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Asia Fixed Income

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

-2.12%

YTD Return

(as of 10/26/2021)

$9.71

Price

(as of 10/26/2021)

$98.99 million

Fund Assets

(as of 09/30/2021)

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.

The risks associated with investing in the Fund can be found in the prospectus.

Fund Facts
Inception Date 04/29/2016
Fund Assets $98.99 million (09/30/2021)
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
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As of 09/30/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Credit Opportunities Fund
MCRDX
-1.17% 0.90% -1.26% 2.30% 4.20% 3.41% n.a. 4.19% 04/29/2016
J.P. Morgan Asia Credit Index
-1.63% -0.98% -1.10% 0.69% 5.63% 3.57% n.a. 4.15%
As of 09/30/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Credit Opportunities Fund
MCRDX
-1.17% 0.90% -1.26% 2.30% 4.20% 3.41% n.a. 4.19% 04/29/2016
J.P. Morgan Asia Credit Index
-1.63% -0.98% -1.10% 0.69% 5.63% 3.57% n.a. 4.15%
For the years ended December 31st
Name 2020 2019 2018 2017
Matthews Asia Credit Opportunities Fund
MCRDX
1.80% 13.34% -2.88% 7.86%
J.P. Morgan Asia Credit Index
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 09/30/2021)

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)
17.14% Yield to Worst
15.42% 30-Day SEC Yield
15.42% 30-Day SEC Yield (excluding expense waiver)

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

Ratings

  • OVERALL
  • out of 255 funds
  • 3 YEAR
  • out of 255 funds
  • 5 YEAR
  • out of 214 funds
  • 1 YEAR
  • 4th
  • 96 out of 112 funds
  • 3 YEAR
  • 2nd
  • 49 out of 102 funds
  • 5 YEAR
  • 3rd
  • 53 out of 97 funds
  • SINCE INCEPTION
  • 2nd
  • 41 out of 97 funds

Ratings agency calculation methodology

Portfolio Managers

Teresa  Kong, CFA photo
Teresa Kong, CFA

Lead Manager

Satya  Patel photo
Satya Patel

Lead Manager

Portfolio Characteristics

(as of 09/30/2021)
2.6
Modified Duration
44
Number of Positions

Source: BNY Mellon Investment Servicing (US) Inc.

Top 10 Positions

(as of 09/30/2021)
Name Sector Currency % Net Assets
Network i2i, Ltd., 5.650%, 04/15/2068 Communication Services U.S. Dollar 5.6
Viet Nam Debt & Asset Trading Corp., 1.000%, 10/10/2025 Financials U.S. Dollar 5.2
Sino-Ocean Land Treasure III, Ltd., 4.900%, 03/21/2068 Real Estate U.S. Dollar 4.8
Honghua Group, Ltd., 6.375%, 08/01/2022 Energy U.S. Dollar 4.7
Tata Motors, Ltd., 5.875%, 05/20/2025 Consumer Discretionary U.S. Dollar 4.6
Luye Pharma Group, Ltd., Cnv., 1.500%, 07/09/2024 Health Care U.S. Dollar 4.2
Indika Energy Capital III Pte, Ltd., 5.875%, 11/09/2024 Energy U.S. Dollar 4.1
KWG Group Holdings, Ltd., 7.400%, 01/13/2027 Real Estate U.S. Dollar 3.3
King Talent Management, Ltd., 5.600%, 06/04/2068 Financials U.S. Dollar 3.2
Baozun, Inc., Cnv., 1.625%, 05/01/2024 Consumer Discretionary U.S. Dollar 3.2
TOTAL 42.9

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
  • Currency Allocation
  • Quality Distribution
  • Asset Type Breakdown
Sector Fund
Real Estate 24.8
Financials 23.9
Consumer Discretionary 12.1
Energy 10.8
Communication Services 7.4
Health Care 7.2
Materials 6.0
Foreign Government Bonds 1.3
Information Technology 1.3
Industrials 0.8
Cash and Other Assets, Less Liabilities 4.4

"Foreign Government Bonds" category includes supranationals.
Cash and Other Assets may include the mark-to-market value of forward currency exchange contracts and certain derivative instruments.

Sector data (excluding Government Bonds) based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.

By issuer's country of risk Fund
China/Hong Kong 51.5
India 19.2
Indonesia 10.2
Vietnam 6.5
Thailand 2.8
Australia 2.1
Malaysia 1.9
Philippines 0.8
South Korea 0.6
Cash and Other Assets, Less Liabilities 4.4

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 2.6

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

Quality Distribution Fund
BBB 2.1
BBB- 0.5
BB+ 7.0
BB 19.9
BB- 19.7
B+ 8.1
B 7.2
B- 1.5
CCC+ 2.6
Not Rated 27.0
Cash and Other Assets, Less Liabilities 4.4

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 72.0
Convertible Bonds 17.1
Government Bonds 6.5
Cash and Other Assets, Less Liabilities 4.4

Cash and Other Assets may include the mark-to-market value of forward currency exchange contracts and certain derivative instruments.

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)
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.
12/15/2020 12/16/2020 $0.05833 $0.02672 $0.00000 $0.08505 0.8% N.A.
11/18/2020 11/19/2020 $0.04203 $0.00000 $0.00000 $0.04203 0.4% N.A.
10/26/2020 10/27/2020 $0.03420 $0.00000 $0.00000 $0.03420 0.3% N.A.
09/28/2020 09/29/2020 $0.03784 $0.00000 $0.00000 $0.03784 0.4% N.A.
08/27/2020 08/27/2020 $0.04322 $0.00000 $0.00000 $0.04322 0.4% N.A.
07/27/2020 07/28/2020 $0.03875 $0.00000 $0.00000 $0.03875 0.4% N.A.
06/24/2020 06/25/2020 $0.03634 $0.00000 $0.00000 $0.03634 0.4% N.A.
05/26/2020 05/27/2020 $0.04014 $0.00000 $0.00000 $0.04014 0.4% N.A.
04/27/2020 04/28/2020 $0.03833 $0.00000 $0.00000 $0.03833 0.4% N.A.
03/25/2020 03/26/2020 $0.03086 $0.00000 $0.00000 $0.03086 0.3% N.A.
02/26/2020 02/27/2020 $0.03930 $0.00000 $0.00000 $0.03930 0.4% 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 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 09/30/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
2.30% 4.20% 3.41% N.A. 4.19% 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 1.14%
Net Expense Ratio 1.14%

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 09/30/2021
Yield to Worst 17.14%
30-Day SEC Yield 15.42%
30-Day SEC Yield (excluding expense waiver) 15.42%

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.

Yield to worst is the lowest potential yield a bond can receive without actually defaulting – is for the underlying bond-only portion of the portfolio, and as of May 2020, 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. It 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.