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Asia 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

-11.01%

YTD Return (USD)

(as of 20/05/2022)

$11.15

Price (USD)

(as of 20/05/2022)

$64.56 million

Fund Assets

(as of 30/04/2022)

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, 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 29/08/2014
Fund Assets $64.56 million (30/04/2022)
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
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 1.03% ( USD )

Performance

  • Monthly
  • Quarterly
  • Calendar Year
  • Rolling 12 Month
    Returns
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As of 30/04/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Total Return Bond Fund (USD)
-1.63% -5.45% -8.70% -9.35% -0.52% 1.16% n.a. 1.77% 29/08/2014
50% Markit iBoxx Asian Local Bond Index, 50% J.P. Morgan Asia Credit Index (USD)
-3.08% -5.95% -7.40% -8.11% 1.11% 2.11% n.a. 2.25%
As of 31/03/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Total Return Bond Fund (USD)
-1.77% -7.18% -7.18% -8.14% 0.11% 1.61% n.a. 2.01% 29/08/2014
50% Markit iBoxx Asian Local Bond Index, 50% J.P. Morgan Asia Credit Index (USD)
-1.93% -4.45% -4.45% -4.33% 2.03% 2.82% n.a. 2.70%
For the years ended December 31st
Name 2021 2020 2019 2018 2017 2016 2015
Matthews Asia Total Return Bond Fund (USD)
-4.13% 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)
-2.80% 7.95% 10.18% -0.60% 8.39% 3.79% -0.05%
For the period ended 31/03/2022
Name 2022 2021 2020 2019 2018 Inception Date
Matthews Asia Total Return Bond Fund (USD)
-8.14% 17.11% -6.73% -1.02% 9.03% 29/08/2014
50% Markit iBoxx Asian Local Bond Index, 50% J.P. Morgan Asia Credit Index (USD)
-4.33% 8.79% 2.05% 3.57% 4.48%

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.

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

 

Yield

(as of 30/04/2022)
9.75% Yield to Worst

Source: FactSet Research Systems, Bloomberg, Matthews Asia

Portfolio Characteristics

(as of 30/04/2022)
3.4
Modified Duration
45
Number of Positions

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

Risk Metrics (3 Yr Return)

(as of 30/04/2022)
-1.60%
Alpha
1.65
Beta
131.51%
Upside Capture
152.53%
Downside Capture
-0.13
Sharpe Ratio
-0.28
Information Ratio
5.80%
Tracking Error
76.43

Fund Risk Metrics are reflective of Class I USD ACC shares.

Sources: Zephyr StyleADVISOR

Top 10 Positions

(as of 30/04/2022)
Name Sector Currency % Net Assets
Viet Nam Debt & Asset Trading Corp., 1.000%, 10/10/2025 Agency U.S. Dollar 5.0
China Development Bank, 3.800%, 01/25/2036 Agency China Renminbi 5.0
Network i2i, Ltd., 5.650%, 04/15/2068 Industrial U.S. Dollar 4.4
Luye Pharma Group, Ltd., Cnv., 1.500%, 07/09/2024 Industrial U.S. Dollar 4.0
Baozun, Inc., Cnv., 1.625%, 05/01/2024 Industrial U.S. Dollar 4.0
Indonesia Government Bond, 7.000%, 05/15/2027 Treasury Indonesian Rupiah 4.0
Wanda Properties International Co., Ltd., 7.250%, 01/29/2024 Financial Institutions U.S. Dollar 4.0
ABJA Investment Co. Pte, Ltd., 5.450%, 01/24/2028 Industrial U.S. Dollar 3.6
Indika Energy Capital III Pte, Ltd., 5.875%, 11/09/2024 Industrial U.S. Dollar 3.4
Franshion Brilliant, Ltd., 6.000%, 02/08/2026 Financial Institutions U.S. Dollar 3.3
TOTAL 40.7

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 30/04/2022)
  • Sector Allocation
  • Country Allocation
  • Currency Allocation
  • Quality Distribution
  • Asset Type Breakdown
Sector Fund
Government Owned, No Guarantee 14.9
Other Financial 13.9
Treasury 13.5
Banking 11.4
Basic Industry 10.3
Consumer Cyclical 9.7
Communications 7.5
Technology 6.8
Government Guaranteed 5.0
Consumer Non-Cyclical 4.0
Cash and Other Assets, Less Liabilities 3.1

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.

By issuer's country of risk Fund
China/Hong Kong 45.2
India 16.7
Indonesia 10.8
Thailand 9.2
Malaysia 6.6
Vietnam 5.0
South Korea 1.5
New Zealand 1.1
Taiwan 0.6
Singapore 0.4
Cash and Other Assets, Less Liabilities 3.1

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 65.7 1.8
China Renminbi 7.3 0.7
South Korean Won 7.0 0.0
Singapore Dollar 6.2 0.1
Indonesian Rupiah 5.7 0.3
Malaysian Ringgit 4.3 0.3
Thai Baht 3.8 0.3
Quality Distribution Fund
A- 4.3
BBB+ 3.8
BBB 5.5
BBB- 5.2
BB+ 7.4
BB 18.1
BB- 8.6
B+ 3.3
B 5.9
CCC+ 2.0
CCC 0.6
Not Rated 32.4
Cash and Other Assets, Less Liabilities 3.1

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 60.0
Government Bonds 18.5
Convertible Bonds 18.4
Cash and Other Assets, Less Liabilities 3.1

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 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 photo
Teresa Kong, CFA

Lead Manager

Satya  Patel photo
Satya Patel

Co-Manager

Wei  Zhang photo
Wei Zhang

Co-Manager

Commentary

Period ended 31 March 2022

For the quarter ending 31 March 2022, the Matthews Asia Total Return Bond Fund returned -7.18% (I Acc) and -7.32% (I Dist), while its benchmark, the 50% Markit iBoxx Asian Local Bond/ 50% J.P. Morgan Asia Credit Index returned -4.45%.

Market Environment:

Market sentiment deteriorated significantly in the first quarter of the year with the average spread for high yield 124 basis points (1.24%) wider on the quarter, driven mostly by changes in China high yield real estate.  On interest rate and currency, the key themes for the first quarter were inflation and expectations of U.S. rate hikes. Inflation expectations were further exacerbated by the unexpected conflict between Russia and Ukraine which further pushed up energy prices. The latest inflation developments have caused the U.S. Federal Reserve to quicken its path of rate hikes. Higher U.S. interest rates also provided strength to the U.S. dollar, which appreciated against most Asian currencies in the first quarter. Expectations of higher U.S. interest rates and higher domestic inflation in most of Asian countries has also meant higher local interest rates.

The deterioration in China high yield real estate sector is mainly driven by continued defaults of weaker players in the sector and the lack of substantial improvement in contracted sales. While we have seen macro policies on real estate to continue to ease, the recovery is hampered by sporadic COVID-19 outbreaks in key cities such as Shenzhen and Shanghai. Sentiment deteriorated further until China’s Financial Stability and Development Committee made a public announcement reassuring the market that further policies will be implemented to stabilize the sector. Market sentiment has seen a partial recovery on the announcement while cautiously waiting for further specific policy implementation.

Performance Contributors and Detractors:

The Fund’s Chinese corporate bonds, including Logan Group, KWG Group and Times China underperformed the benchmark due to an overweight in China real estate and selection effect. All three are China real estate developers impacted by the overall China real estate tight funding conditions.  On the other hand, by currency, South Korea, Philippines and Indonesia outperformed on the back of both selection and underweight relative to the benchmark. Within the corporate bond portion of the portfolio, Baozun, iQiyi and HSBC Bank were among the top contributors.  Baozun is a Chinese e-commerce solution provider and iQiyi is a Chinese video platform.  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. We added HSBC Bank’s bonds in the quarter and they were a small contributor to performance.

Notable Portfolio Changes:

During the quarter, we exited positions that reached our price targets or had asymmetric risks to the downside. For example, we exited China pharmaceutical positions such as Hansoh Pharmaceutical and Pharmaron Beijing as regulatory risks no longer justify the risks associated with these positions. We also adjusted the portfolio’s currency exposure be more overweight U.S. dollar and underweight Asia local currencies. We believe the recent uncertainties around inflation and geopolitical risk will continue to support a strong U.S. dollar view. Lastly, we added five bond positions outside of China: Australian accounting software company Xero Investments, Thai commercial bank Bangkok Bank, Thai state-owned bank Krung Thai Bank, India-based HDFC Bank and UK multinational bank HSBC Holdings.

Outlook:

The unexpected conflict between Russia and Ukraine, higher prices across energy, soft and hard commodities have put further pressure on inflation. The U.S. Federal Reserve will likely err on the side of faster rate hikes and interest rates in the U.S. will be under further pressure to rise in the medium term. We believe higher U.S. rates will put pressure on Asian central banks to raise interest rates or face more currency depreciation pressures. We do not believe the next few quarters to be favorable to Asian local rates or currencies and have taken steps to reduce the portfolio’s local rates and currency exposures.

With China policy turning definitively more positive at a faster pace, we are seeing the turning point in China’s policy cycle. With the country’s policy cycles leading economic cycles, we expect the current environment to provide good opportunities to add risk. However, the full effectiveness of easing policies are being muted by China’s dynamic zero-COVID policy, which has led to periodic lockdowns of major urban areas. Recent COVID outbreaks in key cities such as Shenzhen and Shanghai have put China’s annual growth target of 5.5% at risk. To reach this growth target, we expect more proactive fiscal and monetary policy to emerge in the second quarter in support of growth. That said, we expect the weak market sentiment to continue and anticipate higher-than-usual short-term price volatility in markets.

The biggest risks in our portfolio remain the China property companies. With China property bonds across sub-investment grade trading at distressed levels, the market is already pricing in high probabilities of restructuring. While the offshore U.S. dollar-denominated market continues to be shut to most sub-investment grade property developers, there are signs that Chinese banks might be stepping in to provide liquidity. For example, Country Garden—a property development company based in Guangdong—was able to secure a facility of 40 billion renminbi (~US$ 6 billion) from the Agricultural Bank of China as part of a strategic partnership. We are optimistic that more Chinese banks will see the opportunity to step in to be lenders of last resort to bridge the financing gap for the sector.

 

Rolling 12 Month Returns For the period ended 31/03/2022 - I (Acc)
Name 2022 2021 2020 2019 2018 Inception Date
Matthews Asia Total Return Bond Fund (USD)
-8.14% 17.11% -6.73% -1.02% 9.03% 29/08/2014
50% Markit iBoxx Asian Local Bond Index, 50% J.P. Morgan Asia Credit Index (USD)
-4.33% 8.79% 2.05% 3.57% 4.48%

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

The Matthews Asia Total Return Bond Fund S Acc JPY Share Class commenced operations on 22 March 2021, and performance will not be shown until the share class has reached one year. 

 

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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