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Fixed Income

Matthews Asia Total Return Bond Fund

The Fund's name changed from the Matthews Asia Strategic Income Fund to the Matthews Asia Total Return Bond Fund on 25 May 2020.

Snapshot
  • Unconstrained, total return strategy seeking high, risk-adjusted returns through credit, currencies and interest rates
  • Fundamental, bottom-up investment process to generate alpha
  • Designed to comple­ment an emerging market or international fixed income strategy and augment allocation to Asia

Read important information and other investment disclosures

29/08/2014

Inception Date

-0.99%

YTD Return (USD)

(as of 19/01/2021)

$12.94

Price (USD)

(as of 19/01/2021)

$61.27 million

Fund Assets

(as of 31/12/2020)

Objective

Total return over the long term with an emphasis on income.

Strategy

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 65% of its total assets, which include borrowings for investment purposes, in income-producing securities including, but not limited to, debt and debt-related instruments issued by governments, quasi-governmental entities, supra-national institutions, and companies in Asia. 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 29/08/2014
Fund Assets $61.27 million (31/12/2020)
Base Currency USD
ISIN: LU1061983224 (USD)
Bloomberg Symbol MSIFIAU:LX (USD)
Benchmark 50% Markit iBoxx Asian Local Bond Index, 50% J.P. Morgan Asia Credit Index Markit iBoxx Asian Local Bond 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 )

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 Total Return Bond Fund (USD)
2.03% 5.23% 6.09% 6.09% 4.57% 6.30% n.a. 4.31% 29/08/2014
50% Markit iBoxx Asian Local Bond Index, 50% J.P. Morgan Asia Credit Index (USD)
1.20% 3.70% 7.95% 7.95% 5.74% 5.87% n.a. 4.45%
Markit iBoxx Asian Local Bond Index (USD)
1.76% 5.61% 9.55% 9.55% 5.93% 6.07% n.a. 3.90%
As of 31/12/2020
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Total Return Bond Fund (USD)
2.03% 5.23% 6.09% 6.09% 4.57% 6.30% n.a. 4.31% 29/08/2014
50% Markit iBoxx Asian Local Bond Index, 50% J.P. Morgan Asia Credit Index (USD)
1.20% 3.70% 7.95% 7.95% 5.74% 5.87% n.a. 4.45%
Markit iBoxx Asian Local Bond Index (USD)
1.76% 5.61% 9.55% 9.55% 5.93% 6.07% n.a. 3.90%
For the years ended December 31st
Name 2020 2019 2018 2017 2016 2015
Matthews Asia Total Return Bond Fund (USD)
6.09% 12.31% -4.02% 9.06% 8.83% -1.03%
50% Markit iBoxx Asian Local Bond Index, 50% J.P. Morgan Asia Credit Index (USD)
7.95% 10.18% -0.60% 8.39% 3.79% -0.05%
Markit iBoxx Asian Local Bond Index (USD)
9.55% 8.99% -0.44% 11.04% 1.73% -2.88%
For the period ended 31/12/2020
Name 2020 2019 2018 2017 2016 Inception Date
Matthews Asia Total Return Bond Fund (USD)
6.09% 12.31% -4.02% 9.06% 8.83% 29/08/2014
50% Markit iBoxx Asian Local Bond Index, 50% J.P. Morgan Asia Credit Index (USD)
7.95% 10.18% -0.60% 8.39% 3.79%
Markit iBoxx Asian Local Bond Index (USD)
9.55% 8.99% -0.44% 11.04% 1.73%

Source: Brown Brothers Harriman (Luxembourg) S.C.A., Index data from iBoxx (Markit).

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.

Effective May 25, 2020, the Fund changed its benchmark to a blended benchmark comprised of 50% Markit iBoxx Asian Local Bond Index (ALBI) and 50% J.P. Morgan Asia Credit Index (JACI). Prior to that, the Fund's benchmark was the Markit iBoxx Asian Local Bond Index. Matthews believes that the blended benchmark is more appropriate in light of the Fund's current investment strategy.

As of May 1, 2016, the HSBC Asian Local Bond Index became the Markit iBoxx Asian Local Bond Index.

Yield

(as of 31/12/2020)
6.34% Yield to Worst

Source: FactSet Research Systems, Bloomberg, Matthews

Portfolio Characteristics

(as of 31/12/2020)
3.9
Modified Duration
39
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 5.9
Viet Nam Debt & Asset Trading Corp., 1.000%, 10/10/2025 Financials U.S. Dollar 5.0
Times China Holdings, Ltd., 6.200%, 03/22/2026 Real Estate U.S. Dollar 4.6
Wanda Properties International Co., Ltd., 7.250%, 01/29/2024 Real Estate 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
CIFI Holdings Group Co., Ltd., 6.700%, 04/23/2022 Real Estate China Renminbi 3.9
Indonesia Government Bond, 7.000%, 05/15/2027 Foreign Government Bonds Indonesian Rupiah 3.7
King Talent Management, Ltd., 5.600%, 06/04/2068 Financials U.S. Dollar 3.7
KWG Group Holdings, Ltd., 5.875%, 11/10/2024 Real Estate U.S. Dollar 3.7
TOTAL 43.1

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 24.9
Foreign Government Bonds 23.8
Financials 16.6
Communication Services 9.0
Consumer Discretionary 6.5
Health Care 4.1
Materials 4.0
Energy 3.9
Industrials 0.6
Cash and Other Assets, Less Liabilities 6.7

"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 41.8
Indonesia 12.7
India 12.3
Philippines 7.5
Malaysia 6.5
Thailand 5.1
Vietnam 5.0
South Korea 1.7
Switzerland 0.7
Cash and Other Assets, Less Liabilities 6.7

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 41.8 1.7
South Korean Won 10.4 0.0
China Renminbi 10.3 0.2
Singapore Dollar 9.5 0.0
Indonesian Rupiah 6.9 0.5
Malaysian Ringgit 6.8 0.7
Philippines Peso 5.6 0.1
Thailand Baht 5.3 0.7
Indian Rupee 3.5 0.0
Quality Distribution Fund
A- 6.5
BBB+ 5.1
BBB 12.2
BBB- 0.7
BB+ 0.2
BB 12.7
BB- 16.9
B+ 12.5
B 2.7
CCC+ 3.2
Not Rated 20.6
Cash and Other Assets, Less Liabilities 6.7

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 54.8
Government Bonds 28.8
Convertible Bonds 9.7
Cash and Other Assets, Less Liabilities 6.7

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

Co-Manager

Wei  Zhang photo
Wei Zhang

Co-Manager

Commentary

Period ended 31 Decemember 2020

For the year ending 31 December 2020, the Matthews Asia Total Return Fund returned 6.09% (I ACC) and 6.07% (I Dist), while its benchmark, the 50% Markit iBoxx Asian Local Bond/ 50% J.P. Morgan Asia Credit Index returned 7.95%. For the fourth quarter of the year, the Fund returned 5.23% (I ACC) and 5.15% (I Dist) versus 5.61% for the Index. 

Market Discussion:

Just as the COVID-19 pandemic re-shaped our daily lives, it also reshaped markets. Sectors that were traditionally considered risky, such as IT became darlings as work-from-home became “safe” while traditionally “safe” sectors like gaming and real estate investment trusts (REITs) became “risky” as all sectors faced a new paradigm of virtual over bricks and mortar. The theme of safety, and safety over risky, dominated all asset classes. Investment grade outperformed high yield, developed markets (DM) rates outperformed emerging markets (EM) rates, gold outperformed copper and oil. Within Asia high yield, companies with little liquidity risks outperformed those with more murky stories. The equity market was no different, favoring safe themes such as companies that benefited from stay-at-home or tech names that benefited from secular growth trends. Growth vastly outperformed value, with the S&P 500 Growth Index returning 20% for the first three quarters of 2020 compared to the S&P 500 Value Index which returned -14%, a gap of 34%. Growth represented safety while value represented risk as cyclical companies were the most affected by the pandemic.

In the fourth quarter, as people grew weary of continued lock-downs, the market charted a new direction. With the announcement of successful vaccine trials, the mood turned decidedly risk-on. High yield outperformed investment grade, EM (including Asia) outperformed U.S. equities, local currencies rose versus the U.S. dollar, and U.S. treasury yields rose. Up until then, these fourth quarter outperformers had been among the biggest losers of the year.

Within Asian local bonds, the Philippines was the top performer in 2020, followed by Taiwan, Malaysia, and China. However, in the fourth quarter, the top performers were Indonesia and Thailand which were hit hard by the pandemic due to their reliance on tourism, as well as commodities exports in the case of Indonesia. China bonds benefited from the country’s relative success in virus containment, greater government measures to open up the local bond market to foreign investment, as well as greater foreign investment interest due to the decline in rates across the DM world.

Performance Contributors and Detractors:

The Fund’s top contribution to performance came from our overweight to U.S. dollar-denominated high yield credit and allocation to local-currency Chinese credit. However, an underweight to local rates, such as Hong Kong, Singapore and India, as well as an underweight to U.S. dollar-denominated investment grade credit detracted from performance. By currency, our overweights in Chinese renminbi, Singaporean dollar and South Korean won contributed positively, while exposures in Indian rupee and Indonesian rupiah detracted from performance.

The top contributors to Fund performance during the fourth quarter came from U.S. dollar-denominated high yield credit. In terms of country allocation, exposures to South Korea currency and Indonesian local bonds contributed. The top detractors came from China and India, where we have a slight underweight in terms of rates. Currency contributed positively to performance in the quarter, led by our overweights in Chinese renminbi and South Korean won, while the portfolio’s overweight in Indonesian rupiah detracted slightly.

Notable Portfolio Changes:

We started 2020 with a focus on boosting duration, adding investment grade-rated credit in local Chinese renminbi bonds and U.S. dollar-denominated bonds. As the virus sell-off intensified, we began to look for value among bonds most punished and continued to do so throughout the second quarter. This included adding to some perpetual bonds and highly-rated long-duration bonds, such as Geely, JD.com, and Syngenta. These bonds had suffered from illiquidity risk and the dash-for-cash panic, but are fundamentally strong companies that we believe are capable of weathering prolonged financial stress. In the third quarter, as governments worldwide focused on providing ample stimulus, the risk appetite of the market grew. We took profits on some investment grade names, such as JD.com, Geely and Weibo that had rebounded quickly. We believed value remained in many high yield bonds, which had not recovered as quickly and began boosting allocation to high yield bonds again, such as by adding Times China. We also added local currency exposure.

In the fourth quarter, we exited Chinese apparel maker Bosideng as it had rallied substantially and hit our price target. We added the convertible bonds of South Korean internet company Kakao (Daum) to increase exposure to the high-growth tech sector. We also added Powerlong, a commercial real estate developer in China, to diversify our Chinese real estate exposure which had been concentrated on residential development. In terms of currency, we added exposure to Indonesian rupiah, Korean won, Singaporean dollar, and Indian rupee in anticipation of local currency outperformance versus the U.S. dollar on the back of global risk-on sentiment. 

Outlook:

The big question for 2021 is whether we are entering the start of a new macro trend, the much anticipated “value rotation” or cyclical risk-on. With new lockdown restrictions in countries with a new COVID strain, the value rotation could seem premature. However, governments and central banks globally seem committed to providing stimulus to help the sectors most hit by COVID—largely value sectors such as retail, banks, energy and industrials. Therefore, we think it’s unlikely that stimulus will be withdrawn before the recovery in value sectors seem more certain. As such, we believe Asia high yield credit and local currencies—considered “value” in the bond space—could continue to outperform.

With the market expecting a higher chance of U.S. stimulus and significantly more virus spread, U.S. 10-year treasury increased 23 basis points (0.23%) during the quarter. We believe U.S. interest rates have some scope to rise as inflation and economic activity normalizes in 2021, but don’t expect it to be a sharply disruptive move. In Asia, we expect to see relatively muted movements in interest rates for most countries. China bonds acted as a diversifier in the fourth quarter and we continue to believe they have the long-term potential to become a source of safety and diversification, similar to the roles played by other DM Asia rates and U.S. treasuries.

Given this backdrop, we are positioning our portfolio with a mild underweight to U.S. dollar-denominated securities and interest rate duration. We expect spreads to continue its march tighter as spreads continue to be wide relative to its history, as well as relative to similar quality issuers in U.S. and other EM regions. We also expect technicals to remain favorable as demand outstrips supply as we expect issuance from the biggest issuers, the Chinese real estate sector, to remain subdued as regulators limit leverage in the industry. In summary, we seek to position our portfolio to benefit from tail winds of credit spread tightening and Asia currency appreciation while mitigating mild headwinds from likely interest rate rises and further steepening of yield curves.

 

Rolling 12 Month Returns For the period ended 31/12/2020 - I (Acc)
Name 2020 2019 2018 2017 2016 Inception Date
Matthews Asia Total Return Bond Fund (USD)
6.09% 12.31% -4.02% 9.06% 8.83% 29/08/2014
50% Markit iBoxx Asian Local Bond Index, 50% J.P. Morgan Asia Credit Index (USD)
7.95% 10.18% -0.60% 8.39% 3.79%
Markit iBoxx Asian Local Bond Index (USD)
9.55% 8.99% -0.44% 11.04% 1.73%

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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