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
-20.03%
YTD Return
(as of 08/12/2022)
$7.10
NAV
(as of 08/12/2022)
+0.01
1 Day NAV Change
(as of 08/12/2022)
Objective
Seeks total return over the long term.
Strategy
Under normal circumstances, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in debt and debt-related instruments issued by companies as well as governments, quasi-governmental entities, and supranational institutions in Asia. Debt and debt-related instruments typically include bonds, debentures, bills, securitized instruments (which are vehicles backed by pools of assets such as loans or other receivables), notes, certificates of deposit and other bank obligations, bank loans, senior secured bank debt, convertible debt securities, credit-linked notes, inflation-linked instruments, repurchase agreements, payment-in-kind securities and derivative instruments with fixed income characteristics.
Risks
Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Fixed income investments are subject to additional risks, including, but not limited to, interest rate, credit and inflation risks. Investing in emerging markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets.
These and other risks associated with investing in the Fund can be found in the prospectus.
Fund Facts
| Inception Date | 04/29/2016 | |
| Fund Assets | $24.61 million (07/31/2022) | |
| Currency | USD | |
| Ticker | MCRDX | |
| Cusip | 577-130-677 | |
| Portfolio Turnover | 79.8% | |
| Benchmark | J.P. Morgan Asia Credit Index | |
| Geographic Focus | Asia - Consists of all countries and markets in Asia, including developed, emerging, and frontier countries and markets in the Asian region | |
Fees & Expenses
| Gross Expense Ratio | 1.07% | |
| Net Expense Ratio | 1.07% | |
| 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 |
Performance
- Monthly
- Quarterly
- Calendar Year
As of 07/31/2022
As of 06/30/2022
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 $10,000 Investment Since Inception
(as of 06/30/2022)Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.
The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gain distributions or redemption of fund shares.
Yield
(as of 06/30/2022)
15.12%
Yield to Worst
<p>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 </p>
9.74%
30-Day SEC Yield
The 30-Day SEC Yield represents net investment income earned by the Fund over the 30-day period ended 06/30/2022, expressed as an annual percentage rate based on the Fund’s share price at the end of the 30-day period. The 30-Day SEC Yield should be regarded as an estimate of the Fund’s rate of investment income, and it may not equal the Fund’s actual income distribution rate.
9.33%
30-Day SEC Yield
(excluding expense waiver)
| Yield to Worst | 15.12% |
| 30-Day SEC Yield | 9.74% |
| 30-Day SEC Yield (excluding expense waiver) | 9.33% |
30-Day SEC Yield Source: BNY Mellon Investment Servicing (US) Inc.
Ratings
(as of 06/30/2022)
CATEGORY: Emerging Markets Bond
| OVERALL | 3 stars | out of 253 funds |
| 3 YEAR | 2 stars | out of 253 funds |
| 5 YEAR | 3 stars | out of 215 funds |
(as of 06/30/2022)
CATEGORY: Alternative Credit Focus Funds
| 1 YEAR | 4th | 91 out of 97 funds |
| 3 YEAR | 4th | 88 out of 89 funds |
| 5 YEAR | 4th | 78 out of 83 funds |
| SINCE INCEPTION | 4th | 72 out of 82 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
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 and Asia Total Return Bond Strategies and co-manages Asian Growth and Income Strategy. 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.
Wei Zhang
Co-Manager
Wei Zhang
Portfolio Manager
Wei Zhang is a Portfolio Manager at Matthews Asia and co-manages the Asia Total Return Bond and Asia Credit Opportunities Strategies. Prior to joining the firm in 2015, he earned an MBA from Columbia University. From 2008 to 2012, Wei worked as an analyst at Bluecrest Capital Management, evaluating fundamental investments in equity and credit, with a focus on industrials, basic materials and energy sector opportunities. From 2007 to 2008, he was also an analyst with GF Capital Management, where he performed in-depth fundamental research, built and maintained financial models and participated in acquisition contact negotiations. He started his career as an analyst at Sowood Capital Management in 2006. Wei received a B.S. in Finance and International Business from the Leonard N. Stern School of Business at New York University. He is fluent in Mandarin.
Portfolio Characteristics
(as of 06/30/2022)2.5
Modified Duration
34
Number of Positions
Source: BNY Mellon Investment Servicing (US) Inc.
| Modified Duration | 2.5 |
| Number of Positions | 34 |
Risk Metrics (3 Yr Return)
(as of 06/30/2022)-3.47%
Alpha
1.67
Beta
104.37%
Upside Capture
163.66%
Downside Capture
-0.67
Sharpe Ratio
-0.73
Information Ratio
7.00%
Tracking Error
70.47
R²
Fund Risk Metrics are reflective of Investor share class.
Sources: Zephyr StyleADVISOR
Top 10 Positions
(as of 07/31/2022)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 06/30/2022)- 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 June 30, 2022
For the first half of 2022, the Matthews Asia Credit Opportunities Fund returned -17.75% (Investor Class) and -17.57% (Institutional Class), while its benchmark, the J.P. Morgan Asia Credit Index, returned -10.74% over the same period. For the quarter ending June 30, 2022, the Fund returned -9.14% (Investor Class) and -9.08% (Institutional Class), while the benchmark returned -4.74%.
Market Environment:
Asia credit, along with just about every other asset class with the exception of commodities saw material declines in the first half of 2022. It has been a tough market, marked by price declines driven by both credit spread widening and rising U.S. interest rates.
The U.S. dollar-denominated Asia credit market continues to grapple with rising defaults and ongoing uncertainly. Asia high yield default rates hit a multi-year high of 14.24% in the first half of this year that includes the default of 11 issuers on US$35 billion notional of debt outstanding. Asia high yield spreads ended the first half close to the highs experienced at the peak of the pandemic at 965 basis points (9.65%). Asia investment grade spreads widened to 206 basis points (2.06%) at the end of June, though the spread widening reflected a repricing of relative value in comparison to sub-investment grade credit rather than a material rise in risk.
The Asia credit market in the first half was dominated by China’s zero-COVID policy and its consequences on the economy. The start-and-stop quarantines that paralyzed mobility in much of the country sterilized much of the macro policy easing designed to ease credit conditions and reaccelerate the economy. Within this macro backdrop, several sub investment grade property developers in China were unable to refinance their maturities as there was no marginal buyer willing to lend. With the lack of credit, liquidity and workers, construction remains at a standstill, resulting in continued deterioration in the sector. In the U.S., inflation continues to run significantly above the Federal Reserve’s mandate, with investors pricing in a higher likelihood of the Fed having to slam the brakes to slay the inflation dragon at the expense of economy. Oil and food prices remain elevated given the ongoing conflict in Ukraine, though several commodities had fallen off their peaks by the end of June.
Performance Contributors and Detractors:
Overall, the top contributors to performance came from Chinese corporates that bounced off of the bottoms. These included Baozun, an e-commerce provider; Dalian Wanda, one of the largest developers of integrated malls; and iQIYI, an online video platform company.
The biggest detractors to returns include Sino Ocean, Times China and KWG Holdings, all of which are Chinese property developers that have not been able to refinance in the USD market because of the lack of appetite for any China real estate exposure.
In terms of sectors, sovereigns were the best performing sector as our holdings in the Viet Nam Debt and Asset Trading Corp remained solid while other financials, which include real estate developers, were the biggest detractor from performance.
Notable Portfolio Changes:
We made limited changes to the portfolio in the first quarter and did not initiate any new holdings in the second quarter. During the second quarter, we exited a number of positions as we deemed their prices to offer limited upside, including bonds issued by Baozun; Dalian Wanda; Kakao, the dominant South Korean internet messaging company; Khazanah Investment, a Malaysian sovereign wealth fund (Cerah), Meituan, one of the largest internet retailers in China; Abja Investment Company, the financing vehicle for Tata Steel, one of the largest steel producers headquartered in India; and United Microelectronics Corp., a Taiwanese semiconductor company.
Outlook:
There is an ancient saying, “As things tend to their extremes, they give way to their opposites.” By all measures, Asia credit has priced in much of the risks and uncertainties in the market today. With credit spreads again close to historic highs, they have already baked in expected defaults across much of the sub-investment grade real estate sector. While we believe defaults are likely to continue, we expect the overwhelming number of restructurings to be amended and extended exercises which should result in an extension of the maturity, but no haircut in principal so that bondholders should ultimately see a recovery of 100% in principal. The other component to Asia credit returns is U.S. interest rates, which unfortunately have more risks of rising than falling. We have seen high volatility driven by waning or waxing inflation and the market’s expectation of the Fed’s ability to tame the U.S.’s stubborn and persistent inflation. With the yield curve pricing in at least a 50 basis points (0.50%) rate hike at the upcoming July Fed meeting, the market is increasingly pricing in a challenging inflation picture that would likely land the U.S. into a recession in the coming year. With the persistence of inflation and defaults, buyers have been waiting on the sidelines, reluctant to catch a falling knife. However, as any of the storm clouds we outline dissipate, we expect the patient marginal buyer to finally step in to take advantage of depressed valuations to reap price appreciation and potential outsized returns in the coming years.
View the Fund’s top 10 holdings as of June 30, 2022. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MCRDX as of 06/30/2022
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, 2023. Please see the Fund’s prospectus for additional details.
Yields as of 06/30/2022
The 30-Day SEC Yield represents net investment income earned by the Fund over the 30-day period ended 06/30/2022, expressed as an annual percentage rate based on the Fund’s share price at the end of the 30-day period. The 30-Day SEC Yield should be regarded as an estimate of the Fund’s rate of investment income, and it may not equal the Fund’s actual income distribution rate. Source: BNY Mellon Investment Servicing (US) Inc.
Yield to worst (“YTW”) is the lowest potential yield a bond can receive without defaulting and is for the underlying bond-only portion of the portfolio, excluding securities that trade without accrued interest. YTW is calculated by making worst-case scenario assumptions using the weighted averages of the underlying security-level yields, weighted according to each security’s market value. YTW does not represent or predict the yield on any fund. Source: FactSet Research Systems
Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Fixed income investments are subject to additional risks, including, but not limited to, interest rate, credit and inflation risks. Investing in emerging markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets.