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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

-3.06%

YTD Return (USD)

(as of 03/08/2021)

$12.67

Price (USD)

(as of 03/08/2021)

$76.75 million

Fund Assets

(as of 30/06/2021)

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 $76.75 million (30/06/2021)
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 31/03/2021 1.25% ( USD )

Performance

  • Monthly
  • Quarterly
  • Calendar Year
  • Rolling 12 Month
    Returns
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As of 30/06/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Total Return Bond Fund (USD)
0.31% 1.11% -2.07% 7.02% 4.90% 4.71% n.a. 3.68% 29/08/2014
50% Markit iBoxx Asian Local Bond Index, 50% J.P. Morgan Asia Credit Index (USD)
-0.35% 1.36% -1.61% 4.27% 6.22% 4.12% n.a. 3.87%
As of 30/06/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Total Return Bond Fund (USD)
0.31% 1.11% -2.07% 7.02% 4.90% 4.71% n.a. 3.68% 29/08/2014
50% Markit iBoxx Asian Local Bond Index, 50% J.P. Morgan Asia Credit Index (USD)
-0.35% 1.36% -1.61% 4.27% 6.22% 4.12% n.a. 3.87%
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%
For the period ended 30/06/2021
Name 2021 2020 2019 2018 2017 Inception Date
Matthews Asia Total Return Bond Fund (USD)
7.02% 0.76% 7.03% 0.64% 8.36% 29/08/2014
50% Markit iBoxx Asian Local Bond Index, 50% J.P. Morgan Asia Credit Index (USD)
4.27% 5.21% 9.24% 0.11% 2.01%

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 30/06/2021)
9.18% Yield to Worst

Source: FactSet Research Systems, Bloomberg, Matthews

Portfolio Characteristics

(as of 30/06/2021)
3.9
Modified Duration
50
Number of Positions

Source: BNY Mellon Investment Servicing (US) Inc.

Top 10 Positions

(as of 30/06/2021)
Name Sector Currency % Net Assets
Viet Nam Debt & Asset Trading Corp., 1.000%, 10/10/2025 Financials U.S. Dollar 4.2
China Development Bank, 3.800%, 01/25/2036 Foreign Government Bonds China Renminbi 4.1
Network i2i, Ltd., 5.650%, 04/15/2068 Communication Services U.S. Dollar 4.0
Wanda Properties International Co., Ltd., 7.250%, 01/29/2024 Real Estate U.S. Dollar 4.0
Luye Pharma Group, Ltd., Cnv., 1.500%, 07/09/2024 Health Care U.S. Dollar 3.5
Indonesia Government Bond, 7.000%, 05/15/2027 Foreign Government Bonds Indonesian Rupiah 3.5
Times China Holdings, Ltd., 6.200%, 03/22/2026 Real Estate U.S. Dollar 3.5
ABJA Investment Co. Pte, Ltd., 5.450%, 01/24/2028 Materials U.S. Dollar 3.4
Sino-Ocean Land Treasure III, Ltd., 4.900%, 03/21/2068 Real Estate U.S. Dollar 3.2
Periama Holdings LLC, 5.950%, 04/19/2026 Materials U.S. Dollar 3.1
TOTAL 36.5

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 30/06/2021)
  • Sector Allocation
  • Country Allocation
  • Currency Allocation
  • Quality Distribution
  • Asset Type Breakdown
Sector Fund
Real Estate 24.7
Financials 19.5
Foreign Government Bonds 19.5
Consumer Discretionary 7.3
Communication Services 6.8
Health Care 6.5
Materials 6.4
Energy 3.7
Information Technology 1.5
Industrials 0.5
Cash and Other Assets, Less Liabilities 3.5

"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 51.6
India 14.4
Indonesia 9.9
Thailand 6.7
Malaysia 5.6
Vietnam 4.2
Philippines 2.5
South Korea 0.9
New Zealand 0.8
Cash and Other Assets, Less Liabilities 3.5

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 54.6 2.1
China Renminbi 11.3 0.6
South Korean Won 9.2 0.0
Singapore Dollar 6.3 0.0
Indonesian Rupiah 5.8 0.3
Malaysian Ringgit 4.3 0.4
Thailand Baht 3.8 0.4
Philippines Peso 3.7 0.0
Indian Rupee 1.1 0.0
Quality Distribution Fund
A- 4.0
BBB+ 3.6
BBB 7.8
BBB- 0.4
BB+ 4.7
BB 17.4
BB- 19.4
B+ 6.4
B 3.8
CCC+ 1.3
Not Rated 27.8
Cash and Other Assets, Less Liabilities 3.5

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 62.6
Government Bonds 19.6
Convertible Bonds 14.3
Cash and Other Assets, Less Liabilities 3.5

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 30 June 2021

For the first half of 2021, the Matthews Asia Total Return Bond Fund returned -2.07% while its benchmark, the 50% Markit iBoxx Asian Local Bond Index/50% J.P. Morgan Asia Credit Index (JACI), returned -1.61%. For the quarter ending 30 June, the Fund returned 1.11% compared to the benchmark return of 1.36%.

Market Discussion:

Unlike many other market cycles, this cycle was uniquely quick in its ups and downs, probably as it was driven by an unprecedented pandemic. With barely a year since COVID-19 lockdowns and recession, the global economy is showing signs of a full expansion. Global purchasing managers index (PMI) hit 55.5 in June—an indication of growth or expansion within the manufacturing and services sectors of the economy compared to the prior month. Inflation is rising, with U.S. consumer price index (CPI) hitting 5.0% in May, driven mostly by goods and commodities inflation. Oil prices rose 18% in the second quarter. The rapid lockdowns and re-opening have thus created supply shortages, driving up goods prices.

Expectations of normalization of life drove normalization of markets. The second quarter of the year was a generally good one for bonds and equities. The JP Morgan Asia Credit Index (JACI) returned 1.4% on the quarter, while MSCI Emerging Markets returned 5.2%.  Asian currencies appreciated slightly, returning 0.4% as measured by the Asian trade-weighted currency basket.

In light of these data points, the Fed decided to signal a downshift of its easing stance at the June Federal Open Market Committee. In its own words, it is “talking about talking about tapering”—probably the most dovish language to describe a move towards tightening stance. As the market digested this “dovish hawkish” news, 10-year U.S. Treasuries declined in the quarter—starting the quarter at 1.74% and ending it at 1.47%.

Performance Contributors and Detractors:

For the first two quarters of 2021, our short duration stance and local currency underweight relative to the benchmark generally contributed to performance, led by our positions in Singapore and Thailand. On the other hand, our underweight to investment grade credit detracted from performance. Within, U.S. dollar-denominated corporate exposures, Chinese real estate developers and internet platforms such as South Korea’s KaKao Corp., contributed to performance. Exposure to Pan Brothers, an Indonesian textile manufacturer, and China’s Huarong Finance detracted from performance.

In general, the Fund’s local currency positions performed in line with the benchmark during the second quarter. Exposure to Indonesia and Malaysian local bonds contributed to performance while exposures to Singapore and South Korea detracted during the same period. The portfolio’s currency performance was neutral—our position in the Thai baht contributed positively while our position in the Singapore dollar detracted.

The U.S. dollar-denominated holdings performed positively relative to the benchmark. Within our U.S. dollar-denominated investments, the largest contributors to performance came from the convertible bonds of Kakao Corp., a South Korean online messaging and e-commerce platform, and high yield bonds of basic industry companies.  On the other hand, the biggest detractor came from Huarong Finance.  We initiated a position in Huarong, a Chinese asset manager, after its bonds sold off on news of possible losses from non-core overseas investments and the delay of its annual results. We believe the bonds were oversold given the data vacuum regarding the extent of the losses. In our base case, Huarong will likely experience some combination of asset sales and government support such that bondholders be made whole over the next few quarters.

Notable Portfolio Changes:

In terms of currency, we sold the portfolio’s Indian rupee exposure and added Korean won exposure in the quarter. We expect inflation and rising commodity prices to disproportionately hurt India. We added the Korean won to take advantage of the cyclical global recovery as the country is heavily tied to the global semiconductor and trade cycle.

We also added exposure to Chinese real estate and internet sectors. Within real estate, we added CIFI Holdings, a high-quality developer that we previously held. Within Chinese internet, we initiated convertible bond positions in Meituan, a web-based shopping platform company, and Weimob, an e-commerce and marketing solutions company.  We believe regulatory risks and competition within the internet space have put price pressure on these names; however, in the long term, we believe their businesses will scale to drive profitability. We also added embattled Huarong Finance for the special situations opportunity as the company works through asset sales and/or a corporate restructuring.

We exited Krungthai Bank bonds given its unfavorably upside vs. downside skew with new waves of COVID resurgence in Thailand pushing out expectations of an economic rebound.  We also exited Philippines government bonds as the bonds had done well and hit our price targets. 

Outlook:

The Fed is taking an extremely patient stance considering that we are in the full expansion part of the cycle, which typically calls for tightening of monetary policy to counteract its excesses. Given that signs point towards re-starting of economic activity around the world, we expect the Fed to be on a more hawkish path going forward, but that its tightening will generally lag the expansionary trend of the economy. Therefore, the U.S. economy will have room to grow and we believe asset prices can do well in this environment. We do anticipate U.S. Treasuries to go up from here, with fair value around the 2% – 2.5% range given current economic conditions.

In Asia, we expect to see relatively muted movements in interest rates for most countries. With the Fed potentially tapering, it may put pressure on Asian central banks to consider whether their policy is overly accommodative. Developed Asian rates will probably follow Treasuries higher, but also lag in terms of the pace of rise.

In terms of currency, we do not see a clear trend yet. Global expansion and rising commodity prices should mean a weaker U.S. dollar and stronger high volatility Asia currencies. However, as our base case is for Asia government yields to lag those of U.S., lower carry of Asia currencies might counteract what might otherwise be a weaker U.S. dollar.  While a general recovery in risk sentiment helps all Asian currencies, we are mindful of idiosyncratic risks between each country with regards to the speed of each country’s recovery from COVID, ability to manage ongoing virus spread, as well as country-specific macro fundamentals.

Rolling 12 Month Returns For the period ended 30/06/2021 - I (Acc)
Name 2021 2020 2019 2018 2017 Inception Date
Matthews Asia Total Return Bond Fund (USD)
7.02% 0.76% 7.03% 0.64% 8.36% 29/08/2014
50% Markit iBoxx Asian Local Bond Index, 50% J.P. Morgan Asia Credit Index (USD)
4.27% 5.21% 9.24% 0.11% 2.01%

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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