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
-14.32%
YTD Return (USD)
(as of 28/06/2022)
$7.48
Price (USD)
(as of 28/06/2022)
$27.54 million
Fund Assets
(as of 31/05/2022)
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, emerging and frontier market securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation, which may adversely affect the value of the Fund's assets. 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.
These and other risks associated with investing in the Fund can be found in the prospectus.
Fund Facts
| Inception Date | 30/09/2015 | |
| Fund Assets | $27.54 million (31/05/2022) | |
| 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 31/03/2022 | 1.25% ( USD ) 1.25% ( GBP ) | |
| 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, emerging and frontier market securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation, which may adversely affect the value of the Fund's assets. 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 |
Performance
- Monthly
- Quarterly
- Calendar Year
- Rolling 12 Month
Returns
As of 31/05/2022
As of 31/03/2022
For the years ended December 31st
For the period ended 31/03/2022
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 31/05/2022)
11.54%
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>
| Yield to Worst | 11.54% |
Source: FactSet Research Systems, Bloomberg, Matthews Asia
Portfolio Characteristics
(as of 31/05/2022)2.8
Modified Duration
45
Number of Positions
Source: Brown Brothers Harriman (Luxembourg) S.C.A
| Modified Duration | 2.8 |
| Number of Positions | 45 |
Risk Metrics (3 Yr Return)
(as of 31/05/2022)-1.82%
Alpha
1.63
Beta
118.22%
Upside Capture
149.75%
Downside Capture
-0.35
Sharpe Ratio
-0.42
Information Ratio
6.49%
Tracking Error
71.98
R²
Fund Risk Metrics are reflective of Class I USD DIST shares.
Sources: Zephyr StyleADVISOR
Top 10 Positions
(as of 31/05/2022)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 31/05/2022)- 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.
Ratings
(as of 31/05/2022)
CATEGORY: Asia High Yield Bond
| OVERALL | 5 stars |
| 3 YEAR | 4 stars |
| 5 YEAR | 5 stars |
Past performance is no guarantee of future results. High ratings and rankings does not assure favorable performance.
Overall Morningstar RatingTM is reflective of the noted share class. Fund ratings represent an opinion only and are not a recommendation to buy or sell any fund. Copyright ©2021 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
Lead Manager
Teresa Kong, CFA
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.
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 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.
Distributions
LATEST FIXED INCOME INSIGHTS
Performance figures discussed in the Fund Manager Commentary above reflect that of the Institutional Distribution 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 March 2022
For the quarter ending 31 March 2022, the Matthews Asia Credit Opportunities Fund returned -7.73% (A Dist) and -7.63% (I Dist), while its benchmark, the J.P. Morgan Asia Credit Index returned -6.29%.
Market Discussion:
The Asia credit market continued to be driven by the sell-off in bonds issued by Chinese property developers that began in May 2021. While there have been signs of policy easing from local governments across China, uncertainty, driven by liquidity concerns, continues to weigh on the sector. Many companies are working to meet the cash needs of bond maturities at a time when capital markets are largely shut for the sector and the cash generated by operations has slowed along with property sales. With this backdrop, some developers are facing an added challenge—securing a clean bill of health from auditors as they prepare full year results for 2021.
Outside of China property, Asia credit also navigated headwinds driven by U.S. rates and the war in Ukraine. In the first quarter, there was an unprecedented repricing of U.S. rates expectations. The market shifted from pricing in three rate hikes by February 2023 at the beginning of the year to pricing in nine rate hikes by February 2023 at the end of the first quarter. This led to negative performance for rate sensitive assets, like investment grade credit. The war in Ukraine contributed to risk-off sentiment across Asia high yield. The direct economic linkages between Russia, Ukraine and Asia are generally limited, and while Asia high yield ex-China property was soft in the first quarter, most countries and sectors were fairly well-behaved.
Performance Contributors and Detractors:
Among the biggest contributors to returns were convertible bonds issued by Chinese e-commerce solution provider Baozun, Chinese online video platform company iQIYI, and Australian technology company Xero. All three are convertible bonds, but their performance was driven by different factors. Baozun bonds are puttable in May, and because the company has sufficient cash and liquidity to repurchase the bonds, they’ve accreted towards par. iQIYI announced a US$285 million fundraising from a consortium of investors, demonstrating shareholder support and access to liquidity. Xero’s bonds had sold off after a sharp repricing of technology stocks in the first quarter, and we re-initiated a position in the bonds late in the quarter.
Amongst the biggest detractors to returns were our sub-investment grade rated China property bonds. Issuers including Logan, KWG and Sunac were under pressure in the quarter. All three are large, private sector developers with bond maturities this year. Logan’s situation is particularly challenging, as the company is seeking to extend two onshore bonds, one of which became puttable in March and the other which matured in March. Sunac suffered a ratings downgrade that triggered a put in one of their onshore bonds; the company secured an 18-month extension from bondholders on the maturity. KWG has avoided the liquidity challenges that other developers have faced. However, it does have bond maturities later in the year, and as a single-B rated developer, KWG bonds moved down with the market.
Notable Portfolio Changes:
We made limited changes to the portfolio in the first quarter. We added the convertible bonds of Xero after they sold off with the fall in tech stocks. We also added a handful of contingent convertible bank bonds (commonly referred to as CoCo’s) after a rise in yields driven by the risk-off sentiment following the invasion of Ukraine. This included CoCo’s issued by HSBC, Bangkok Bank and Krung Thai Bank. All three have limited exposure to Russia specifically, and Eastern Europe broadly, and we found the combination of the relatively high yield and short duration attractive for the credit risk in each.
Outlook:
Having gone through two straight years with significant sell-offs—the pandemic in 2020 and the string of defaults in the China property sector in 2021—we expect Asia’s high yield market to continue to be under pressure in the short run, until policy easing from the Chinese government and the end of COVID lockdowns clear the way for an operational recovery in the China property sector. We are beginning to see an acceleration of easing measures from the government. There have been reports that banks are being encouraged to facilitate mortgage and construction loans and support the domestic bond market. We have also seen the government move to support mergers and acquisitions by carving out the acquisition of distressed assets from calculations for the Three Red Lines requirements which define thresholds on borrowings, and by circulating a target list of developers to receive liquidity support from state-owned enterprises (SOEs) through asset sales. However, the full effect of these measures has been muted by the periodic lockdowns by local governments as China continues to pursue a dynamic zero COVID policy. Ultimately, we expect to see continued defaults in the short run as many private developers find it hard to access liquidity through bond markets and to generate sufficient cash to meet their debt obligations through their operations. As policy easing supports both bond issuance and operational recovery in the coming months, we expect to see companies start to recover and for differentiation in performance to increase. We do not expect this the recovery to be “V” shaped, where all companies rally in lockstep, but rather “K” shaped, where the higher quality companies recover but many of the lower quality companies restructure. The Fund’s Chinese property companies in our view are in the higher quality camp that we believe will recover over the coming quarters.
We expect Asian credit markets will continue to be under pressure in the near term, but over the course of the year will present a significant buying opportunity. Asia high yield spreads today are over 300 basis points (3.0%) higher than their long-run average, while U.S. high yield, European high yield and Latin America high yield spreads are all over 150 basis points (1.5%) lower than their long-run average. While the very short run is riddled with uncertainty, we expect in the long run that Asia high yield will rebound from its currently stressed levels.
Rolling 12 Month Returns For the period ended 31/03/2022 - I (Dist)
Sources: Brown Brothers Harriman (Luxembourg) S.C.A, Matthews Asia, FactSet Research Systems, Bloomberg