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
A focus on Asia—and providing compelling investment solutions for our clients—is what we believe distinguishes us among investment managers. Our insights into investment opportunities and risks are backed by proprietary research, a collaborative culture and nearly 30 years of experience.
30/09/2015
Inception Date
-0.88%
YTD Return (USD)
(as of 26/01/2021)
$9.75
Price (USD)
(as of 26/01/2021)
$22.03 million
Fund Assets
(as of 31/12/2020)
Total return over the long term.
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.
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.
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 |
Management Fee | 0.65% | |
Total Expense Ratio As of 31/03/2020 | 1.25% ( USD ) 1.25% ( GBP ) |
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.
Source: FactSet Research Systems, Bloomberg, Matthews
Source: Brown Brothers Harriman (Luxembourg) S.C.A
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
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.
Lead Manager
Portfolio Manager
Teresa Kong is a Portfolio Manager at Matthews Asia and manages the firm’s Asia Total Return Bond and Asia Credit Opportunities Strategies. Prior to joining Matthews Asia in 2010, she was Head of Emerging Market Investments at Barclays Global Investors, now known as BlackRock, and responsible for managing the firm’s investment strategies in Emerging Asia, Eastern Europe, Africa and Latin America. She developed and managed strategies spanning absolute return, active long-only and exchange-traded funds. In addition to founding the Fixed Income Emerging Markets Group at BlackRock, she was also Senior Portfolio Manager and Credit Strategist on the Fixed Income credit team. Previously, Teresa was a Senior Securities Analyst in the High Yield Group with Oppenheimer Funds, and began her career with J.P. Morgan Securities Inc., where she worked in the Structured Products Group and Latin America Capital Markets Group. She received both a B.A. in Economics and Political Science and an M.A. in International Development Policies from Stanford University. She speaks Cantonese fluently and is conversational in Mandarin.
Lead Manager
Portfolio Manager
Satya Patel is a Portfolio Manager at Matthews Asia and manages the firm's Asia Credit Opportunities Strategy and co-manages the Asia Total Return Bond and Asian Growth and Income Strategies. 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.
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.
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 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 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).
Commentary
Period ended 31 December 2020
For the year ending December 31, 2020, the Matthews Asia Credit Opportunities Fund returned 0.48% (A Acc Class) and 0.93% (I Dist Class), while its benchmark, the J.P. Morgan Asia Credit Index returned 6.33%. For the fourth quarter of the year, the Fund returned 4.01% (A Acc Class) and 4.14% (I Dist 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 what we believed were 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.
Rolling 12 Month Returns For the period ended 31/12/2020 - I (Dist)
Sources: Brown Brothers Harriman (Luxembourg) S.C.A, Matthews Asia, FactSet Research Systems, Bloomberg