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
-5.79%
YTD Return
(as of 01/14/2022)
$8.63
Price
(as of 01/14/2022)
$41.43 million
Fund Assets
(as of 12/31/2021)
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 | $41.43 million (12/31/2021) | |
| Currency | USD | |
| Ticker | MCRDX | |
| Cusip | 577-130-677 | |
| Portfolio Turnover | 48.5% | |
| Benchmark | J.P. Morgan Asia Credit Index | |
| Geographic Focus | Asia - Consists of all countries and markets in Asia, including developed, emerging, and frontier countries and markets in the Asian region | |
Fees & Expenses
| Gross Expense Ratio | 1.14% | |
| Net Expense Ratio | 1.14% | |
Performance
- Monthly
- Quarterly
- Calendar Year
As of 12/31/2021
As of 12/31/2021
For the years ended December 31st
Source: BNY Mellon Investment Servicing (US) Inc., Index data from J.P. Morgan. All performance is in US$.
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 $10,000 Investment Since Inception
(as of 12/31/2021)Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.
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 12/31/2021)
8.01%
Yield to Worst
5.87%
30-Day SEC Yield
6.33%
30-Day SEC Yield
(excluding expense waiver)
30-Day SEC Yield Source: BNY Mellon Investment Servicing (US) Inc.
Ratings
(as of 12/31/2021)
CATEGORY: Emerging Markets Bond
(as of 12/31/2021)
CATEGORY: Alternative Credit Focus Funds
Ratings agency calculation methodology
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.
Portfolio Managers
Teresa Kong, CFA
Lead Manager
Teresa Kong, CFA
Portfolio Manager
Teresa Kong is a Portfolio Manager at Matthews Asia and manages the firm’s Asia Total Return Bond and Asia Credit Opportunities Strategies. Prior to joining Matthews Asia in 2010, she was Head of Emerging Market Investments at Barclays Global Investors, now known as BlackRock, and responsible for managing the firm’s investment strategies in Emerging Asia, Eastern Europe, Africa and Latin America. She developed and managed strategies spanning absolute return, active long-only and exchange-traded funds. In addition to founding the Fixed Income Emerging Markets Group at BlackRock, she was also Senior Portfolio Manager and Credit Strategist on the Fixed Income credit team. Previously, Teresa was a Senior Securities Analyst in the High Yield Group with Oppenheimer Funds, and began her career with J.P. Morgan Securities Inc., where she worked in the Structured Products Group and Latin America Capital Markets Group. She received both a B.A. in Economics and Political Science and an M.A. in International Development Policies from Stanford University. She speaks Cantonese fluently and is conversational in Mandarin.
Satya Patel
Lead Manager
Satya Patel
Portfolio Manager
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.
Portfolio Characteristics
(as of 12/31/2021)2.6
Modified Duration
42
Number of Positions
Source: BNY Mellon Investment Servicing (US) Inc.
Risk Metrics (3 Yr Return)
(as of 09/30/2021)-4.23%
Alpha
1.74
Beta
124.49%
Upside Capture
182.91%
Downside Capture
0.32
Sharpe Ratio
-0.25
Information Ratio
5.68%
Tracking Error
79.27
R²
Fund Risk Metrics are reflective of Investor share class.
Sources: Zephyr StyleADVISOR
Top 10 Positions
(as of 12/31/2021)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 12/31/2021)- Sector Allocation
- Country Allocation
- Currency Allocation
- Quality Distribution
- Asset Type Breakdown
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
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).
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
LATEST FIXED INCOME INSIGHTS
Visit our Glossary of Terms page for definitions and additional information.
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 September 30, 2021
For the quarter ending September 30, 2021, the Matthews Asia Credit Opportunities Fund returned 0.90% (Investor Class) and 0.93% (Institutional Class), while its benchmark, the J.P. Morgan Asia Credit Index, returned -0.98% over the same period.
Market Environment:
Third quarter was dominated by China. First, there were fast and unexpected regulatory announcements that had major implications on the country’s companies, industries, and economy. Investors were no doubt caught off guard by the speed and magnitude of the regulations spanning from e-commerce to energy to real estate. Within this backdrop was an economy that had to implement selective shutdowns to combat the new Delta variant of COVID. As the overall systematic risk was rising, it certainly didn’t help investor sentiment to witness the deterioration and the default of China Evergrande Group, one of the China’s largest property developers. The default of Evergrande caused a selloff in the bonds of Chinese property developers, as markets worried about the implications of the default of such a large company.
Performance Contributors and Detractors:
The biggest contributor to returns in the quarter were our holdings in Huarong Finance, one of the major Chinese asset managers. We had started a position in Huarong in the first quarter of last year as rumors gripped the market with the expectation that Huarong is a systematically important financial institution. After several months of very little information, Huarong bonds finally rallied on the news that a consortium led by CITIC Group Corp. would make a substantial capital injection into the asset manager. This, along with the reporting of earnings, finally shed light into the underlying financial health and resolution of the future of the asset manager. Outside of China, the Fund’s holding in Pan Brothers, an Indonesia textile manufacturer, contributed to the Fund’s performance. The company has indicated that it remains on-track to refinance its liabilities.
The Fund’s performance detractors were mostly convertible bond holdings in China and South Korea. Due to the numerous regulations from China on internet platforms, web-based shopping platform Meituan and e-commerce and marketing solutions company Weimob fell during the quarter. South Korean internet platform convertible bond holding Kakao Corp. also detracted during the quarter due to increased regulation from South Korea.
Notable Portfolio Changes:
Portfolio changes during the quarter were concentrated in China. We adjusted our China real estate holdings, reducing positions in holdings that have met the target yield and adding to positions that represent attractive yields given the fundamental credit quality. In particular, we exited Chinese developer Powerlong Real Estate. Outside of China, we exited our position in Xero, a New Zealand based accounting software company as the company’s convertible bonds had reached our price target.
We added to high-quality developers such as KWG Group Holdings, Logan Group and Times China. In addition to real estate, we also added to convertible bond holdings in Baozun Inc, Weimob, and iQIYI Inc. Despite the ongoing regulatory headwinds in China, we believe these issuers represent a good opportunity to capture attractive yield even if assuming no potential upside to the underlying equity.
Outlook:
One risk facing our portfolio is the potential forced delisting of Chinese ADRs (American depositary receipts) by the SEC (Securities and Exchange Commission). As owners of some convertible bonds that are convertible into equities which are ADRs, we believe that our downside is mostly covered by the trigger of a change of control put at 100, an option given to bondholders to oblige the issuer to repay the bondholders the notional face value of the bonds, under such an event. We entered into these positions at discounts to par, or face value, and as such believe that the downside risk is contained as we would be able to put the bonds back at a price higher than our basis. However, this does cap the potential upside in these securities and as such we expect to monitor the positions carefully and exit when they reach our price targets.
Looking ahead, we expect the Chinese government to undergo more and deeper easing policies across the economy to alleviate the market fallout from the recent cadence of regulatory announcements. While it may be hard at first to comprehend why the Chinese government effected so much change in such a short time period, we expect the market to come to the view over the next couple of quarters that these series of regulatory changes as the Chinese government’s solutions to the most common pressing issues globally: the rising gap between the rich and the poor, data privacy, consumer and labor protection, and monopolistic behavior. While the west might leave some of these issues to the internet titans like Mark Zuckerberg or Jeff Bezos, the Chinese government has decided to tackle these problems head-on before they become even more protracted. We have already begun to see these countercyclical policies, including the injection of liquidity by the People’s Bank of China as well as deeper engagement of the government in facilitating the restructuring of Evergrande. Despite the size of the Evergrande default, it is not a systematically important financial institution like that of Huarong. We also believe that government policies can alleviate the sector by easing quota on mortgage lending as well as lifting further real estate restrictions at the provincial and local levels. Given this backdrop, we believe that the credit markets have reached “peak uncertainty” in the third quarter and expect credit spreads to tighten over the course of the next several quarters.
As of September 30, 2021, the securities mentioned comprised the Matthews Asia Credit Opportunities Fund in the following percentages: Huarong Finance 2019 Co., Ltd., 4.250%, 03/30/2068, 1.6%, Huarong Finance 2017 Co., Ltd., 4.000%, 05/07/2068, 1.5%, Huarong Finance 2017 Co., Ltd., 4.500%, 07/24/2068, 0.7%; PB International (Pan Brothers) BV, 7.625%, 01/26/2022, 2.6%; Meituan, Cnv., 0.000%, 04/27/2028, 0.5%; Weimob Investment, Ltd., Cnv., 0.000%, 06/07/2026, 1.3%; Kakao Corp., Cnv., 0.000%, 04/28/2023, 0.6%; KWG Group Holdings, Ltd., 7.400%, 01/13/2027, 3.3%; Logan Group Co., Ltd., 4.500%, 01/13/2028, 1.0%; Times China Holdings, Ltd., 5.750%, 01/14/2027, 0.5%; Baozun, Inc., Cnv., 1.625%, 05/01/2024, 3.2%; iQIYI, Inc., Cnv., 2.000%, 04/01/2025, 1.2%. The Fund held no positions in China Evergrande Group, CITIC Construction, Powerlong Real Estate or Xero.
Current and future portfolio holdings are subject to change and risk.
Average Annual Total Returns - MCRDX as of 12/31/2021
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
Matthews has contractually agreed to waive fees and reimburse expenses to limit the Total Annual Fund Operating Expenses until April 30, 2022. Please see the Fund’s prospectus for additional details.
Yields as of 12/31/2021
The 30-Day SEC Yield represents net investment income earned by the Fund over the 30-day period ended 12/31/2021, 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.
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.