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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

-4.01%

YTD Return

(as of 04/13/2021)

$9.75

Price

(as of 04/13/2021)

$90.69 million

Fund Assets

(as of 03/31/2021)

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.

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

Fund Facts
Inception Date 04/29/2016
Fund Assets $90.69 million (03/31/2021)
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 1.24%
Net Expense Ratio 1.12%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 03/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Credit Opportunities Fund
MCRDX
-2.09% -2.73% -2.73% 13.45% 2.68% n.a. n.a. 4.30% 04/29/2016
J.P. Morgan Asia Credit Index
-0.39% -1.17% -1.17% 9.00% 5.59% n.a. n.a. 4.56%
As of 03/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Credit Opportunities Fund
MCRDX
-2.09% -2.73% -2.73% 13.45% 2.68% n.a. n.a. 4.30% 04/29/2016
J.P. Morgan Asia Credit Index
-0.39% -1.17% -1.17% 9.00% 5.59% n.a. n.a. 4.56%
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 03/31/2021)

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 03/31/2021)
9.63% Yield to Worst
8.09% 30-Day SEC Yield
8.24% 30-Day SEC Yield (excluding expense waiver)

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

Ratings

  • OVERALL
  • out of 241 funds
  • 3 YEAR
  • out of 241 funds
  • 1 YEAR
  • 3rd
  • 86 out of 122 funds
  • 3 YEAR
  • 3rd
  • 78 out of 110 funds
  • SINCE INCEPTION
  • 2nd
  • 49 out of 105 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 03/31/2021)
2.8
Modified Duration
39
Number of Positions

Source: BNY Mellon Investment Servicing (US) Inc.

Top 10 Positions

(as of 03/31/2021)
Name Sector Currency % Net Assets
Network i2i, Ltd., 5.650%, 04/15/2068 Communication Services U.S. Dollar 6.1
Viet Nam Debt & Asset Trading Corp., 1.000%, 10/10/2025 Financials U.S. Dollar 5.4
Sino-Ocean Land Treasure III, Ltd., 4.900%, 03/21/2068 Real Estate U.S. Dollar 5.4
Honghua Group, Ltd., 6.375%, 08/01/2022 Energy U.S. Dollar 5.2
King Talent Management, Ltd., 5.600%, 06/04/2068 Financials U.S. Dollar 5.1
Tata Motors, Ltd., 5.875%, 05/20/2025 Consumer Discretionary U.S. Dollar 4.9
Luye Pharma Group, Ltd., Cnv., 1.500%, 07/09/2024 Health Care U.S. Dollar 4.7
Indika Energy Capital III Pte, Ltd., 5.875%, 11/09/2024 Energy U.S. Dollar 4.4
Times China Holdings, Ltd., 6.200%, 03/22/2026 Real Estate U.S. Dollar 3.8
KWG Group Holdings, Ltd., 5.875%, 11/10/2024 Real Estate U.S. Dollar 3.6
TOTAL 48.6

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 03/31/2021)
  • Sector Allocation
  • Country Allocation
  • Currency Allocation
  • Quality Distribution
  • Asset Type Breakdown
Sector Fund
Real Estate 29.1
Financials 22.1
Energy 11.8
Consumer Discretionary 10.4
Communication Services 8.5
Health Care 6.4
Materials 6.3
Foreign Government Bonds 1.4
Industrials 0.9
Information Technology 0.9
Cash and Other Assets, Less Liabilities 2.1

"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 49.4
India 17.3
Indonesia 11.3
Vietnam 6.9
Thailand 5.1
Australia 2.3
Malaysia 2.1
South Korea 1.8
New Zealand 0.9
Philippines 0.9
Cash and Other Assets, Less Liabilities 2.1

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 2.8

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

Quality Distribution Fund
BBB 2.3
BB+ 5.2
BB 18.7
BB- 18.6
B+ 12.0
B 11.3
B- 2.8
CCC+ 1.8
Not Rated 25.1
Cash and Other Assets, Less Liabilities 2.1

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 76.7
Convertible Bonds 14.3
Government Bonds 6.9
Cash and Other Assets, Less Liabilities 2.1

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)
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 December 31, 2020

For the year ending December 31, 2020, the Matthews Asia Credit Opportunities Fund returned 1.80% (Investor Class) and 2.05% (Institutional Class), while its benchmark, the J.P. Morgan Asia Credit Index returned 6.33%. For the fourth quarter of the year, the Fund returned 3.61% (Investor Class) and 3.68% (Institutional Class) versus 1.82% for the Index. 

Market Discussion:

2020 marked the end of a credit cycle—defined by a trend of falling spreads—as the global pandemic roiled markets. It also marked the beginning of a new credit cycle, as spreads staged a remarkable recovery as governments globally committed to unprecedented monetary and fiscal support to backstop the global economic recession due to COVID-19. Unlike past credit cycles where the lack of liquidity was the primary driver of defaults, solvency is becoming the primary driver as vulnerable sectors saw revenues, profits and free cash flows plummet and working capital needs rose. Fortunately, many Asia countries, led by China, have staged a remarkable recovery and do not appear to be suffering from long-term structural damage as containment proved to be relatively swift. Emerging Asia’s recovery has been relatively slow and uneven with containment incomplete including in India and Indonesia. This dichotomy has also been playing out with companies, with larger companies having unfettered liquidity while smaller companies struggled to survive.  The year closed with Asia default rates at 3.5%, compared to 9.7% in the U.S.

The fourth quarter can be described in two distinct sub-periods: before and after the U.S. election in November. The first month was dominated by worries, while the latter period provided a welcomed respite and positive returns across almost all risk assets. The average spread of the J.P. Morgan Asia Credit Index tightened 39 basis points (0.39%) in the quarter while the high yield portion of the Index tightened 98 basis points (0.98%).

In the pre-election period, there were several sources of uncertainty: conflicting news on the likelihood of U.S. fiscal stimulus with the market widely perceiving a second stimulus as necessary given the weakened U.S. economy due to the pandemic; large increases in daily new confirmed cases of COVID-19 in the U.S. and Europe; and highly uncertain election results. And in Asia, the large divergence of recovery between East Asia (China, Japan, South Korea) and the rest of Asia and room for further fiscal stimulus was an additional question. These uncertainties led to market caution early in the quarter.

In the post-election period, risk sentiment improved for a number of reasons, including a Democratic Party win with the possibility that Democrats might take the majority in the Senate—viewed as having a much higher chance of passing a large stimulus. At the same time, successful COVID vaccine trials brought in view the end of the pandemic. The fact that a “Hard Brexit” did not materialize was an additional piece of good news. Within Asia, we saw volatility after President Trump signed Executive Orders directed at China. One Executive Order stipulates that all U.S. funds must divest from a list of Chinese companies associated with the military.

Performance Contributors and Detractors:

In general, lower-rated securities outperformed higher-rated securities in the fourth quarter. The portfolio’s overweight in BB-rated securities helped Fund performance. Basic industries and real estate were the top contributors to performance, driven by securities such as Indika, Tata Industries, and Adaro within basic industries, and within real estate, Lippo Karawaci, KWG, and CIFI. However, security selection in Pan Brothers detracted from performance, as Pan Brothers was downgraded during the quarter due to concerns about their ability to refinance outstanding bank loans. In addition, exposure to Luye Pharmaceutical, a Chinese pharmaceutical company, also detracted from performance.

For the year 2020, Fund performance was mainly hurt by our overweight to high yield credit relative to investment grade, which had outperformed in the year as markets sought “safety”. But security selection in the investment grade space, including Syngenta and longer-dated Indonesian quasi-sovereigns credit, helped the Fund in the year.

In terms of country allocation, overweights in India and Vietnam were the top contributors while allocation to Indonesia, which failed to effectively control COVID-19, and Sri Lanka, which was hurt by pandemic-driven declines in tourism, were detractors. Within China, Fund performance was roughly in line with the benchmark. Contributors included real estate developers and internet names such as Baozun and iQiyi, while underweights in investment grade-rated names detracted.

Notable Portfolio Changes:

2020 was a year of many surprises and required continual rotation in search of value. We sold names that had benefited or recovered quickly from the COVID-crisis such as Weibo and Citic Telecom and redeployed capital into good companies where recovery was more delayed, including Chinese apparel brand Bosideng, and Jollibee, a Philippines restaurant chain. We reduced risk in Pakistan and Sri Lanka as we expected frontier markets nations to have both less ability to deal with a public health crisis and slower economic recoveries. We also rotated capital within Indonesia, from investment grade state-owned companies, such as InAlum and Cikarang Listrindo, into higher yield names, such as Sritex, a textile manufacturer, and Adaro, a coal miner. We also added high yield names such as Tata Motors of India, which has embarked on an ambitious debt reduction plan.

In the fourth quarter, we exited Chinese apparel maker Bosideng as it had rallied substantially and hit our price target. We switched out of China Jinmao as we saw rising risks associated with Chinese state-owned entities after the passage of President Trump’s Executive Order. We added Times China in replacement, as we liked its exposure to the fast-growing Pearl River Delta region. We added the convertible bonds of South Korean internet firm Kakao (Daum) to increase exposure to the high-growth tech sector.

Outlook:

Having experienced the worst of the credit cycle in 2020, we expect markets and economies globally to continue their recoveries in 2021. We will likely see policymakers gradually ease up on the unprecedented levels of support and accommodation seen in 2020, but largely expect monetary and fiscal policies to remain supportive for the foreseeable future.  As such, we expect default rates in Asia to tick up slightly from 2020 year end levels and stay well contained in the mid-single digits.

Despite the strong support of policymakers, we continue to monitor some key risks, including new variants of COVID-19 and how this might affect the economic recovery. Additionally, we are watching the pace of recovery of countries such as China which has largely contained the virus. While we do expect further U.S. stimulus as well as vaccine distribution to solidify the economic recovery going into 2021, we are monitoring for any disruptions to the base case. In this base case, we believe that U.S. dollar-denominated, non-investment grade Asia bonds potentially offer the most attractive risk-adjusted returns.

Looking ahead, we are cautiously optimistic that U.S. – China relations could normalize to a more rules-based and engagement-based way of interaction. While the U.S. will continue to focus on rectifying grievances in trade and technology competition, we are hopeful that less erratic, Executive Order-driven policies will reduce Asian markets’ volatility.                                 

As markets continue to assess the uncertainties, we expect idiosyncratic risks and company-specific risks to be the dominant concern for markets. We believe the market will shift its focus to determine to what degree each sector and each company is affected by the imminent vaccine distribution. As a result, dispersion between geographical regions and between different credit qualities will increase going forward.

 

 

As of December 31, 2020, the securities mentioned comprised the Matthews Asia Credit Opportunities Fund in the following percentages Indika Energy Capital III Pte, Ltd., 5.875%, 11/09/2024, 5.6%; PT Adaro Indonesia, 4.250%, 10/31/2024, 2.9%; Theta Capital Pte, Ltd., 6.750%, 10/31/2026 (Lippo Karawaci), 1.6%; KWG Group Holdings, Ltd., 5.875%, 11/10/2024, 3.6%; CIFI Holdings Group Co., Ltd., 5.950%, 10/20/2025, 2.4%; PB International BV, 7.625%, 01/26/2022 (Pan Brothers), 3.7%; Luye Pharma Group, Ltd., Cnv., 1.500%, 07/09/2024, 4.3%; Syngenta Finance N.V., 5.182%, 04/24/2028, 1.6%; Syngenta Finance N.V., 5.676%, 04/24/2048, 1.2%; Syngenta Finance N.V., 4.892%, 04/24/2025, 0.2%;  ABJA Investment Co. Pte, Ltd., 5.450%, 01/24/2028 (Tata Industries), 3.4%; Baozun, Inc., Cnv., 1.625%, 05/01/2024, 2.9%; PT Sri Rejeki Isman, 7.250%, 01/16/2025 (Sritex), 3.4%; Jollibee Worldwide Pte, Ltd., 3.900%, 07/23/2068, 1.6%; Tata Motors, Ltd., 5.875%, 05/20/2025, 4.8%; Times China Holdings, Ltd., 6.200%, 03/22/2026, 3.9%; Kakao Corp., Cnv., 0.000%, 04/28/2023, 1.7%.

The Fund held no positions in Weibo, Citic Telecom International Holdings Ltd., PT Indonesia Asahan Aluminium, Cikarang Listrindo, iQiyi; Bosideng International Holdings Ltd., China Jinmao Holdings Group Ltd. Current and future portfolio holdings are subject to change and risk.

 

Average Annual Total Returns - MCRDX as of 03/31/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
13.45% 2.68% N.A. N.A. 4.30% 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 1.24%
Net Expense Ratio 1.12%

Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 0.90% first by waiving class specific expenses (e.g., shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non-class specific expenses (e.g., custody fees) of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 0.90% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 0.90%. Any amount waived with respect to the Fund pursuant to this agreement is not subject to recoupment. This agreement will remain in place until April 30, 2021 and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

Yields as of 03/31/2021
Yield to Worst 9.63%
30-Day SEC Yield 8.09%
30-Day SEC Yield (excluding expense waiver) 8.24%

The 30-Day SEC Yield represents net investment income earned by the Fund over the 30-day period ended 03/31/2021, 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 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.