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Matthews Asia Innovative Growth Fund

  • High-conviction, concentrated equity portfolio of innovative companies in Asia ex Japan
  • 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

-21.84%

YTD Return (USD)

(as of 05/12/2022)

$6.73

NAV (USD)

(as of 05/12/2022)

+0.18

1 Day NAV Change

(as of 05/12/2022)

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 $24.36 million (31/10/2022)
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
  • Rolling 12 Month
    Returns
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As of 31/10/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Innovative Growth Fund (USD)
-11.11% -20.84% -38.68% -45.23% n.a. n.a. n.a. -32.77% 23/03/2021
MSCI All Country Asia ex Japan Index (USD)
-6.09% -18.02% -32.03% -33.74% n.a. n.a. n.a. -25.28%
Matthews Asia Innovative Growth Fund (GBP)
-14.80% -16.38% -28.15% -34.34% n.a. n.a. n.a. -24.75% 23/03/2021
MSCI All Country Asia ex Japan Index (GBP)
-8.95% -13.36% -20.04% -21.11% n.a. n.a. n.a. -16.40%
As of 30/09/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Innovative Growth Fund (USD)
-11.34% -13.79% -31.01% -35.71% n.a. n.a. n.a. -28.96% 23/03/2021
MSCI All Country Asia ex Japan Index (USD)
-12.73% -13.69% -27.62% -28.48% n.a. n.a. n.a. -23.39%
Matthews Asia Innovative Growth Fund (GBP)
-6.54% -5.35% -15.66% -21.62% n.a. n.a. n.a. -17.72% 23/03/2021
MSCI All Country Asia ex Japan Index (GBP)
-9.03% -6.10% -12.18% -13.61% n.a. n.a. n.a. -11.98%
For the period ended 30/09/2022
Name 2022 2021 2020 2019 2018 Inception Date
Matthews Asia Innovative Growth Fund (USD)
-35.71% n.a. n.a. n.a. n.a. 23/03/2021
MSCI All Country Asia ex Japan Index (USD)
-28.48% n.a. n.a. n.a. n.a.
Matthews Asia Innovative Growth Fund (GBP)
-21.62% n.a. n.a. n.a. n.a. 23/03/2021
MSCI All Country Asia ex Japan Index (GBP)
-13.61% n.a. 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 31/10/2022)
Fund Benchmark
Number of Positions 38 1,205
Weighted Average Market Cap $64.7 billion $77.8 billion
Active Share 79.3 n.a.
P/E using FY1 estimates 19.3x 10.4x
P/E using FY2 estimates 16.8x 10.2x
Price/Cash Flow 12.5 6.0
Price/Book 2.5 1.4
Return On Equity 4.9 14.9
EPS Growth (3 Yr) 1.0% 11.5%

Sources: Factset Research Systems, Inc.

Top 10 Holdings

(as of 31/10/2022)
Name Sector Country % Net Assets
ICICI Bank, Ltd. Financials India 8.0
HDFC Bank, Ltd. Financials India 4.9
Alibaba Group Holding, Ltd. Consumer Discretionary China/Hong Kong 4.5
Trip.com Group, Ltd. Consumer Discretionary China/Hong Kong 4.4
JD.com, Inc. Consumer Discretionary China/Hong Kong 3.9
Tencent Holdings, Ltd. Communication Services China/Hong Kong 3.8
H World Group, Ltd. Consumer Discretionary China/Hong Kong 3.7
Pinduoduo, Inc. Consumer Discretionary China/Hong Kong 3.5
IndusInd Bank, Ltd. Financials India 3.4
AIA Group, Ltd. Financials China/Hong Kong 3.3
TOTAL 43.4

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 31/10/2022)
  • Sector Allocation
  • Country Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Consumer Discretionary 29.6 13.5 16.1
Financials 26.8 21.7 5.1
Information Technology 10.1 22.4 -12.3
Industrials 8.5 7.0 1.5
Communication Services 8.2 8.5 -0.3
Consumer Staples 3.9 5.6 -1.7
Materials 3.1 5.8 -2.7
Health Care 3.1 4.3 -1.2
Energy 2.5 4.3 -1.8
Real Estate 1.7 3.6 -1.9
Utilities 0.0 3.3 -3.3
Cash and Other Assets, Less Liabilities 2.5 0.0 2.5

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 47.4 38.7 8.7
India 25.5 19.1 6.4
South Korea 11.4 14.1 -2.7
Indonesia 5.5 2.7 2.8
Singapore 3.7 4.1 -0.4
Vietnam 2.1 0.0 2.1
United States 1.9 0.1 1.8
Taiwan 0.0 15.8 -15.8
Thailand 0.0 2.6 -2.6
Malaysia 0.0 1.9 -1.9
Philippines 0.0 0.9 -0.9
Cash and Other Assets, Less Liabilities 2.5 0.0 2.5

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

Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 62.6 53.9 8.7
Large Cap ($10B-$25B) 18.3 22.4 -4.1
Mid Cap ($3B-$10B) 15.4 20.2 -4.8
Small Cap (under $3B) 1.2 3.5 -2.3
Cash and Other Assets, Less Liabilities 2.5 0.0 2.5

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

Commentary

Period ended 30 September 2022

For the quarter ending 30 September 2022, the Matthews Asia Innovative Growth Fund returned -13.79%, while its benchmark, the MSCI All Country Asia ex Japan Index, returned -13.69%.

Market Environment:

The third quarter was again a challenging period for emerging and Asian equity markets. Elevated inflation data continued and diminishing consumer spending in many regions dampened global sentiment and continued to spark recessionary fears. While Asian equity markets endured the choppy waters relatively better in the second quarter, experiencing less downside than commodity heavy, weak-performing EMEA (Europe, Middle East, Africa) and LatAm regions, most of the gains were lost during the third quarter. In particular, Chinese equities saw a sharp downturn amid spillover of China’s real estate woes into its broader economy and lingering COVID restrictions. In addition, both South Korean and Taiwan markets were weak which were concentrated in September. India continues to be among the few bright spots in Asia and Southeast Asian countries such as Indonesia and the Philippines also performed relatively better than North Asia, while Vietnam, which has held up quite well in the past 12-month period, experienced a sharp downturn.

Performance Contributors and Detractors:

From a regional perspective, the Fund’s overweight and stock selection within China/Hong Kong detracted the most from the portfolio’s absolute and relative performance for the quarter. China/Hong Kong companies suffered from China’s ongoing zero-COVID policy and weakening property markets leading to poor consumer sentiment. On the other hand, the Fund’s overweight and stock selection within India contributed the most to Fund performance. India continues to be a bright spot in this tough market environment and the Fund continues to maintain a significant overweight position relative to the benchmark. India companies in general has been relatively stable and relatively unharmed by regulatory issues elsewhere in the region. India has also been relatively free from the political dispute between China and the U.S. However, valuations in some segments of the Indian market are stretched so we will continue to monitor the market closely. From a sector perspective, our stock selection within financials and information technology contributed the most to relative performance while our overweight and stock selection within consumer discretionary detracted the most from relative performance.

Turning to individual securities, Indian financial holdings were the best performers during the quarter. ICICI Bank and Bajaj Finance were top two contributors. The private banking sector in India continued its strong growth and recovery from COVID, and valuations remain relatively attractive despite strong performance year to date. Bank Mandiri in Indonesia also performed well during the quarter. Banks are expected to benefit as central banks around the world continue to hike interest rates following the path of the U.S. Federal Reserve to fight off inflation.

On the other hand, Chinese electric vehicle (EV) maker Xpeng was the biggest detractor during the quarter. While the Chinese EV industry continued to expand as expected, market competition has also increased as more companies entered the space. Xpeng is also in between model cycles, temporary slowing its sales growth. We expect the competition to increase in this space going forward and we are evaluating our approach and exposure in China’s electrics vehicles. China’s largest e-commerce platform Alibaba Group and leading Chinese e-commerce player JD.com also detracted during the quarter. Slowing topline growth mostly due to on-going zero-COVID policy hurt e-commerce companies in China. However, we are seeing positive profit growth and improving margin trends, positioning both companies well to recover once China moves on from its zero-COVID policy.

Notable Portfolio Changes:

During the third quarter, we reinitiated a position in India’s online food delivery platform Zomato given its current valuation. Zomato continues to be a leader in the food delivery vertical and its services are expanding beyond its primary first tier cities. We have also initiated a position in Samsung SDI, a South Korean battery and electronic materials manufacturer, to increase our exposure to the overall EV industry. Samsung SDI is one of the biggest players in the battery space, supplying units for many major automobile manufacturers.  

During the quarter we also exited a few positions including two Chinese stocks. We excited East Money Information, an online financial services platform company, as it is facing new regulations to cut fees in the industry. We also exited China Resources Mixc Lifestyle, a property management company, to reduce our exposure to China’s real estate market in general. 

Outlook:

Looking ahead, several challenges remain. The biggest challenge is the on-going zero-COVID policy in China which is likely to hurt market and consumer sentiment in China and hamper a recovery. Another big challenge in the markets is elevated inflation and the U.S. Fed’s aggressive monetary policy. That said, we believe that markets have priced in a substantial amount of uncertainty, especially within Asia and China, and not withstanding a sudden and severe downturn of global economic activity or a geopolitical shift, we believe there may be upside to come if we see some meaningful changes in China’s zero-COVID policy and a shift in monetary policy. The current valuation level in China reflects the level reached during the global financial crisis and we believe that the current valuation is very attractive.

We continue to find many innovative companies in Asia at appealing levels today and the current levels continue to provide fertile hunting ground for companies that are innovating in areas such as business strategy, products and services, marketing and human capital.



Rolling 12 Month Returns For the period ended 30/09/2022 - I (Acc)
Name 2022 2021 2020 2019 2018 Inception Date
Matthews Asia Innovative Growth Fund (USD)
-35.71% N.A. N.A. N.A. N.A. 23/03/2021
MSCI All Country Asia ex Japan Index (USD)
-28.48% N.A. N.A. N.A. N.A.
Matthews Asia Innovative Growth Fund (GBP)
-21.62% N.A. N.A. N.A. N.A. 23/03/2021
MSCI All Country Asia ex Japan Index (GBP)
-13.61% N.A. N.A. N.A. N.A.

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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