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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

-0.17%

YTD Return

(as of 12/03/2021)

$17.90

Price

(as of 12/03/2021)

$1.19 billion

Fund Assets

(as of 10/31/2021)

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 $1.19 billion (10/31/2021)
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 11/30/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asian Growth and Income Fund
MACSX
-1.33% -2.52% -0.68% 5.28% 9.86% 7.50% 6.32% 8.87% 09/12/1994
MSCI All Country Asia ex Japan Index
-3.86% -6.60% -5.79% 0.66% 10.86% 10.85% 8.23% 4.99%
As of 09/30/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asian Growth and Income Fund
MACSX
-3.89% -6.10% -2.07% 13.13% 7.56% 5.80% 6.46% 8.87% 09/12/1994
MSCI All Country Asia ex Japan Index
-4.15% -9.23% -3.32% 14.73% 9.50% 10.44% 8.80% 5.12%
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 09/30/2021)

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 09/30/2021)
1.07% 30-Day SEC Yield
2.70% 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 46 funds
  • 10 YEAR
  • out of 33 funds
  • 1 YEAR
  • 3rd
  • 18 out of 27 funds
  • 3 YEAR
  • 2nd
  • 10 out of 27 funds
  • 5 YEAR
  • 4th
  • 21 out of 25 funds
  • 10 YEAR
  • 4th
  • 18 out of 22 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 09/30/2021)
Fund Benchmark
Number of Positions 57 1,210
Weighted Average Market Cap $128.4 billion $146.4 billion
Active Share 75.7 n.a.
Price/Cash Flow 13.2 9.6
Price/Book 2.5 1.9
Return On Equity 18.3 13.2
EPS Growth (3 Yr) 5.9% -2.8%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 09/30/2021)
-0.34%
Alpha
0.79
Beta
73.54%
Upside Capture
81.95%
Downside Capture
0.41
Sharpe Ratio
-0.34
Information Ratio
5.72%
Tracking Error
92.79

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 10/31/2021)
Name Sector Country % Net Assets
Taiwan Semiconductor Manufacturing Co., Ltd. Information Technology Taiwan 7.4
Tencent Holdings, Ltd. Communication Services China/Hong Kong 5.3
AIA Group, Ltd. Financials China/Hong Kong 3.6
Samsung Electronics Co., Ltd. Information Technology South Korea 3.6
Macquarie Korea Infrastructure Fund Financials South Korea 2.7
Housing Development Finance Corp., Ltd. Financials India 2.6
JD.com, Inc. Consumer Discretionary China/Hong Kong 2.5
Techtronic Industries Co., Ltd. Industrials China/Hong Kong 2.1
Inner Mongolia Yili Industrial Group Co., Ltd. Consumer Staples China/Hong Kong 2.0
NetEase, Inc. Communication Services China/Hong Kong 1.9
TOTAL 33.7

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 09/30/2021)
  • 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 86.9
Convertible Bonds 9.7
Preferred Equities 0.5
Cash and Other Assets, Less Liabilities 2.9

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 September 30, 2021

For the quarter ending September 30, 2021, the Matthews Asian Growth and Income Fund returned -6.10% (Investor Class) and -6.11% (Institutional Class), while its benchmark, the MSCI All Country Asia ex Japan Index, returned -9.23% over the same period.

Market Environment:

Asian markets struggled during the third quarter as a number of factors weighed on sentiment. At a broad level, risks to growth became more apparent as a combination of the rise of the COVID-19 Delta variant alongside restrictive COVID policies by many governments hurt economic activity, while there were also concerns of the impact of rising inflation. In addition, further regulatory clampdowns in China as well as the drive toward “common prosperity,” which has impacted sectors from property to communication services, have led China to be the region’s worst-performing market during the quarter, falling over 15% and the majority of equity markets across Asia fell. Domestic demand-oriented India was an exception as the market gained double digits amidst solid liquidity, a low base effect for earnings and the relaxation of COVID-related restrictions.

Performance Contributors and Detractors:

The largest contributor to the Fund’s absolute performance was Taiwanese financial company Chailease Holdings. The leasing company has delivered stellar growth with recent earnings increasing by over 30% compared to last year as it enjoys a combination of growing assets, rising loan spreads and benign asset growth. Similarly within financials, India’s leading mortgage financier Housing Development Finance Corp gained as it has again displayed superior asset quality during the pandemic, enhanced its cost of funding through this period, and is now enjoying strong portfolio growth. This has been driven by low mortgage rates and an increase in the affordability of India’s housing stock. Beyond these, Hong Kong-based Techtronic Industries, the global leader in power tools was a significant contributor to returns. The stock gained as it delivered earnings growth of over 50% in the first half. Techtronic has been growing its market share with the migration to cordless tools, extending into categories such as outdoor, and is a potential beneficiary of U.S. infrastructure spending.

The portfolio’s ongoing underweight within the Chinese internet sector also helped relative performance as major benchmark constituents that we do not hold, such as Alibaba, declined due to further regulations and weakening consumer sentiment. Despite this, the largest detractor to the Fund’s absolute return was Tencent Holdings. The leading social network and games company in China fell on further regulation restricting the amount of time younger players can use its games, as well as pledging over US$7 billion for China’s “common prosperity” goals. Chinese consumer discretionary stocks Topsports International Holdings and Minth Group also fell. The former is the country’s largest Nike retailer and has been under pressure as sales of Nike goods have sputtered following its comments regarding the use of Xinjiang cotton and the growth of domestic Chinese sportswear brands. Minth Group, a leading auto parts manufacturer dipped as chip shortages continue to impact its OEM (original equipment manufacturer) customers while increased raw material and shipping costs compress margins. 

Notable Portfolio Changes:

Our portfolio activity was relatively light during the quarter, adding two new Chinese holdings in Wuliangye Yibin and a convertible bond of Weimob. Chinese baijiu company Wuliangye is a leader within the premium spirits sector in China, giving it pricing power in a growing sector. Additionally, we believe that double-digit growth can be driven by various sub-brands as well as through an increase in direct sales, which should be able to generate further margin expansion. The business is also attractively valued at 20x EV/EBITDA, offers a 1.7% dividend yield, and has a balance sheet with significant amounts of net cash. Weimob is a software-as-a-service (SaaS) company that offers its customers a value proposition of helping retailers with their digital transformation and full access to their own data, as e-commerce becomes more de-centralized. We believe Weimob can grow its earnings substantially through rising subscribers and revenue per user as customers upgrade. The convertible bond had an appealing risk/reward skew, with a yield of 4.8% and trading near its bond floor, while still offering a healthy upside participation in the stock in our view.

In order to fund these changes, we exited our holdings in two Chinese convertible bonds. These were in e-commerce platform Pinduoduo and pharmaceutical company Hansoh.

Outlook:

The strength of equity markets across the globe since March 2020—driven by an unparalleled level of monetary and fiscal stimulus—now appears to be somewhat under threat. Inflation and whether it will be transitory or persistent, and what that means for future rate hikes and the withdrawal of quantitative easing, remains a critical ongoing issue. To us, it appears that the rise in energy and labor costs, alongside supply chain issues, may create at least some degree of more sustained inflationary pressure. Added to potential monetary tightening is the question of whether incremental fiscal support will be as expected as Democrats continue to battle over the scale of the Build Back Better plan. To an extent, these pressures can be offset by a greater return to normalcy as vaccination rates tick higher across the globe and as the Delta variant wave appears, at least for now, to be waning.

Turning to Asia, policy risks are also present. These are less on the monetary and fiscal side as policy here remains more “normal” and growth potential more secular. However, increasing regulation and the move by President Xi in China toward “common prosperity” has had significant ramifications to certain businesses including those within the education, property, financial and internet sectors. It is no surprise that the country has lagged the equity markets of other countries in the region over the last few months as the economics of certain business models have been disrupted. Added to this have been challenges in the property sector given the large liabilities and potential restructure of highly indebted China Evergrande Group.

If the global policy landscape is volatile, it is difficult to take meaningful comfort from valuations while earnings estimate trends also appear to be losing some steam. The former remain elevated almost everywhere, although it should be noted that, in this regard, China does look attractive compared to other major equity markets.

The current environment of policy risk, a tougher backdrop for positive growth surprises and elevated valuations leads us to believe that prospective returns may be more challenging and volatile. We are, however, constructive that parts of the Asian equity markets remain attractive and that the portfolio is set up to take advantage of these opportunities. Our focus remains on identifying those high-quality compounders that are less susceptible to the whims of policymakers and inflation trends, aiming to buy those businesses that strike a healthy balance between both growth and income.

 

As of September 30, 2021, the securities mentioned comprised the Matthews Asian Growth and Income Fund in the following percentages: Chailease Holding Co., Ltd., 1.3%, Housing Development Finance Corp, 2.6%; Techtronic Industries Co., Ltd., 1.8%; Tencent Holdings, Ltd., 5.3%; Topsports International Holdings, Ltd., 1.7%; Minth Group, Ltd., 1.5%;  Wuliangye Yibin Co., Ltd. A Shares, 1.3%, Weimob Investment, Ltd., Cnv., 0.000%, 06/07/2026, 1.2%, . The Fund held no positions in Alibaba, Pinduoduo, Hansoh , Nike or China Evergrande Group.

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 09/30/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
13.13% 7.56% 5.80% 6.46% 8.87% 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 09/30/2021
30-Day SEC Yield 1.07%
Dividend Yield 2.70%

The 30-Day SEC Yield represents net investment income earned by the Fund over the 30-day period ended 09/30/2021, 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.