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Matthews Asia Innovative Growth Fund

Snapshot
  • High-conviction, concentrated equity portfolio of innovative companies in Asia
  • All-cap fundamental approach focused on companies with unique offerings that create or expand markets
  • Capitalizing on the new economy and the rising disposable income in Asia

23/03/2021

Inception Date

-8.18%

YTD Return (USD)

(as of 22/09/2023)

$5.95

NAV (USD)

(as of 22/09/2023)

+0.04

1 Day NAV Change

(as of 22/09/2023)

Objective

Long-term capital appreciation.

Strategy

The Fund seeks to achieve its investment objective by investing, directly or indirectly, at least 65% of its total net assets in companies Asia ex Japan that Matthews Asia believes are capable of growth based on innovation, which could be innovation in products or services or in other areas, such as processes, business models, management, use of technology, or approach to creating, expanding or servicing their markets.

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. 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 Fund invests primarily in equity securities, which may result in increased volatility.

These and other risks associated with investing in the Fund can be found in the prospectus.

Fund Facts
Inception Date 23/03/2021
Fund Assets $16.47 million (31/08/2023)
Base Currency USD
ISIN: LU2298459939 (USD) LU2298460192 (GBP)
Bloomberg Symbol MAIGIUA:LX (USD) MAIGIAG:LX (GBP)
Benchmark MSCI All Country Asia ex Japan Index
Geographic Focus Asia Ex Japan: Consists of all countries and markets in Asia, excluding Japan but including all developed, emerging and frontier countries and markets in Asia
Fees & Expenses
Management Fee 0.75%
Total Expense Ratio As of 31/03/2022 0.90% ( USD ) 0.90% ( GBP )

Performance

  • Monthly
  • Quarterly
  • Calendar Year
  • Rolling 12 Month
    Returns
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As of 31/08/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Innovative Growth Fund (USD)
-6.59% 1.63% -3.70% -6.87% n.a. n.a. n.a. -17.57% 23/03/2021
MSCI All Country Asia ex Japan Index (USD)
-6.39% 2.21% 2.59% -0.24% n.a. n.a. n.a. -10.55%
Matthews Asia Innovative Growth Fund (GBP)
-5.17% -1.02% -8.61% -14.59% n.a. n.a. n.a. -14.67% 23/03/2021
MSCI All Country Asia ex Japan Index (GBP)
-4.95% -0.03% -2.61% -8.39% n.a. n.a. n.a. -7.39%
As of 30/06/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Innovative Growth Fund (USD)
2.44% -4.84% -2.93% -8.71% n.a. n.a. n.a. -18.46% 23/03/2021
MSCI All Country Asia ex Japan Index (USD)
2.81% -1.14% 3.19% -0.76% n.a. n.a. n.a. -11.06%
Matthews Asia Innovative Growth Fund (GBP)
0.00% -6.92% -7.67% -12.61% n.a. n.a. n.a. -15.29% 23/03/2021
MSCI All Country Asia ex Japan Index (GBP)
0.22% -3.86% -2.36% -5.20% n.a. n.a. n.a. -7.81%
For the years ended December 31st
Name 2022 2021 2020 2019 2018
Matthews Asia Innovative Growth Fund (USD)
-24.74% n.a. n.a. n.a. n.a.
MSCI All Country Asia ex Japan Index (USD)
-19.36% n.a. n.a. n.a. n.a.
Matthews Asia Innovative Growth Fund (GBP)
-15.66% n.a. n.a. n.a. n.a.
MSCI All Country Asia ex Japan Index (GBP)
-9.19% n.a. n.a. n.a. n.a.
For the period ended 30/06/2023
Name 2023 2022 2021 2020 2019 Inception Date
Matthews Asia Innovative Growth Fund (USD)
-8.71% -34.00% n.a. n.a. n.a. 23/03/2021
MSCI All Country Asia ex Japan Index (USD)
-0.76% -24.78% n.a. n.a. n.a.
Matthews Asia Innovative Growth Fund (GBP)
-12.61% -24.45% n.a. n.a. n.a. 23/03/2021
MSCI All Country Asia ex Japan Index (GBP)
-5.20% -14.44% n.a. n.a. n.a.

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

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.

Portfolio Characteristics

(as of 31/08/2023)
Fund Benchmark
Number of Positions 51 1,227
Weighted Average Market Cap $157.9 billion $109.9 billion
Active Share 72.0 n.a.
P/E using FY1 estimates 22.7x 13.4x
P/E using FY2 estimates 18.0x 11.6x
Price/Cash Flow 15.1 6.8
Price/Book 3.3 1.4
Return On Equity 14.9 15.1
EPS Growth (3 Yr) 33.2% 18.2%

Sources: Factset Research Systems, Inc.

Top 10 Holdings

(as of 31/08/2023)
Name Sector Country % Net Assets
Taiwan Semiconductor Manufacturing Co., Ltd. Information Technology Taiwan 7.4
Samsung Electronics Co., Ltd. Information Technology South Korea 6.0
PDD Holdings, Inc. Consumer Discretionary China/Hong Kong 4.8
Alibaba Group Holding, Ltd. Consumer Discretionary China/Hong Kong 4.4
Meituan Consumer Discretionary China/Hong Kong 4.3
Trip.com Group, Ltd. Consumer Discretionary China/Hong Kong 4.0
Tencent Holdings, Ltd. Communication Services China/Hong Kong 4.0
ICICI Bank, Ltd. Financials India 3.0
Kuaishou Technology Communication Services China/Hong Kong 2.8
HDFC Bank, Ltd. Financials India 2.8
TOTAL 43.5

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 31/08/2023)
  • Sector Allocation
  • Country Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Information Technology 31.4 23.7 7.7
Consumer Discretionary 31.2 15.1 16.1
Financials 11.5 20.7 -9.2
Communication Services 10.7 9.7 1.0
Industrials 6.0 7.3 -1.3
Health Care 2.6 3.9 -1.3
Energy 2.5 3.7 -1.2
Real Estate 2.0 3.3 -1.3
Consumer Staples 1.9 5.1 -3.2
Materials 0.0 5.2 -5.2
Utilities 0.0 2.4 -2.4
Cash and Other Assets, Less Liabilities 0.4 0.0 0.4

Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.

Country Fund Benchmark Difference
China/Hong Kong 41.2 40.6 0.6
India 22.0 17.1 4.9
Taiwan 12.9 17.2 -4.3
South Korea 8.8 14.1 -5.3
United States 4.7 0.0 4.7
Indonesia 2.9 2.3 0.6
Netherlands 1.5 0.0 1.5
Japan 1.3 0.0 1.3
Singapore 1.1 3.8 -2.7
France 1.1 0.0 1.1
Germany 1.1 0.0 1.1
Vietnam 1.1 0.0 1.1
Thailand 0.0 2.3 -2.3
Malaysia 0.0 1.6 -1.6
Philippines 0.0 0.7 -0.7
Macau 0.0 0.3 -0.3
Cash and Other Assets, Less Liabilities 0.4 0.0 0.4

Not all countries are included in the benchmark index(es).

Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 69.9 59.1 10.8
Large Cap ($10B-$25B) 12.8 19.8 -7.0
Mid Cap ($3B-$10B) 14.9 19.1 -4.2
Small Cap (under $3B) 2.1 2.0 0.1
Cash and Other Assets, Less Liabilities 0.4 0.0 0.4

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.

Portfolio Managers

Michael J. Oh, CFA photo
Michael J. Oh, CFA

Lead Manager

Taizo  Ishida photo
Taizo Ishida

Co-Manager

Inbok  Song photo
Inbok Song

Co-Manager

Commentary

Period ended 30 June 2023

For the first half of 2023, the Matthews Asia Innovative Growth Fund returned -2.93%, while its benchmark, the MSCI All Country Asia ex Japan Index, returned 3.19% over the same period. For the quarter ended 30 June 2023, the Fund returned -4.84%, while the benchmark returned -1.14%.

Market Environment:

The big event of 2023’s first half was undoubtedly China’s reopening—and more specifically, an economic rebound that has been slower to materialize than many investors anticipated. This especially weighed on consumer sentiment which remains relatively dour. Despite having ample cash balances, many Chinese consumers seem reluctant to resume spending at pre-pandemic levels. This has further complicated the government’s ability to effect meaningful changes as much of any fiscal stimulus would probably wind up in consumer savings accounts. China’s property market also remains weak and is adding to consumers’ sense of uncertainty—given many people’s wealth is tied to real estate. In addition, ongoing tensions with the U.S. weighed on sentiment and amplified uncertainty. Elsewhere, India remains a bright spot in Asia as it faces far fewer challenges in the current environment than China. South Korea and Taiwan have also outperformed as they are (to varying degrees) benefiting from the nascent artificial intelligence (AI) boom, high U.S. chip demand and overall strength in the American technology industry.

Performance Contributors and Detractors:

Regionally, our overweight and stock selection in China and Hong Kong were the biggest detractors to relative performance in the first half amid an environment of negative economic and consumer sentiment. Conversely, the Fund’s allocation to the U.S.—which consists primarily of technology companies—was the biggest contributor. These stocks benefited as investors sought exposure to Asia via non-China-domiciled companies in order to manage geopolitical concerns.

From a sector perspective, the Fund’s overweight and stock selection in consumer discretionary was the biggest detractor in the face of headwinds in China. Stock selection in communication services was also a big detractor though mitigated by our overweight allocation to the sector. Selections in health care, consumer staples and industrials were also detractors. Conversely, IT was the top contributor because of strength in hardware and digital services companies, and stock selection in real estate and our underweight and selection in financials also contributed to relative performance.

At the individual holdings level, sportswear giant Li Ning and e-commerce platform JD.com were among the weakest performers in the first half. JD.com has faced stiff pressure from rival platforms Alibaba and PDD Holdings (Pinduoduo), both of which are portfolio holdings. Given these dynamics, we chose to exit our position in JD.com. While Alibaba and PDD were bigger detractors in the period than JD.com we retained our positions in them because in our view they are more diversified and have higher potential growth than JD.com.

Conversely, U.S. tech giant NVIDIA, a leading beneficiary of the AI upswing, was the strongest contributor in the first half. Taiwanese technology companies Alchip Technologies and Taiwan Semiconductor Manufacturing Co. (TSMC) were also strong performers. Alchip has performed particularly well as the nascent AI trend has picked up steam. TSMC has benefited from the ongoing semiconductor boom—particularly as geopolitical tensions with the U.S. have driven many companies to source chips outside of China. TSMC also manufactures chips for NVIDIA and so is well-positioned for the expanding AI market.

Notable Portfolio Changes:

In the quarter, we initiated a new position in ASML Holding, a Netherlands-based semiconductor company. ASML derives most of its revenue from Asia where the majority of global chip manufacturing is located. It also has a very strong position in advanced chip-equipment production and is a beneficiary from some chip companies seeking to strengthen supply chains and move manufacturing away from China to the U.S. and Europe.

We also increased our exposure to PDD and Samsung Electronics. While the ongoing consumer malaise in China has challenged e-commerce companies and weighed on valuations, PDD is a company that is growing and taking share. We accordingly capitalized on its attractive valuation to add to our position. We increased our exposure to Samsung given the combination of its exposure to AI and its depressed valuation.

Conversely, we pared our exposure to Singapore-based Sea following a strong first-half performance in the stock. We trimmed our holding in H World Group given its higher valuation and as part of our ongoing reduction in our China exposure. We also hold Trip.com, which offers us similar exposure to H World though at a more attractive valuation and with, in our view, a better outlook. In addition to exiting JD.com in the period we also sold our holding in Li Ning.

Outlook: 

It seems clear to us that market movement in the second half will be heavily dependent on China’s performance. But China’s government has its work cut out. With the property market so depressed and consumers quite dour, it will be hard to kickstart the economy. That said, it also seems unlikely there is much room to the downside at this point—though we say that with caution as it seems many have called a bottom in China, only for it to sink further. Given the general sense of gloom surrounding China, it might not take much to spark a sentiment rally and turn things around. Time will naturally tell and we will continue monitoring how events develop in China.

Meanwhile, we remain positive on India. We are also positive on Indonesia in the long term but given there are currently relatively few innovative companies in Southeast Asia, our overall exposure to the region remains limited for now. We are also underweight in Taiwan. While fundamentals remain largely intact, strong performance has contributed to elevated valuations making Taiwan less attractive on a relative basis.

Uncertainty aside, we are finding innovative companies throughout Asia that are trading at attractive levels and will continue deploying our investment philosophy to uncover what we believe to be the next generation of companies able to innovate in business strategy, products and services, marketing and human capital.

Rolling 12 Month Returns For the period ended 30/06/2023 - I (Acc)
Name 2023 2022 2021 2020 2019 Inception Date
Matthews Asia Innovative Growth Fund (USD)
-8.71% -34.00% N.A. N.A. N.A. 23/03/2021
MSCI All Country Asia ex Japan Index (USD)
-0.76% -24.78% N.A. N.A. N.A.
Matthews Asia Innovative Growth Fund (GBP)
-12.61% -24.45% N.A. N.A. N.A. 23/03/2021
MSCI All Country Asia ex Japan Index (GBP)
-5.20% -14.44% N.A. N.A. N.A.

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

To find documents in additional languages, please visit the Fund Literature page in our Resources section.

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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