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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

-14.76%

YTD Return

(as of 08/12/2022)

$13.62

NAV

(as of 08/12/2022)

+0.06

1 Day NAV Change

(as of 08/12/2022)

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 $883.36 million (07/31/2022)
Currency USD
Ticker MACSX
Cusip 577-130-206
Portfolio Turnover 37.9%
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 1.07%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 07/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asian Growth and Income Fund - MACSX
09/12/1994
MACSX
-0.37% -4.44% -15.26% -15.18% 1.18% 1.32% 3.55% 8.03%
MSCI All Country Asia ex Japan Index
-1.13% -5.03% -17.09% -19.65% 2.61% 2.08% 5.40% 4.21%
As of 06/30/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asian Growth and Income Fund - MACSX
09/12/1994
MACSX
-4.62% -8.02% -14.95% -18.41% 0.82% 1.80% 3.90% 8.07%
MSCI All Country Asia ex Japan Index
-4.40% -8.90% -16.14% -24.78% 2.41% 3.39% 5.80% 4.27%
For the years ended December 31st
Name 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
Matthews Asian Growth and Income Fund - MACSX
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 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)
1.79% 30-Day SEC Yield
1.79% 30-Day SEC Yield (excluding expense waiver)
2.72% 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 54 funds
  • 3 YEAR
  • out of 54 funds
  • 5 YEAR
  • out of 49 funds
  • 10 YEAR
  • out of 36 funds
  • 1 YEAR
  • 1st
  • 6 out of 36 funds
  • 3 YEAR
  • 3rd
  • 27 out of 35 funds
  • 5 YEAR
  • 3rd
  • 23 out of 31 funds
  • 10 YEAR
  • 4th
  • 20 out of 21 funds
  • SINCE INCEPTION
  • 1st
  • 1 out of 5 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 06/30/2022)
Fund Benchmark
Number of Positions 51 1,201
Weighted Average Market Cap $97.4 billion $110.6 billion
Active Share 77.2 n.a.
Price/Cash Flow 11.1 7.1
Price/Book 2.2 1.6
Return On Equity 19.4 14.5
EPS Growth (3 Yr) 3.4% 11.2%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 06/30/2022)
-1.33%
Alpha
0.83
Beta
74.96%
Upside Capture
86.75%
Downside Capture
0.01
Sharpe Ratio
-0.30
Information Ratio
5.25%
Tracking Error
90.82

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 07/31/2022)
Name Sector Country % Net Assets
Taiwan Semiconductor Manufacturing Co., Ltd. Information Technology Taiwan 7.7
AIA Group, Ltd. Financials China/Hong Kong 4.4
Tencent Holdings, Ltd. Communication Services China/Hong Kong 4.4
Samsung Electronics Co., Ltd. Information Technology South Korea 3.4
JD.com, Inc. Consumer Discretionary China/Hong Kong 2.9
Housing Development Finance Corp., Ltd. Financials India 2.7
Macquarie Korea Infrastructure Fund Financials South Korea 2.3
HKT Trust & HKT, Ltd. Communication Services China/Hong Kong 2.1
Ascendas REIT Real Estate Singapore 2.1
United Overseas Bank, Ltd. Financials Singapore 2.0
TOTAL 34.0

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
  • Asset Type Breakdown
  • Market Cap Exposure
Sector Fund Benchmark Difference
Information Technology 19.1 21.4 -2.3
Financials 17.7 20.4 -2.7
Consumer Discretionary 17.0 15.8 1.2
Communication Services 10.5 10.4 0.1
Industrials 9.8 6.6 3.2
Real Estate 7.8 4.1 3.7
Health Care 6.5 4.0 2.5
Consumer Staples 5.6 5.3 0.3
Utilities 3.1 3.1 0.0
Materials 0.8 5.2 -4.4
Energy 0.0 3.7 -3.7
Cash and Other Assets, Less Liabilities 2.0 0.0 2.0

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

Country Fund Benchmark Difference
China/Hong Kong 51.5 47.3 4.2
Taiwan 10.6 16.0 -5.4
India 9.5 14.2 -4.7
South Korea 8.0 12.5 -4.5
Singapore 6.6 3.4 3.2
France 3.3 0.0 3.3
Australia 2.4 0.0 2.4
Indonesia 1.7 2.0 -0.3
United States 1.7 0.0 1.7
Thailand 1.5 2.1 -0.6
Philippines 1.3 0.8 0.5
Malaysia 0.0 1.6 -1.6
Cash and Other Assets, Less Liabilities 2.0 0.0 2.0

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

Asset Type Fund
Common Equities and ADRs 89.8
Convertible Bonds 8.2
Cash and Other Assets, Less Liabilities 2.0
Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 48.6 58.6 -10.0
Large Cap ($10B-$25B) 17.2 21.1 -3.9
Mid Cap ($3B-$10B) 23.7 18.5 5.2
Small Cap (under $3B) 8.4 1.7 6.7
Cash and Other Assets, Less Liabilities 2.0 0.0 2.0

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)
06/27/2022 06/28/2022 $0.07829 $0.00000 $0.00000 $0.07829 0.6% N.A.
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.
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 June 30, 2022

For the first half of 2022, the Matthews Asian Growth and Income Fund returned -14.95% (Investor Class) and -14.91% (Institutional Class), while its benchmark, the MSCI All Country Asia ex Japan Index, returned -16.14% over the same period. For the quarter ending June 30, 2022, the Fund returned -8.02% (Investor Class) and -8.03% (Institutional Class), while the benchmark returned -8.90%.

Market Environment:

The first half of the year has been a challenging one for risk assets and even for many safe havens with numerous concerns weighing on values as tighter policy and weaker growth appear likely. Recent months have seen further confirmation of how embedded inflation has become and how far behind the curve many central banks have been in lifting interest rates and undergoing quantitative tightening. Supply chain disruptions from semiconductor chip shortages to the war in Ukraine have clearly played a significant role and are challenging to offset but demand has also been key. An aggressive fiscal stimulus through the pandemic now looks overly large with high growth in monetary aggregates while labor markets are also notably tight.

In Asia, spotty growth, an increase in the cost of capital and a strengthening dollar have hit returns. The Southeast Asian markets of Thailand and Indonesia were among the most resilient during the half as reopening hopes and broadly higher commodity prices helped. China also held up better than the broader regional index. Despite weak consumer growth due to strict COVID-related lockdowns, tighter regulations that have weighed on sentiment eased and the potential for stimulus rose. South Korea and Taiwan underperformed as the technology cycle appears to be passing its peak with easing supply constraints and waning demand from already high levels.

Performance Contributors and Detractors:

AIA Group was the largest contributor to returns over the first half of the year as it is hoped that easing restrictions will allow more face-to-face interactions between the regional life insurance leader’s agents and customers. This should help to boost growth in premiums and margins. The company also had its China expansion plans boosted through regulatory approval for its Henan province branch during the period. Further, rising interest rates may help AIA’s International Financial Reporting Standards (IFRS) earnings growth. Staying with the financial sector, Bank of China (Hong Kong) also rallied as the attractively valued lender is expected to deliver solid earnings growth this year. Rising rates should help to drive net interest margin expansion, accompanied by mid to high single-digit loan growth and robust asset quality. Fellow Hong Kong stock CK Hutchison ended the half in positive territory as merger discussions were reported between its U.K. telecom operations and Vodafone. This may unlock value for the firm. A broader reopening could also help its retail business and higher commodity prices have benefited its holding in Cenovus Energy.

Elsewhere, national defense, commercial aerospace and urban solutions provider ST Engineering gained given a solid order book and relatively visible earnings. The Singapore-based company is expected to benefit in aerospace through more maintenance, repair and overhaul operations due to improving global mobility as well as through strong demand for its passenger-to-freighter aircraft conversions. Defense spending remains elevated due to geopolitical tensions and the urban solutions business is well positioned for continued smart city investments. An underweight to information technology (IT) as well as broadly more defensive positioning in the sector contributed to relative returns as the technology cycle appears to be peaking. Many of these businesses are shorter cycle in nature and do not fit our long-term investment approach. 

Despite this more defensive posture, the Fund was not left unscathed in the IT sell-off. Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung Electronics were some of the largest detractors to returns during the half. Both fell on concerns that supply constraints are easing at the same time that demand is softening after the boost in electronics spending following the move to work from home during the pandemic. Fellow semiconductor-related player Leeno Industrial also fell. The South Korean maker of pins and test sockets for the chip industry declined partially as it entered the year at elevated valuations following excellent 2021 results. Additionally, slowing smartphone sales in China are likely to impact demand and cause lower sequential growth in 2022, while higher input costs could hurt margins.

Outside of technology, the greatest detractor to returns came from one of last year’s strongest performers for the Fund, Techtronic Industries. The power tool company experienced concerns that its previously impressive growth numbers would not be sustainable. Higher input costs may hurt margins, floor care demand is weak and rising mortgage costs alongside reopening may hurt DIY demand in the U.S., which is the company’s largest market. We believe that these issues are overstated.

Notable Portfolio Changes:

We added two new positions during the second quarter. The first of these was an investment in a Hansoh Pharmaceutical Group convertible bond. The company is one of the largest pharmaceutical businesses in China with solid positions in multiple therapeutic areas such as central nervous system and oncology. Management has done a robust job in increasingly focusing on innovative drugs and these factors provide it with reasonable cash flow generation to accompany its net cash balance sheet. Despite being a strong credit, the bond offered us an attractive 6.4% yield to put. We also initiated a position in Computer Age Management Services in India. The company is the largest registrar and transfer agent for mutual funds in the country with a strong moat given good relationships with clients demonstrated by a 65% market share domestically. We expect the company to deliver sustainable double-digit growth as mutual fund assets under management grow, supplemented by growth in its non-mutual fund business in alternative investment funds, account aggregation and central recordkeeping. The stock is attractively valued in an Indian context at 35x P/E and a 1.9% dividend yield.

These were partially funded through exiting a position in LG H&H in South Korea following disappointing earnings results. We remain concerned that the company has an over-reliance on its “Whoo” brand.

Outlook:

A considerable risk remains that the current inflationary shocks get embedded in wage demands, further compounding what some argue to be structural inflation drivers such as energy transition and deglobalization. Walking the tightrope of reducing these inflationary concerns through tighter policy whilst also maintaining full employment is likely to prove challenging and, with this, the probability of a recession or stagflation in the West has grown. This has also set the cost of capital higher across the globe. That said, recent negative price action in commodities given weaker expected demand may ease this path.

For Asia, recession risks are lesser given where most economies are in their business cycles having been relatively slower to recover after reopening, albeit none are immune to the potential of a weakening external demand environment. In China’s case, it is likely better positioned given policy flexibility as inflation is less of an issue. It is expected that some form of stimulus will take place there in order to provide an offset to soft consumption caused by the stop-start nature of a zero-COVID policy and a struggling property market.

At a micro level, valuations for the Asia region are reasonable although not especially cheap at 12.5x P/E with expectations that are likely to decline from the 11% growth that is currently anticipated. It is our belief that the strategy is well positioned for this potentially volatile macroeconomic backdrop that may exhibit uneven growth. In environments such as this, quality companies with strong cash flow generation, relatively visible earnings growth and some form of income look appealing. The portfolio’s focus on buying such names at reasonable valuations should enable the fund to navigate such choppy waters.

 

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 - MACSX as of 06/30/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-18.41% 0.82% 1.80% 3.90% 8.07% 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 1.07%
Yields as of 06/30/2022
30-Day SEC Yield 1.79%
30-Day SEC Yield (excluding expense waiver) 1.79%
Dividend Yield 2.72%

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.

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.