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Asia Growth & Income

Matthews Asian Growth and Income Fund MACSX

Snapshot
  • Seeks upside participation while aiming to provide some downside protection in Asia ex Japan
  • Utilize income-paying equities and convertible bonds to help mitigate downside risk and volatility
  • Offers a relatively stable means of participating in Asia’s long-term growth

09/12/1994

Inception Date

1.25%

YTD Return

(as of 01/14/2022)

$16.27

Price

(as of 01/14/2022)

$1.09 billion

Fund Assets

(as of 12/31/2021)

Objective

Long-term capital appreciation with some current income.

Strategy

Under normal circumstances, the Matthews Asian Growth and Income Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in dividend-paying common stock, preferred stock and other equity securities, and convertible securities as well as fixed-income securities, of any duration or quality, of companies located in Asia. The Fund attempts to offer investors a relatively stable means of participating in a portion of the Asian region’s growth prospects, while providing some downside protection, in comparison to a portfolio that invests purely in common stocks. The strategy of owning convertible bonds and dividend-paying equities is designed to help the Fund to meet its investment objective while helping to reduce the volatility of its portfolio.

Risks

Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Investing in emerging and frontier markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets.

These and other risks associated with investing in the Fund can be found in the prospectus.

Fund Facts
Inception Date 09/12/1994
Fund Assets $1.09 billion (12/31/2021)
Currency USD
Ticker MACSX
Cusip 577-130-206
Portfolio Turnover 36.3%
Benchmark MSCI All Country Asia ex Japan 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 1.09%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 12/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asian Growth and Income Fund
MACSX
0.72% 2.16% 0.04% 0.04% 10.81% 8.10% 6.56% 8.87% 09/12/1994
MSCI All Country Asia ex Japan Index
1.41% -1.18% -4.46% -4.46% 12.38% 11.61% 8.32% 5.02%
As of 12/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asian Growth and Income Fund
MACSX
0.72% 2.16% 0.04% 0.04% 10.81% 8.10% 6.56% 8.87% 09/12/1994
MSCI All Country Asia ex Japan Index
1.41% -1.18% -4.46% -4.46% 12.38% 11.61% 8.32% 5.02%
For the years ended December 31st
Name 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
Matthews Asian Growth and Income Fund
MACSX
0.04% 16.00% 17.26% -10.96% 21.85% 1.34% -4.50% -0.65% 4.83% 26.90%
MSCI All Country Asia ex Japan Index
-4.46% 25.36% 18.52% -14.12% 42.08% 5.76% -8.90% 5.11% 3.34% 22.70%

MSCI AC Asia ex Japan Index since inception value calculated from 8/31/94.

Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.

Assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund’s fees and expenses had not been waived. Performance differences between the Institutional class and the Investor class may arise due to differences in fees charged to each class.

Additional performance, attribution, liquidity, value at risk (VaR), security classification and holdings information is available on request for certain time periods.

Growth of a Hypothetical $10,000 Investment Since Inception

(as of 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)
1.45% 30-Day SEC Yield
2.37% Dividend Yield

Dividend Yield (trailing) Source: FactSet Research Systems, Bloomberg, Matthews
30-Day SEC Yield Source: BNY Mellon Investment Servicing (US) Inc.

Ratings

  • OVERALL
  • out of 52 funds
  • 3 YEAR
  • out of 52 funds
  • 5 YEAR
  • out of 45 funds
  • 10 YEAR
  • out of 32 funds
  • 1 YEAR
  • 3rd
  • 15 out of 27 funds
  • 3 YEAR
  • 3rd
  • 20 out of 27 funds
  • 5 YEAR
  • 4th
  • 21 out of 25 funds
  • 10 YEAR
  • 3rd
  • 17 out of 22 funds
  • SINCE INCEPTION
  • 1st
  • 1 out of 4 funds

Ratings agency calculation methodology

Portfolio Managers

Robert J. Horrocks, PhD photo
Kenneth  Lowe, CFA photo
Kenneth Lowe, CFA

Lead Manager

Satya  Patel photo
Satya Patel

Co-Manager

Siddharth  Bhargava photo
Siddharth Bhargava

Co-Manager

Portfolio Characteristics

(as of 12/31/2021)
Fund Benchmark
Number of Positions 56 1,213
Weighted Average Market Cap $135.6 billion $147.0 billion
Active Share 75.2 n.a.
Price/Cash Flow 13.6 9.7
Price/Book 2.5 1.9
Return On Equity 18.7 13.6
EPS Growth (3 Yr) -21.4% -6.4%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 09/30/2021)
-0.34%
Alpha
0.79
Beta
73.54%
Upside Capture
81.95%
Downside Capture
0.41
Sharpe Ratio
-0.34
Information Ratio
5.72%
Tracking Error
92.79

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 12/31/2021)
Name Sector Country % Net Assets
Taiwan Semiconductor Manufacturing Co., Ltd. Information Technology Taiwan 8.0
Tencent Holdings, Ltd. Communication Services China/Hong Kong 5.3
Samsung Electronics Co., Ltd. Information Technology South Korea 3.9
AIA Group, Ltd. Financials China/Hong Kong 3.5
JD.com, Inc. Consumer Discretionary China/Hong Kong 2.7
Housing Development Finance Corp., Ltd. Financials India 2.5
Macquarie Korea Infrastructure Fund Financials South Korea 2.5
Inner Mongolia Yili Industrial Group Co., Ltd. Consumer Staples China/Hong Kong 2.0
Techtronic Industries Co., Ltd. Industrials China/Hong Kong 2.0
Broadcom, Inc. Information Technology United States 1.9
TOTAL 34.3

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
  • Asset Type Breakdown
  • Market Cap Exposure

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

Not all countries are included in the benchmark index(es).

Asset Type Fund
Common Equities and ADRs 88.9
Convertible Bonds 9.3
Preferred Equities 0.6
Cash and Other Assets, Less Liabilities 1.2

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)
12/14/2021 12/15/2021 $0.07977 $0.40825 $1.37352 $1.86154 10.4% N.A.
06/28/2021 06/29/2021 $0.12445 $0.00000 $0.00000 $0.12445 0.7% N.A.
12/15/2020 12/16/2020 $0.05757 $0.00000 $0.00475 $0.06232 0.4% N.A.
06/24/2020 06/25/2020 $0.10611 $0.00000 $0.00000 $0.10611 0.7% 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, 2021

For the year ending December 31, 2021, the Matthews Asian Growth and Income Fund returned 0.04% (Investor Class) and 0.18% (Institutional Class), while its benchmark, the MSCI All Country Asia ex Japan Index, returned -4.46% over the same period. For the fourth quarter of the year, the Fund returned 2.16% (Investor Class) and 2.23% (Institutional Class), while the benchmark returned -1.18%.

Market Environment:

Asian markets struggled during the final quarter of the year, leading to losses for the full year at a broad regional index level. A number of factors weighed on sentiment including the risks to growth from the coronavirus delta variant, restrictive policies by many governments hurting economic activity, and rampant regulation in China. Xi Jinping’s move toward “common prosperity” has impacted sectors from health care to education, with the most notable self-created issue in recent months being solvency challenges in parts of the property market. This added to the already painful regulations for the internet platform companies and has done little to bolster confidence in the country’s equity markets.

These headlines led China to be the region’s worst performing market during the year falling over 20%, and the majority of equity markets across Asia fell. In contrast to this, domestic demand-oriented India rose significantly amidst solid liquidity, a low base effect for earnings and the relaxation of Covid-related restrictions. Technology-dominated Taiwan also gained as demand for hardware and chips remains strong.

Performance Contributors and Detractors:

Despite weak markets, the portfolio was able to avoid participating in the worst of these drawdowns to end the year in marginally positive territory. This relative performance can be partly explained by what we do not hold. Chinese internet company and benchmark heavyweight Alibaba plummeted during 2021, as did many similar equities within the communication services and consumer discretionary sectors. A combination of anti-monopoly and data privacy regulations caused stress in what were, by our estimation, already overly expensive stocks.

More pleasing were the stocks driving performance through positive operational delivery. Taiwan Semiconductor Manufacturing Company rose as it continued to enjoy a strong competitive position as the world’s leading semiconductor foundry with superior technology, buoyed by the current backdrop of decidedly strong silicon demand driven by structural trends including high-performance computing and 5G adoption. Outside of technology, select names in China gained. The strongest of these was Techtronic Industries as the cordless power tool leader grew earnings by over 50% during the first half of the year. This was driven by continued market share gains alongside new product development in both consumer and commercial applications that include a growing outdoor tool collection. Utility ENN Natural Gas rallied on healthy gas pipeline volume growth and games maker NetEase rose on good earnings delivery and an impressive pipeline for 2022 that includes a broader launch for Harry Potter, Lord of the Rings and Diablo Immortal amongst others. Financial stocks also helped the portfolio as Taiwanese leasing company Chailease increased due to solid book growth and stable asset quality. Macquarie Korea Infrastructure Fund rose as it enhanced its portfolio through the addition of new assets and saw some improvement in the performance of others such as Busan New Port as exports improved.

Although we evaded much of the aforementioned regulatory challenges in China, our holdings in JD.com and Tencent Holdings were some of the largest detractors to performance over the full year. We continue to believe that these are well positioned companies for the long term. Elsewhere in China, sportswear retailer TopSports fell. Its major partners Nike and Adidas have seen declining sales due to the rise of domestic brands and Nike’s comments regarding the use of Xinjiang cotton. Additionally, life insurers AIA Group and Ping An Insurance dragged on portfolio returns. The latter has struggled with improving the quality of its agency force for some time and this has hurt its growth in value of new business. It has also seen some concern over elevated risk in its investment portfolio through an outsized position in domestic property. For AIA Group, its most recent value of new business growth weakened as the coronavirus delta variant impacted mobility and activity. 

Notable Portfolio Changes:

Portfolio activity was relatively light during the quarter. We added one new equity holding in Nari Technology toward the end of the year. The company is a leader in China’s power grid automation sector, supplying both hardware and software to customers such as the State Grid. We believe that the growth outlook for the business is strong as demand for secondary equipment to protect, monitor and automate power transmission and distribution rises. This will be at least in part driven by China’s goal to be carbon neutral by 2060 as the rise of new energy will require additional investments in the grid. Further, the management team has solid pedigree in research and development (R&D) and has a sensible incentive structure to drive growth while the company’s balance sheet is strong and valuation accessible. We funded this addition through the sale of two consumer stocks. We exited Indonesian home improvement retailer Ace Hardware as it suffers from a weak consumption backdrop and rising competition. We also sold our position in Indian tobacco and fast moving consumer good company ITC as we believe that there are superior ideas for the portfolio.

Outlook:

The bull market for almost every asset class appears to be stalling as the outlook for inflation, monetary policy and growth all shift gears from the prior ultra-supportive environment. Although the duration and scale of the ongoing inflationary pressure can be debated, it is clear that it can no longer be categorized as “transitory.” Tight labor markets alongside supply chain bottlenecks, energy transition, raw material price pressure, the provision of excessive liquidity, and the prospect of more de-globalization are inflationary risks that may force faster tapering and rate hikes. This may, in turn, cause pressure on corporate profitability and an increase in equity risk premiums while extended valuations and lofty growth expectations are unlikely to provide much support in a year that also brings with it political risk. It must be acknowledged, however, that the economic backdrop remains robust given the sheer scale of transfer payments, even if COVID vaccinations have not allowed for the much hoped for return to “normal” everyday life.

From an Asian equity investor’s perspective, the local backdrop is somewhat more constructive. With certain exceptions such as India, valuations are close to averages with the regional MSCI Asia ex Japan benchmark trading at ~13.5x P/E. Further, the monetary and fiscal policy regime in China is likely to be countercyclical to that in other geographies. The challenges of running a zero-COVID policy as well as liquidity worries in the property development sector and rising regulations in many spots have created strain on the economy that necessitates gradually looser policy given less severe inflation risks. These issues will remain in 2022 to at least some extent, and it is unlikely that we will see above trend growth. However, a combination of sensible expectations, reasonable valuations and policy easing at the margin in China accompanied by faster growth in Southeast Asia may provide a solid backdrop for the Asia region during the forthcoming year.

Much of the above is a recipe for volatility and choppiness. We believe that the Fund remains well positioned for such conditions. Our focus continues to be on companies that we believe to be of high quality that are less susceptible to the whims of policymakers and inflation trends, and which strike a healthy balance between both sustainable growth and income.

 

As of December 31, 2021, the securities mentioned comprised the Matthews Asian Growth and Income Fund in the following percentages: Taiwan Semiconductor Manufacturing Company8.0%; Enn Natural Gas Co., Ltd., 1.4%; Techtronic Industries Co., Ltd., 2.0%; NetEase Inc., 1.8% ; Chailease Holdings Co., Ltd., 1.8%; Macquarie Korea Infrastructure Fund, 2.5%; JD.com, Inc., 2.7%; Tencent Holdings, Inc., 5.3%; Topsports International Holdings, Ltd., 1.5%  ; AIA Group, Ltd., 3.5% ; Ping An Insurance Group Co. of China, Ltd., 1.1; and Nari Technology Co., Ltd., 1.1%. The Fund held no positions in Alibaba Group Holdings Ltd., Busan New Port, Nike, Inc., Adidas AG, State Grid Corporation of China, Ace Hardware Indonesia or ITC Limited.

Current and future holdings are subject to change and risk.

 

Average Annual Total Returns - MACSX as of 12/31/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
0.04% 10.81% 8.10% 6.56% 8.87% 09/12/1994

All performance quoted is past performance and is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. Please see the Fund's most recent month-end performance.

Fees & Expenses
Gross Expense Ratio 1.09%
Yields as of 12/31/2021
30-Day SEC Yield 1.45%
Dividend Yield 2.37%

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.

Dividend Yield (trailing) is the weighted average sum of the dividends paid by each equity security held by the Fund over the last 12 months divided by the current price as of report date. The annualised dividend yield is for the equity-only portion of the Fund and does not reflect the actual yield an investor in the Fund would receive. There can be no guarantee that companies that the Fund invests in, and which have historically paid dividends, will continue to pay them or to pay them at the current rates in the future. A positive distribution yield does not imply positive return, and past yields are no guarantee of future yields.

Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Investing in emerging and frontier markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets.

 

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.