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Asia Fixed Income

Matthews Asia Credit Opportunities Fund

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

30/09/2015

Inception Date

-1.42%

YTD Return (USD)

(as of 19/01/2021)

$9.74

Price (USD)

(as of 19/01/2021)

$22.03 million

Fund Assets

(as of 31/12/2020)

Objective

Total return over the long term.

Strategy

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 65% of its net assets in income-producing securities including, but not limited to, debt and debt-related instruments and derivative instruments with fixed income characteristics, issued by governments, quasi-governmental entities, supra-national institutions and companies in Asia. On an ancillary basis, the Fund may invest in dividend-paying equity securities of the foregoing issuers. Investments may be denominated in any currency, and may represent any part of a company’s capital structure from debt to equity or with features of both.

Risks

The value of an investment in the Fund can go down as well as up and possible loss of principal is a risk of investing. Investments in international and emerging market 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. The Fund may invest in the following: derivatives which can be volatile and affect Fund performance; high yield bonds (junk bonds) which can subject the Fund to substantial risk of loss; and structured investments which can change the risk or return, or replicate the risk or return of an underlying asset. The Fund invests in holdings denominated in foreign currencies, and is exposed to the risk that the value of the foreign currency will increase or decrease.

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

Fund Facts
Inception Date 30/09/2015
Fund Assets $22.03 million (31/12/2020)
Base Currency USD
ISIN: LU1275263116 (USD) LU1275263389 (GBP)
Bloomberg Symbol MACOIUS:LX (USD) MACOIGB:LX (GBP)
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
Management Fee 0.65%
Total Expense Ratio As of 31/03/2020 1.25% ( USD ) 1.25% ( GBP )

Performance

  • Monthly
  • Quarterly
  • Calendar Year
  • Rolling 12 Month
    Returns
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As of 31/12/2020
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Credit Opportunities Fund (USD)
1.61% 4.14% 0.93% 0.93% 3.34% 5.67% n.a. 5.83% 30/09/2015
J.P. Morgan Asia Credit Index (USD)
0.64% 1.82% 6.33% 6.33% 5.52% 5.63% n.a. 5.62%
Matthews Asia Credit Opportunities Fund (GBP)
-0.95% -2.18% -2.52% -2.52% 2.96% 7.42% n.a. 7.97% 30/09/2015
J.P. Morgan Asia Credit Index (GBP)
-1.71% -3.71% 3.05% 3.05% 5.15% 7.23% n.a. 7.70%
As of 31/12/2020
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Credit Opportunities Fund (USD)
1.61% 4.14% 0.93% 0.93% 3.34% 5.67% n.a. 5.83% 30/09/2015
J.P. Morgan Asia Credit Index (USD)
0.64% 1.82% 6.33% 6.33% 5.52% 5.63% n.a. 5.62%
Matthews Asia Credit Opportunities Fund (GBP)
-0.95% -2.18% -2.52% -2.52% 2.96% 7.42% n.a. 7.97% 30/09/2015
J.P. Morgan Asia Credit Index (GBP)
-1.71% -3.71% 3.05% 3.05% 5.15% 7.23% n.a. 7.70%
For the years ended December 31st
Name 2020 2019 2018 2017 2016
Matthews Asia Credit Opportunities Fund (USD)
0.93% 14.04% -4.13% 8.16% 10.42%
J.P. Morgan Asia Credit Index (USD)
6.33% 11.35% -0.77% 5.77% 5.81%
Matthews Asia Credit Opportunities Fund (GBP)
-2.52% 10.68% 1.18% -1.38% 32.84%
J.P. Morgan Asia Credit Index (GBP)
3.05% 7.05% 5.40% -3.38% 26.21%
For the period ended 31/12/2020
Name 2020 2019 2018 2017 2016 Inception Date
Matthews Asia Credit Opportunities Fund (USD)
0.93% 14.04% -4.13% 8.16% 10.42% 30/09/2015
J.P. Morgan Asia Credit Index (USD)
6.33% 11.35% -0.77% 5.77% 5.81%
Matthews Asia Credit Opportunities Fund (GBP)
-2.52% 10.68% 1.18% -1.38% 32.84% 30/09/2015
J.P. Morgan Asia Credit Index (GBP)
3.05% 7.05% 5.40% -3.38% 26.21%

Source: Brown Brothers Harriman (Luxembourg) S.C.A., Index data from J.P. Morgan.

Since inception performance for share classes with less than one year of history represents actual performance, not annualised. In addition, for share classes less than a year old, Year to Date Return is calculated since inception. Where no past performance is shown there was insufficient data available in that year to provide performance.

Performance details provided are based on a NAV-to-NAV basis with any dividends reinvested, and are net of management fees and other expenses. Performance data has been calculated in the respective currencies stated above, including ongoing charges and excluding subscription fee and redemption fee you might have to pay.

All performance quoted represents past performance and is not indicative of future performance. Investors may not get back the full amount invested. Investors investing in funds denominated in non-local currency should be aware of the risk of currency exchange fluctuations that may cause a loss of principal.

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

Yield

(as of 31/12/2020)
6.94% Yield to Worst

Source: FactSet Research Systems, Bloomberg, Matthews

Portfolio Characteristics

(as of 31/12/2020)
3.1
Modified Duration
29
Number of Positions

Source: Brown Brothers Harriman (Luxembourg) S.C.A

Top 10 Positions

(as of 31/12/2020)
Name Sector Currency % Net Assets
Network i2i, Ltd., 5.650%, 04/15/2068 Communication Services U.S. Dollar 5.8
Wanda Properties International Co., Ltd., 7.250%, 01/29/2024 Real Estate U.S. Dollar 5.4
Indika Energy Capital III Pte, Ltd., 5.875%, 11/09/2024 Energy U.S. Dollar 5.3
ABJA Investment Co. Pte, Ltd., 5.450%, 01/24/2028 Materials U.S. Dollar 5.3
Viet Nam Debt & Asset Trading Corp., 1.000%, 10/10/2025 Financials U.S. Dollar 5.0
Logan Group Co., Ltd., 5.250%, 02/23/2023 Real Estate U.S. Dollar 4.8
Tata Motors, Ltd., 5.875%, 05/20/2025 Consumer Discretionary U.S. Dollar 4.8
Honghua Group, Ltd., 6.375%, 08/01/2022 Energy U.S. Dollar 4.5
Luye Pharma Group, Ltd., Cnv., 1.500%, 07/09/2024 Health Care U.S. Dollar 4.1
Poseidon Finance 1, Ltd., Cnv., 0.000%, 02/01/2025 Financials U.S. Dollar 4.0
TOTAL 49.0

Top 10 holdings may combine more than one security from the same issuer and related depositary receipts.
Source: Brown Brothers Harriman (Luxembourg) S.C.A

Portfolio Breakdown (%)

(as of 31/12/2020)
  • Sector Allocation
  • Country Allocation
  • Currency Allocation
  • Quality Distribution
  • Asset Type Breakdown
Sector Fund
Real Estate 29.6
Consumer Discretionary 14.6
Financials 12.3
Energy 12.1
Materials 9.9
Communication Services 7.3
Health Care 4.1
Industrials 2.5
Foreign Government Bonds 2.5
Cash and Other Assets, Less Liabilities 5.1

"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 44.7
Indonesia 17.2
India 15.8
Vietnam 7.5
Switzerland 4.6
Philippines 3.6
South Korea 1.5
Cash and Other Assets, Less Liabilities 5.1

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 3.1
Quality Distribution Fund
BBB- 4.6
BB+ 2.3
BB 17.1
BB- 16.4
B+ 22.5
B 5.4
B- 3.0
CCC+ 3.2
Not Rated 20.4
Cash and Other Assets, Less Liabilities 5.1

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 75.6
Convertible Bonds 11.8
Government Bonds 7.5
Cash and Other Assets, Less Liabilities 5.1

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

Source: FactSet Research Systems 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.

Ratings

  • OVERALL
  • 3 YEAR
  • 5 YEAR

Past performance is no guarantee of future results. High ratings and rankings does not assure favorable performance.

Overall Morningstar RatingTM is reflective of the USD Accumulation Share class. Fund ratings represent an opinion only and are not a recommendation to buy or sell any fund. Copyright ©2020 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is provided for reference purposes only.

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.

Portfolio Managers

Teresa  Kong, CFA photo
Teresa Kong, CFA

Lead Manager

Satya  Patel photo
Satya Patel

Lead Manager

Distributions

Currency Record Date Ex Date Reinvest Date Payment Date Income Distributions
USD 15/12/2020 16/12/2020 17/12/2020 31/12/2020 $0.148231
GBP 15/12/2020 16/12/2020 17/12/2020 31/12/2020 £0.164011
USD 28/09/2020 29/09/2020 30/09/2020 06/10/2020 $0.149573
GBP 28/09/2020 29/09/2020 30/09/2020 06/10/2020 £0.177483
USD 24/06/2020 25/06/2020 26/06/2020 02/07/2020 $0.153791
GBP 24/06/2020 25/06/2020 26/06/2020 02/07/2020 £0.179179
USD 25/03/2020 26/03/2020 27/03/2020 02/04/2020 $0.161264
GBP 25/03/2020 26/03/2020 27/03/2020 02/04/2020 £0.212289
USD 16/12/2019 17/12/2019 18/12/2019 30/12/2019 $0.164296
GBP 16/12/2019 17/12/2019 18/12/2019 30/12/2019 £0.186996
USD 16/09/2019 17/09/2019 18/09/2019 30/09/2019 $0.166262
GBP 16/09/2019 17/09/2019 18/09/2019 30/09/2019 £0.195410
USD 17/06/2019 18/06/2019 19/06/2019 28/06/2019 $0.153289
GBP 17/06/2019 18/06/2019 19/06/2019 28/06/2019 £0.178505
USD 15/03/2019 18/03/2019 19/03/2019 29/03/2019 $0.136563
GBP 15/03/2019 18/03/2019 19/03/2019 29/03/2019 £0.154712
View History

 

The Fund may, at its discretion, pay dividends out of the capital or effectively out of capital in respect of the distribution shares. Dividends may be distributed out of gross income while all or part of the fees and expenses are paid out of capital, resulting in an increase in distributable income for the payment of dividends and, therefore, the Fund may effectively pay dividend out of capital. Payment of dividends out of capital and/or effectively out of capital represents a return or withdrawal of part of an investor's original investment, or from any capital gains attributable to that original investment. Any distribution may result in an immediate reduction of the net asset value per share of the Fund.

Please note that a positive distribution yield does not imply a positive return, and past yields are no guarantee of future yields. 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.

As of April 1, 2014, distributions for this class of the sub fund will pay gross income which may result in expenses being paid out of capital and thereby limit an investor’s potential to generate total return and income.

Commentary

Period ended 30 September 2020

For the quarter ending 30 September 2020, the Matthews Asia Credit Opportunities Fund returned 2.66% (A Dist) and 2.83% (I Dist) while its benchmark, the JP Morgan Asia Credit Index (JACI) returned 2.12%. 

Market Environment:

The third quarter was characterized initially by optimism and improvement in market sentiment before market conditions deteriorated near the end of the quarter. The average spread of JACI was 18 basis points (0.18%) tighter on the quarter. The average spread of the high yield portion of JACI was 34 basis points (0.34%) tighter in the quarter.

A number of factors whip-sawed risk sentiment. Throughout the quarter, news flow pointed to progress in the race to manufacture an effective COVID-19 vaccine. Beyond the potential forced sale of TikTok’s U.S. operations, there was no significant deterioration in U.S. – China relations. Toward the end of the quarter, sentiment shifted, with daily confirmed COVID cases rising in the U.S. and Europe and a lack of progress on a second round of stimulus in the U.S. With the U.S. election quickly approaching, markets focused on the uncertainty, in particular regarding the accuracy of final vote count as well as a potential messy transfer of power.

Within Asian credit, China was the single largest contributor to positive performance, given its large index weight and positive performance. During the third quarter, one of the most significant negative news for Chinese companies came from the large property developer Evergrande. A letter circulated suggesting the company was seeking government support and considering a restructuring. Even though the company denied the authenticity of the letter, it was enough to drive credit spreads wider across Asia. We believe Evergrande’s issues to be idiosyncratic and not an indication of the overall health of Chinese developers. We have avoided companies such as Evergrande on credit concerns and generally prefer higher quality Chinese property names.

Performance Contributors and Detractors:

Long-duration investment-grade names, such as Syngenta and China Jinmao perpetual bonds contributed to performance during the quarter as investors reached for yield without straying too far from credit quality. Across the board, high yield companies generally did well and had positive performance in the quarter. The top returning sector continued to be Chinese property developers, with China Jinmao and Dalian Wanda as the two biggest contributors to outperformance.   

The top detractors were perpetual bonds of Philippines fast-food conglomerate Jollibee, convertible bonds of Baozun, a Chinese e-commerce solutions company, and PB International, an Indonesian textile manufacturer. Jollibeehas been experiencing an uneven recovery from COVID. However, given the long-term operating track record of the company, we believe the bonds have long-term upside potential. Pan Brothers faces market scrutiny due to its upcoming bank loan refinancing needs, but we feel comfortable holding the bond due to the continued strength in operations, which have been buoyed by a shift towards manufacturing of personal protective equipment.

Notable Portfolio Changes: 

During the third quarter, we exited Cikarang Listrindo, an Indonesian company. These bonds had recovered quite well, and we felt there was limited remaining upside. We also exited the contingent convertible securities of HSBC.

We added bonds issued by Tata Motors after the company committed to significantly reducing its outstanding debt in the next few years. We also added bonds of Poseidon Finance, a financing vehicle of China Shipbuilding Investment Corporation that are exchangeable into shares of Postal Savings Bank in China. While Postal Savings Bank equity will continue to come under pressure, the credit quality of China Shipbuilding Investment Corporation, as a wholly owned central government enterprise, is that of a quasi-sovereign. The yield on the bonds reflected the challenging outlook for the underlying equity, but compensates well for the minimal default risk.

Outlook:

Looking ahead, there are numerous uncertainties on the horizon in the coming quarters. With voting already underway in the United States, the November election will give markets a direction after a rollercoaster year. Even with the election settled, the true extent of the coronavirus spread in U.S. and emerging markets remains uncertain, with an imminent vaccine more of a hope than a foregone conclusion at this point.  

As markets continue to assess the uncertainties mentioned above, we expect idiosyncratic risks and company specific risks to be the dominant concern. We believe the market will focus on determining the degree to which a sector and company is impacted by the pandemic. As a result, dispersion between geographical regions and between different credit qualities will in our view increase going forward. Given the high macro risks, we continue to favor companies with good credit quality and low liquidity risks, which should give them the best buffers to withstand macro uncertainties.

Looking still further ahead, we note that the importance of geopolitics will not wane once the U.S. election is decided, particularly between the U.S. and China, where trade and intellectual property disputes can be expected to continue for years to come. In addition to U.S. – China relations, we are increasingly worried about uncertainties in U.S. election vote counting as well as implications of a potential disruptive power transfer in U.S. Although this is a small probability tail risk, we believe it deserves further attention.

Rolling 12 Month Returns For the period ended 31/12/2020 - I (Dist)
Name 2020 2019 2018 2017 2016 Inception Date
Matthews Asia Credit Opportunities Fund (USD)
0.93% 14.04% -4.13% 8.16% 10.42% 30/09/2015
J.P. Morgan Asia Credit Index (USD)
6.33% 11.35% -0.77% 5.77% 5.81%
Matthews Asia Credit Opportunities Fund (GBP)
-2.52% 10.68% 1.18% -1.38% 32.84% 30/09/2015
J.P. Morgan Asia Credit Index (GBP)
3.05% 7.05% 5.40% -3.38% 26.21%

Sources: Brown Brothers Harriman (Luxembourg) S.C.A, Matthews Asia, FactSet Research Systems, Bloomberg

Performance figures discussed in the Fund Manager Commentary above reflect that of the Institutional Accumulation Class Shares and has been calculated in USD. Performance details provided for the Fund are based on a NAV-to-NAV basis, with any dividends reinvested, and are net of management fees and other expenses. Past performance information is not indicative of future performance. Investors may not get back the full amount invested.

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. Matthews Asia and its affiliates do not accept any liability for losses either direct or consequential caused by the use of this information.

Information contained herein is sourced from Matthews Asia unless otherwise stated. The views and opinions in this commentary were as of the report date, subject to change and may not reflect the writer’s 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.

Investors should not invest in the Fund solely based on the information in this material alone. Please refer to the Prospectus for further details of the risk factors. 

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