Consumer Discretionary China/Hong Kong 2.5
Macquarie Korea Infrastructure Fund Financials South Korea 2.4
Techtronic Industries Co., Ltd. Industrials China/Hong Kong 2.0
Advantech Co., Ltd. Information Technology Taiwan 1.9
NetEase, Inc. Communication Services China/Hong Kong 1.9
TOTAL 33.8

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
  • Asset Type Breakdown
  • Market Cap Exposure

Sector data 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(es).

Asset Type Fund
Common Equities and ADRs 86.0
Convertible Bonds 10.9
Preferred Equities 1.1
Cash and Other Assets, Less Liabilities 2.0

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

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)
06/28/2021 06/29/2021 $0.12445 $0.00000 $0.00000 $0.12445 0.7% N.A.
12/15/2020 12/16/2020 $0.05757 $0.00000 $0.00475 $0.06232 0.4% N.A.
06/24/2020 06/25/2020 $0.10611 $0.00000 $0.00000 $0.10611 0.7% 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 June 30, 2021

For the first half of 2021, the Matthews Asian Growth and Income Fund returned 4.29% (Investor Class) and 4.37% (Institutional Class), while its benchmark, the MSCI All Country Asia ex Japan Index returned 6.51% over the same period. For the quarter ending June 30, the Fund returned 2.03% (Investor Class) and 2.10% (Institutional Class), while the benchmark returned 3.66%.

Market Environment:

Asian equity markets started the year strongly as the steadily rising path of asset prices spurred by aggressive policy stimulus and expectations for an economic reopening and growth rebound was the dominant narrative for market participants. The belief in the goldilocks scenario of accommodative policy alongside robust growth shifted in the middle of the first quarter as concerns around growing inflation began to take hold. Rising prices in shipping costs to commodities helped to spark a slight reversal in styles, as the much awaited “value” rally began while “growth” stocks faded. The reality of lofty valuations and expectations weighed on this part of the market, albeit the growth index in Asia remains in positive territory year to date.

Taiwan was the strongest performing market in Asia over the first half, rising over 18% as the technology cycle continued to display strength, while India also gained double digits on hopes that the worst of the pandemic is over. Contrary to this was the majority of Southeast Asia, where many markets fell as renewed COVID outbreaks occurred in countries such as the Philippines and Indonesia, weighing on expectations for a swift recovery and reinforcing how divergent these paths may be across countries. China rose only slightly during the first half due to ongoing regulatory risks, as the Chinese government clamps down on monopolistic practices and perceived data security risks.

Performance Contributors and Detractors:

The largest contributor to absolute performance for the came from the technology sector, as portfolio holding Taiwan Semiconductor Manufacturing Co. (TSMC) rallied. The company enjoys a strong competitive position as the world’s leading semiconductor foundry with superior technology, buoyed by the current backdrop of decidedly strong silicon demand driven by structural trends including high-performance computing and 5G adoption. This led management to announce a US$100 billion capital expenditure plan for the next three years, demonstrating the enormous scale of demand it enjoys. Similarly, South Korean semiconductor equipment company Leeno Industrial rallied as a beneficiary of such ongoing investment in the sector, as it is the global leader in pins and sockets used in testing chips, allowing it to raise prices and grow volumes. Elsewhere within technology, services provider Tata Consultancy Services Limited rose on guidance for the next year, targeting double digit revenue growth as it believes it can win large deals across verticals as information technology spending recovers. Despite this, the Fund’s relative underweight to the IT sector and specifically Taiwan was a drag on relative performance, as the country’s technology-dominated equity index rose significantly over the first half.

The portfolio’s holdings within the industrials sector also benefited performance, with power-tool manufacturer Techtronic Industries Co., Ltd. rising. The company continued to gain market share from competitors and was helped by the stay-at-home do-it-yourself boom, growth of its new outdoor cordless equipment and excitement over its role in U.S. infrastructure spending. Within the communication services sector, Chinese games company Netease, Inc.gained on double digit earnings growth. In our view, management has done an excellent job in growing its game offerings to broaden out by genre and start to grow the business internationally. We believe this should continue as it aims to launch titles based on intellectual property with global appeal.

Although the consumer discretionary sector overall had positive attribution for the Fund, it was also an area where we saw some of our weakest performers. The largest drag to absolute perfomrance for the first half of the year came from Chinese white-goods manufacturer Midea Group on concerns that rising raw material prices will hurt margins and due to a temporary slowdown in China’s monthly air conditioner sales data. Indonesian home improvement retailer PT ACE Hardware Indonesia also dropped on continuing weak same-store sales growth, as foot traffic within its stores is still below pre-pandemic levels and recovery may take longer than expected due to renewed lockdowns in Indonesia.

Other detractors to absolute performance included gold miner Northern Star Resources Ltd., which struggled against a declining gold price and Chinese life insurer Ping An Insurance Group, which fell on weaker than expected new business value growth, while its proposed improvement in agency productivity has disappointed. It is also worth noting that the portfolio’s underweight in the health care sector hurt relative returns. This is a sector that we have been adding to as the investable universe expands.

Notable Portfolio Changes:

We added three new holdings to the portfolio during the quarter. The first of these was Taiwanese financial company Chailease Holdings Co. The business operates across Taiwan, China and Southeast Asia, offering equipment and vehicle leasing amongst other lending products to small- and medium-sized enterprises. Financial products are underpenetrated amongst this cohort as access to financing remains challenging and Chailease enjoys a strong competitive position, good customer relationships, and healthy spreads. Chailease’s management has also managed asset-quality issues well throughout economic cycles, leading to fairly stable profitability and an attractive return on equity. We believe that there is solid growth momentum and improving efficiencies that should lead to double digit earnings growth accompanied by a healthy ~3% dividend yield.

We also added a position in Indian consumer durables company Crompton Greaves Consumer Electicals Ltd. A leader in fans, pumps, lighting and home appliances, management has been focusing its energy on continuing to solidify the company’s brand as consumer behaviors evolve. We believe that a combination of increased digitalization and new product pipeline will allow the company to sustain double-digit growth and benefit from India’s rising domestic demand. Within convertible bonds, we initiated a position in Chinese pharmaceutical research and development (R&D) service platform Pharmaron Beijing Co. We believe that the issue has an attractive risk-reward skew as the underlying equity is likely to grow over 30% as more drug discovery and development is outsourced to leaders such as Pharmaron. Furthermore, it is a strong credit as its balance sheet is net cash with robust cash flow generation.

These new positions were funded through the sale of our holdings in Macquarie Group Ltd., Taiwan Secom Co., Ltd. and a Kakao Corp. convertible bond.

Outlook:

Both markets and the macroeconomic growth backdrop have become more challenging to decipher in recent months as debates around critical issues ensue. It is undoubted that the degree of both monetary and fiscal stimulus across the globe is almost unfathomably large. However, the emergence of new coronavirus variants alongside the inability or unwillingness of large swathes of the global population to become vaccinated continues to muddy the waters of how strong a recovery will be and quite how divergent it may be by country.

Added to this is the question over how transitory the recent surge in inflation is. Supply bottlenecks are playing a significant role in driving inflation up, exacerbated by apparent labor shortages in specific areas and low interest rates spurring asset prices, including housing, higher. Identifying how sustained these trends are likely to be is difficult, particularly as the pandemic may have structurally altered some business models and supply chains. This creates problems for policymakers in evaluating how quickly to taper quantitative easing and potentially increase interest rates to maintain stability.

The above are always important factors for future market returns, but arguably no more so than today as valuations are at extremes, bond yields seem unsustainably low and expectations for earnings growth are high. In Asia, policy is generally more “normal” while growth is more secular in nature and not as reliant upon a rebound from an end to the pandemic. However the fundamental factors of high expectations and valuations are present with an added complication of elevated regulatory and geopolitical risks in China.

We believe that the current environment may lead to heightened volatility and choppy markets. But it should be noted that it remains clear to us that there are parts of the equity market in Asia that are increasingly attractive. As capital has migrated toward both extremes of the spectrum of high beta cyclical stocks and those that could be deemed “conceptual growth,” we believe that this creates opportunities for long-term investors like ourselves. Our focus will continue seekthose high-quality compounders that are less susceptible to the whims of policymakers and inflation trends, with an aim of producing attractive risk-adjusted returns through the market cycle.

 

As of June 30, 2020, the securities mentioned comprised the Matthews Asian Growth and Income Fund in the following percentages: Taiwan Semiconductor Manufacturing Co., Ltd., 7.2%; Leeno Industrial, Inc., 1.6%; Tata Consultancy Services, Ltd., 1.5%; Techtronic Industries Co., Ltd., 2.0%; NetEase, Inc., 1.8%; Midea Group Co., Ltd. A Shares, 1.5%; PT Ace Hardware Indonesia, 1.1%; Northern Star Resources, Ltd., 1.1%; Ping An Insurance Group Co. of China, Ltd. H Shares, 1.4%; Chailease Holding Co., Ltd., 1.4%; Crompton Greaves Consumer Electricals, Ltd., 0.6%; and Pharmaron Beijing Co., Ltd., Cnv., 0.000%, 06/18/2026, 1.7%.  The Fund held no positions in Macquarie Group, Ltd., Taiwan Secom Co., Ltd. and a Kakao Corp.

Current and future portfolio holdings are subject to change and risk.

Earnings growth is not representative of the fund’s future performance.

 

Average Annual Total Returns - MACSX as of 06/30/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
30.01% 10.43% 7.82% 5.64% 9.21% 09/12/1994

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 1.09%
Yields as of 06/30/2021
30-Day SEC Yield 0.97%
Dividend Yield 2.67%

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.

Dividend Yield (trailing) is the weighted average sum of the dividends paid by each equity security held by the Fund over the last 12 months divided by the current price as of report date. The annualised dividend yield is for the equity-only portion of the Fund and does not reflect the actual yield an investor in the Fund would receive. There can be no guarantee that companies that the Fund invests in, and which have historically paid dividends, will continue to pay them or to pay them at the current rates in the future. A positive distribution yield does not imply positive return, and past yields are no guarantee of future yields.

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. Investing in emerging and frontier 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.