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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

-18.18%

YTD Return

(as of 12/01/2022)

$7.13

NAV

(as of 12/01/2022)

+0.13

1 Day NAV Change

(as of 12/01/2022)

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 $25.48 million (10/31/2022)
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 10/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Credit Opportunities Fund - MCRDX
04/29/2016
MCRDX
-7.27% -7.66% -25.95% -28.56% -10.60% -4.91% n.a. -1.99%
J.P. Morgan Asia Credit Index
-3.66% -7.28% -17.02% -17.02% -4.68% -1.00% n.a. 0.31%
As of 09/30/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Credit Opportunities Fund - MCRDX
04/29/2016
MCRDX
-2.76% -2.90% -20.14% -24.25% -8.04% -3.34% n.a. -0.86%
J.P. Morgan Asia Credit Index
-3.51% -3.51% -13.87% -15.04% -3.32% -0.18% n.a. 0.89%
For the years ended December 31st
Name 2021 2020 2019 2018 2017
Matthews Asia Credit Opportunities Fund - MCRDX
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 09/30/2022)

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 09/30/2022)
15.74% Yield to Worst
13.55% 30-Day SEC Yield
13.06% 30-Day SEC Yield (excluding expense waiver)

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

Ratings

  • OVERALL
  • out of 249 funds
  • 3 YEAR
  • out of 249 funds
  • 5 YEAR
  • out of 217 funds
  • 1 YEAR
  • 4th
  • 94 out of 98 funds
  • 3 YEAR
  • 4th
  • 92 out of 93 funds
  • 5 YEAR
  • 4th
  • 78 out of 83 funds
  • SINCE INCEPTION
  • 4th
  • 74 out of 82 funds

Ratings agency calculation methodology

Portfolio Managers

Satya  Patel photo
Satya Patel

Lead Manager

Wei  Zhang photo
Wei Zhang

Co-Manager

Portfolio Characteristics

(as of 09/30/2022)
1.9
Modified Duration
32
Number of Positions

Source: BNY Mellon Investment Servicing (US) Inc.

Risk Metrics (3 Yr Return)

(as of 09/30/2022)
-2.34%
Alpha
1.57
Beta
95.25%
Upside Capture
146.73%
Downside Capture
-0.77
Sharpe Ratio
-0.65
Information Ratio
7.30%
Tracking Error
66.14

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Positions

(as of 10/31/2022)
Name Sector Currency % Net Assets
PB International BV, 7.625%, 12/31/2025 Industrial U.S. Dollar 9.4
Shriram Transport Finance Co., Ltd., 4.400%, 03/13/2024 Financial Institutions U.S. Dollar 4.7
Socialist Republic of Vietnam, 5.500%, 03/12/2028 Sovereign U.S. Dollar 4.6
Network i2i, Ltd., 5.650%, 04/15/2068 Industrial U.S. Dollar 4.5
Kasikornbank Public Co., Ltd., 5.275%, 04/14/2068 Financial Institutions U.S. Dollar 4.1
Axis Bank, Ltd./Gift City, 4.100%, 09/08/2026 Financial Institutions U.S. Dollar 4.0
Periama Holdings LLC, 5.950%, 04/19/2026 Industrial U.S. Dollar 3.8
Bank of East Asia, Ltd., 5.825%, 04/21/2069 Financial Institutions U.S. Dollar 3.3
HDFC Bank, Ltd., 3.700%, 02/25/2069 Financial Institutions U.S. Dollar 3.1
Theta Capital Pte, Ltd., 6.750%, 10/31/2026 Financial Institutions U.S. Dollar 2.9
TOTAL 44.4

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 09/30/2022)
  • Sector Allocation
  • Country Allocation
  • Currency Allocation
  • Quality Distribution
  • Asset Type Breakdown
Sector Fund
Banking 19.4
Consumer Cyclical 14.5
Other Financial 13.3
Communications 7.5
Finance Companies 4.1
Government Owned, No Guarantee 4.1
Sovereign 4.0
Basic Industry 3.5
Technology 3.4
Cash and Other Assets, Less Liabilities 26.2

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 27.0
India 20.4
Indonesia 12.4
Thailand 6.1
Vietnam 4.0
New Zealand 2.2
Singapore 1.7
Cash and Other Assets, Less Liabilities 26.2

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 1.9

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

Quality Distribution Fund
BBB- 1.4
BB+ 5.8
BB 21.8
BB- 15.0
B+ 4.3
B 0.1
B- 4.3
CCC+ 0.9
CCC 1.1
CCC- 9.4
Not Rated 9.6
Cash and Other Assets, Less Liabilities 26.2

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 60.1
Convertible Bonds 9.6
Government Bonds 4.0
Cash and Other Assets, Less Liabilities 26.2

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)
11/16/2022 11/17/2022 $0.03793 $0.00000 $0.00000 $0.03793 0.6% N.A.
10/24/2022 10/25/2022 $0.03813 $0.00000 $0.00000 $0.03813 0.6% N.A.
09/27/2022 09/28/2022 $0.01930 $0.00000 $0.00000 $0.01930 0.3% N.A.
08/24/2022 08/25/2022 $0.03244 $0.00000 $0.00000 $0.03244 0.4% N.A.
07/25/2022 07/26/2022 $0.04612 $0.00000 $0.00000 $0.04612 0.7% N.A.
06/27/2022 06/28/2022 $0.03853 $0.00000 $0.00000 $0.03853 0.5% N.A.
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 September 30, 2022

For the quarter ending September 30, 2022, the Matthews Asia Credit Opportunities Fund returned -2.90% (Investor Class) and -2.82% (Institutional Class), while its benchmark, the J.P. Morgan Asia Credit Index returned -3.51%. 

Market Environment:

Along with most asset classes globally, Asia credit saw material declines in first nine months of 2022. It has been a tough market, marked by price declines driven by both credit spread widening and rising U.S. interest rates.

The U.S. dollar-denominated Asia credit market continues to grapple with rising defaults and ongoing uncertainly. We continue to see a steady wave of defaults driven by the China property sector.  The Asia high yield default rate hit a multi-year high of 38.7% (by amount) in the third quarter that includes the default US$53.6 billion of China high yield property bonds year-to-date. Asia high yield spreads ended the third quarter at 1,163 basis points (10.63%), the highest level since inception of the J.P. Morgan Asia Credit Index. Asia investment grade spreads widened just 2 basis points (0.02%) to 208 basis points (2.08%) at the end of September, though the substantial rise in U.S. interest rates led to a loss in the quarter.

The Asia credit market this year has been dominated by China’s zero-COVID policy and its consequences on the economy, along with the slowdown in the property sector.  The start-and-stop quarantines that have paralyzed mobility in much of China sterilized much of the macro policy designed to ease credit conditions and reaccelerate the economy.  Within this macro backdrop, several sub-investment grade property developers in China have been unable to refinance their maturities as there was no marginal buyer willing to lend. With the lack of credit, liquidity and workers, construction remains at a standstill, resulting in continued deterioration in the sector.  In the U.S., inflation continues to run significantly above the Federal Reserve’s mandate, with investors pricing in a higher likelihood of the Fed having to slam the brakes to slay the inflation dragon at the expense of economy.  Oil and food prices remain elevated given the ongoing conflict in Ukraine, though thankfully many commodities have fallen from their peak levels. 

Performance Contributors and Detractors:

Among the top contributors to returns were our busted convertible bonds. These include Chinese pharmaceutical company Luye Pharma, Chinese video content maker and video platform operator iQiyi  and Australian cloud accounting software company Xero.

Among the biggest detractors to returns were our real estate investments.  These include Sino Ocean and China SCE, both Chinese property developers, and Lippo Karawaci, an Indonesian property developer.  Sino Ocean and China SCE are facing tight liquidity pressure and slow presales, like many companies in the China property sector.  Lippo Karawaci’s performance has been solid, but its bonds fell as the market repriced.

Notable Portfolio Changes:

In the third quarter, we initiated two new positions, both in contingent convertible bank bonds.  We bought the bonds of HSBC Bank and Krung Thai Bank as both bonds had fallen and offered attractive relative value.  In general, we believe that bonds issued by investment grade-rated banks operating in investment grade-rated companies offer attractive yields with limited volatility in the current environment.

We exited a handful of positions in the quarter including   our position in Luye Pharma, when the bonds became puttable back to the company.  We also exited our position in Indika Energy when the company unexpectedly held a tender offer for their bonds, which we believe was done at an attractive premium. 

Outlook:

By all measures, Asia credit has priced in much of the risks and uncertainties in the market today. With credit spreads at historic highs, they have already baked in expected defaults across much of the sub-investment grade Chinese real estate sector.  While we believe defaults are likely to continue, we expect the overwhelming majority of restructurings to be amend and extend exercises which result in an extension of the maturity, but no haircut in principal so that bondholders should ultimately see a recovery of 100% of their principal.  The other component to Asia credit returns is U.S. interest rates, which unfortunately have more risks of rising than falling.  We have seen high volatility driven by waning or waxing inflation and the market’s expectation of the Fed’s ability to tame the U.S.’s stubborn and persistent inflation. With the yield curve pricing in continued rate hikes at upcoming Fed meetings, the market is increasingly pricing in a challenging inflation picture that would likely land the U.S. into a recession in the coming year.  With the persistence of inflation and defaults, buyers have been waiting on the sidelines, reluctant to catch a falling knife. However, as any of the storm clouds we outline dissipate, we expect the patient marginal buyer to finally step in to take advantage of depressed valuations to reap price appreciation and potential outsized returns in the coming years.

View the Fund’s top 10 holdings as of September 30, 2022. Current and future holdings are subject to change and risk.

Average Annual Total Returns - MCRDX as of 09/30/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-24.25% -8.04% -3.34% N.A. -0.86% 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 09/30/2022
Yield to Worst 15.74%
30-Day SEC Yield 13.55%
30-Day SEC Yield (excluding expense waiver) 13.06%

The 30-Day SEC Yield represents net investment income earned by the Fund over the 30-day period ended 09/30/2022, 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.