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.
These and other risks associated with investing in the Fund can be found in the
prospectus.
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%
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
Performance
Monthly
Quarterly
Calendar Year
As of 04/30/2022
Average Annual Total Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews Asian Growth and Income Fund
MACSX
-4.11%
-10.66%
-11.33%
-14.10%
2.52%
3.41%
4.10%
8.29%
09/12/1994
MSCI All Country Asia ex Japan Index
-5.16%
-9.91%
-12.70%
-20.80%
2.95%
5.47%
5.49%
4.45%
As of 03/31/2022
Average Annual Total Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews Asian Growth and Income Fund
MACSX
-4.50%
-7.53%
-7.53%
-9.50%
4.38%
4.53%
4.63%
8.48%
09/12/1994
MSCI All Country Asia ex Japan Index
-2.74%
-7.95%
-7.95%
-14.42%
5.44%
7.05%
6.05%
4.66%
For the years ended December 31st
Name
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
Matthews Asian Growth and Income Fund
MACSX
0.04%
16.00%
17.26%
-10.96%
21.85%
1.34%
-4.50%
-0.65%
4.83%
26.90%
MSCI All Country Asia ex Japan Index
-4.46%
25.36%
18.52%
-14.12%
42.08%
5.76%
-8.90%
5.11%
3.34%
22.70%
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 $10,000 Investment Since Inception
(as of 03/31/2022)
Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.
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)
2.94%30-Day SEC Yield
2.94%30-Day SEC Yield(excluding expense waiver)
2.52%Dividend Yield
30-Day SEC Yield
2.94%
30-Day SEC Yield (excluding expense waiver)
2.94%
Dividend Yield
2.52%
Dividend Yield (trailing) Source: FactSet Research Systems, Bloomberg, Matthews 30-Day SEC Yield Source: BNY Mellon Investment Servicing (US) Inc.
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.
Robert Horrocks is Chief Investment Officer and Portfolio Manager at Matthews Asia and has been a Matthews Asia Funds Trustee since 2018. He manages the firm's Asian Growth and Income and co-manages the Asia Dividend and Asia ex Japan Dividend Strategies. As Chief Investment Officer, Robert oversees the firm's investment process and investment professionals and sets the research agenda for the investment team. Before joining Matthews Asia in 2008, Robert was Head of Research at Mirae Asset Management in Hong Kong. From 2003 to 2006, Robert served as Chief Investment Officer for Everbright Pramerica in China, establishing its quantitative investment process. He started his career as a Research Analyst with WI Carr Securities in Hong Kong before moving on to spend eight years working in several different Asian jurisdictions for Schroders, including stints as Country General Manager in Taiwan, Deputy Chief Investment Officer in Korea and Designated Chief Investment Officer in Shanghai. Robert earned his PhD in Chinese Economic History from Leeds University in the United Kingdom, and is fluent in Mandarin.
Kenneth Lowe is a Portfolio Manager at Matthews Asia and manages the firm's Asian Growth and Income Strategy. Prior to joining Matthews Asia in 2010, he was an Investment Manager on the Asia and Global Emerging Market Equities Team at Martin Currie Investment Management in Edinburgh, Scotland. Kenneth received an M.A. in Mathematics and Economics from the University of Glasgow.
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.
Siddharth Bhargava is a Portfolio Manager at Matthews Asia and co-manages the firm’s Asian Growth and Income Strategy. Prior to joining the firm in 2011, he was an Investment Analyst at Navigator Capital. Siddharth also served as a credit and debt market research assistant to Dr. Edward Altman at the New York University Salomon Center. From 2005 to 2008, he was a Credit Analyst at Sandell Asset Management. Siddharth received a B.A. in Economics from the University of Virginia and an MBA from the Stern School of Business at New York University. He is fluent in Hindi and conversational in German.
Portfolio Characteristics
(as of 03/31/2022)
Fund
Benchmark
Number of Positions
51
1,220
Weighted Average Market Cap
$121.2 billion
$130.7 billion
Active Share
76.1
n.a.
Price/Cash Flow
12.0
7.9
Price/Book
2.4
1.7
Return On Equity
19.3
15.0
EPS Growth (3 Yr)
5.7%
13.4%
Sources: Factset Research Systems, Inc.
Risk Metrics (3 Yr Return)
(as of 03/31/2022)
Category
3YR Return Metric
Alpha
-0.23%
Beta
0.8
Upside Capture
74.57%
Downside Capture
82.19%
Sharpe Ratio
0.25
Information Ratio
-0.18
Tracking Error
5.77%
R²
90.07
-0.23%
Alpha
0.80
Beta
74.57%
Upside Capture
82.19%
Downside Capture
0.25
Sharpe Ratio
-0.18
Information Ratio
5.77%
Tracking Error
90.07
R²
Fund Risk Metrics are reflective of Investor share class.
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
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
88.7
Convertible Bonds
6.1
Preferred Equities
0.5
Cash and Other Assets, Less Liabilities
4.7
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.
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.
For the quarter ending March 31, 2022, the Matthews Asian Growth and Income Fund returned -7.53% (Investor Class) and -7.48% (Institutional Class), while its benchmark, the MSCI All Country Asia ex Japan Index, returned -7.95% over the same period.
Market Environment:
The year began in challenging fashion with numerous concerns weighing on risk assets. Already elevated inflation in the U.S. driven by supply chain issues, historically high transfer payments and a tight labor market was further exacerbated by the commencement of the ongoing conflict between the Ukraine and Russia. This will likely create structural alterations in supply chains and global geopolitics as well as increase the cost of capital. These issues have raised the prospect of “stagflation” for the first time in decades as growth appears to be weakening simultaneously, although it should be noted that this is not a base case.
Against this backdrop, the rotation from “growth” to “value” stocks has continued as companies in the financial, energy and materials sectors led the market while areas such as health care and technology struggled. Beyond the style shift in Asia, weakening consumption growth, a faltering property market and further regulatory tinkering in China led it to produce the region’s worst performance for the quarter. Hopes for an improvement in growth and rising commodity prices helped parts of Southeast Asia such as Indonesia and Thailand to positive performance.
Performance Contributors and Detractors:
The financials sector produced some of the strongest returns for the portfolio as commercial banks gained. Those in developed markets such as United Overseas Bank in Singapore and BOC Hong Kong rose as earnings growth looks to return with falling provisioning costs, improving loan growth and rising net interest margins as interest rates are increased. Bank Rakyat in Indonesia similarly rallied alongside rising rate expectations while domestic macroeconomic conditions are also improving and at a company level management’s strategy to increase the contribution of micro loans may also help margins.
Beyond financials, the portfolio’s only holding within the materials sector benefited performance as gold miner Northern Star Resources rose with gold prices, solid production numbers and ongoing upside risks to inflation. Select industrial companies such as CK Hutchison and Singapore Technologies (ST) Engineering also gained. The former’s earnings were boosted by improving activity in its port division and a gradual recovery in retail while its non-core investment in energy company Cenovus has been rising in value. ST Engineering was helped by a robust order book with rising defense spending and passenger to freight aircraft conversions.
As was the case for the benchmark, the portfolio’s holdings in China were the largest detractors to returns. Internet platform companies such as Tencent and JD.Com fell as concerns remain around additional regulation that may weigh on earnings. Arguably, the greater worry is the current economic slowdown due to COVID-19 restrictions as well as rising competition that are both hindering earnings growth, with Tencent producing its weakest quarterly revenue growth since its initial publish offering in 2004. We will continue to monitor this situation but believe that these remain companies with structural growth that are now trading at attractive valuations.
Elsewhere within the Chinese consumer sectors, Minth Group dropped significantly as the auto parts manufacturer endured a precipitous decline in earnings. Input cost inflation impacted margins, compounding the issue of weaker top-line as auto brands are still struggling with semiconductor chip shortages. Baijiu maker Wuliangye Yibin Co. fell as, despite solid earnings growth of 17% in 2021, there is some concern that its price hike is discouraging distributors as this will compress margins for the channel.
Notable Portfolio Changes:
There were no new positions initiated during the first quarter of the year despite exiting five holdings. The volatility exhibited by the market led us to prefer to hold some additional cash on hand in order to take advantage of opportunities that present themselves. Further, we were keen to bolster position sizes in existing holdings.
We exited the convertible bonds of China Education Group and Weimob as we were concerned about worsening credit quality in each. We also exited an exchangeable bond in CIMB Group in the search for superior ideas. Within equities, we closed positions in life insurer Ping An Insurance Group given it continues to struggle in improving its agency force, as well as in Ascendas India Trust.
Outlook:
The first quarter all but confirmed that rapidly rising inflation is not transitory but has a secular component and that is bringing with it concern that the global economy could end up with stagflation as growth also stumbles. This has, of course, been exacerbated by the ongoing Russia-Ukraine conflict and geopolitical tensions between the U.S. and China as supply chains have been impacted. But it is apparent to us that a confluence of alterations in supply chains, a drive for self-sufficiency in certain areas, energy transition, and labour market imbalances are just a few areas that could all have a more sustained impact on inflation.
If weaker growth, elevated inflation, U.S. monetary tightening and geopolitics are all concerns for risk assets globally, then Asia is a geography that has some relative merits. China’s growth is already at weaker levels and accompanied by lower expectations while both monetary and fiscal policy are on an easing path as Xi’s third term looms. Meanwhile in Southeast Asia it is hoped that mobility is improving and, with it, economic growth. Further, valuations are reasonably appealing at 13.9x P/E for the region and earnings growth expectations are still a respectable 12%.
Against this backdrop of elevated risks, we remain constructive that the portfolio is built to weather such times. A focus on quality companies with pricing power, relatively visible growth and stocks with some form of income for ballast and return purposes leaves us comfortable that the portfolio can survive and thrive through such an environment.
View the Fund’s Top 10 holdings as of March 31, 2022. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MACSX as of 03/31/2022
1YR
3YR
5YR
10YR
Since Inception
Inception Date
-9.50%
4.38%
4.53%
4.63%
8.48%
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
1.07%
Yields as of 03/31/2022
30-Day SEC Yield
2.94%
30-Day SEC Yield
(excluding expense waiver)
2.94%
Dividend Yield
2.52%
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.
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.
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 March 31, 2022
For the quarter ending March 31, 2022, the Matthews Asian Growth and Income Fund returned -7.53% (Investor Class) and -7.48% (Institutional Class), while its benchmark, the MSCI All Country Asia ex Japan Index, returned -7.95% over the same period.
Market Environment:
The year began in challenging fashion with numerous concerns weighing on risk assets. Already elevated inflation in the U.S. driven by supply chain issues, historically high transfer payments and a tight labor market was further exacerbated by the commencement of the ongoing conflict between the Ukraine and Russia. This will likely create structural alterations in supply chains and global geopolitics as well as increase the cost of capital. These issues have raised the prospect of “stagflation” for the first time in decades as growth appears to be weakening simultaneously, although it should be noted that this is not a base case.
Against this backdrop, the rotation from “growth” to “value” stocks has continued as companies in the financial, energy and materials sectors led the market while areas such as health care and technology struggled. Beyond the style shift in Asia, weakening consumption growth, a faltering property market and further regulatory tinkering in China led it to produce the region’s worst performance for the quarter. Hopes for an improvement in growth and rising commodity prices helped parts of Southeast Asia such as Indonesia and Thailand to positive performance.
Performance Contributors and Detractors:
The financials sector produced some of the strongest returns for the portfolio as commercial banks gained. Those in developed markets such as United Overseas Bank in Singapore and BOC Hong Kong rose as earnings growth looks to return with falling provisioning costs, improving loan growth and rising net interest margins as interest rates are increased. Bank Rakyat in Indonesia similarly rallied alongside rising rate expectations while domestic macroeconomic conditions are also improving and at a company level management’s strategy to increase the contribution of micro loans may also help margins.
Beyond financials, the portfolio’s only holding within the materials sector benefited performance as gold miner Northern Star Resources rose with gold prices, solid production numbers and ongoing upside risks to inflation. Select industrial companies such as CK Hutchison and Singapore Technologies (ST) Engineering also gained. The former’s earnings were boosted by improving activity in its port division and a gradual recovery in retail while its non-core investment in energy company Cenovus has been rising in value. ST Engineering was helped by a robust order book with rising defense spending and passenger to freight aircraft conversions.
As was the case for the benchmark, the portfolio’s holdings in China were the largest detractors to returns. Internet platform companies such as Tencent and JD.Com fell as concerns remain around additional regulation that may weigh on earnings. Arguably, the greater worry is the current economic slowdown due to COVID-19 restrictions as well as rising competition that are both hindering earnings growth, with Tencent producing its weakest quarterly revenue growth since its initial publish offering in 2004. We will continue to monitor this situation but believe that these remain companies with structural growth that are now trading at attractive valuations.
Elsewhere within the Chinese consumer sectors, Minth Group dropped significantly as the auto parts manufacturer endured a precipitous decline in earnings. Input cost inflation impacted margins, compounding the issue of weaker top-line as auto brands are still struggling with semiconductor chip shortages. Baijiu maker Wuliangye Yibin Co. fell as, despite solid earnings growth of 17% in 2021, there is some concern that its price hike is discouraging distributors as this will compress margins for the channel.
Notable Portfolio Changes:
There were no new positions initiated during the first quarter of the year despite exiting five holdings. The volatility exhibited by the market led us to prefer to hold some additional cash on hand in order to take advantage of opportunities that present themselves. Further, we were keen to bolster position sizes in existing holdings.
We exited the convertible bonds of China Education Group and Weimob as we were concerned about worsening credit quality in each. We also exited an exchangeable bond in CIMB Group in the search for superior ideas. Within equities, we closed positions in life insurer Ping An Insurance Group given it continues to struggle in improving its agency force, as well as in Ascendas India Trust.
Outlook:
The first quarter all but confirmed that rapidly rising inflation is not transitory but has a secular component and that is bringing with it concern that the global economy could end up with stagflation as growth also stumbles. This has, of course, been exacerbated by the ongoing Russia-Ukraine conflict and geopolitical tensions between the U.S. and China as supply chains have been impacted. But it is apparent to us that a confluence of alterations in supply chains, a drive for self-sufficiency in certain areas, energy transition, and labour market imbalances are just a few areas that could all have a more sustained impact on inflation.
If weaker growth, elevated inflation, U.S. monetary tightening and geopolitics are all concerns for risk assets globally, then Asia is a geography that has some relative merits. China’s growth is already at weaker levels and accompanied by lower expectations while both monetary and fiscal policy are on an easing path as Xi’s third term looms. Meanwhile in Southeast Asia it is hoped that mobility is improving and, with it, economic growth. Further, valuations are reasonably appealing at 13.9x P/E for the region and earnings growth expectations are still a respectable 12%.
Against this backdrop of elevated risks, we remain constructive that the portfolio is built to weather such times. A focus on quality companies with pricing power, relatively visible growth and stocks with some form of income for ballast and return purposes leaves us comfortable that the portfolio can survive and thrive through such an environment.
View the Fund’s Top 10 holdings as of March 31, 2022. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MACSX as of 03/31/2022
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
Yields as of 03/31/2022
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.
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.