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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

-1.39%

YTD Return (USD)

(as of 28/03/2023)

$6.39

NAV (USD)

(as of 28/03/2023)

-0.03

1 Day NAV Change

(as of 28/03/2023)

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 $32.88 million (28/02/2023)
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 28/02/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Innovative Growth Fund (USD)
-10.25% 0.31% -1.39% -15.70% n.a. n.a. n.a. -20.64% 23/03/2021
MSCI All Country Asia ex Japan Index (USD)
-6.81% 0.71% 0.85% -14.07% n.a. n.a. n.a. -13.87%
Matthews Asia Innovative Growth Fund (GBP)
-8.89% -0.55% -2.02% -6.91% n.a. n.a. n.a. -15.12% 23/03/2021
MSCI All Country Asia ex Japan Index (GBP)
-5.24% -0.94% 0.20% -4.76% n.a. n.a. n.a. -7.87%
As of 31/12/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Innovative Growth Fund (USD)
1.73% 9.09% -24.74% -24.74% n.a. n.a. n.a. -21.68% 23/03/2021
MSCI All Country Asia ex Japan Index (USD)
-0.14% 11.43% -19.36% -19.36% n.a. n.a. n.a. -15.43%
Matthews Asia Innovative Growth Fund (GBP)
1.50% 0.00% -15.66% -15.66% n.a. n.a. n.a. -15.41% 23/03/2021
MSCI All Country Asia ex Japan Index (GBP)
-1.14% 3.40% -9.19% -9.19% n.a. n.a. n.a. -8.66%
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 31/12/2022
Name 2022 2021 2020 2019 2018 Inception Date
Matthews Asia Innovative Growth Fund (USD)
-24.74% n.a. n.a. n.a. n.a. 23/03/2021
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. 23/03/2021
MSCI All Country Asia ex Japan Index (GBP)
-9.19% 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 28/02/2023)
Fund Benchmark
Number of Positions 37 1,185
Weighted Average Market Cap $115.0 billion $106.5 billion
Active Share 72.2 n.a.
P/E using FY1 estimates 21.3x 12.8x
P/E using FY2 estimates 18.8x 11.7x
Price/Cash Flow 12.2 6.8
Price/Book 2.9 1.5
Return On Equity 4.7 15.6
EPS Growth (3 Yr) -22.9% 16.5%

Sources: Factset Research Systems, Inc.

Top 10 Holdings

(as of 28/02/2023)
Name Sector Country % Net Assets
Tencent Holdings, Ltd. Communication Services China/Hong Kong 6.0
Alibaba Group Holding, Ltd. Consumer Discretionary China/Hong Kong 5.5
Taiwan Semiconductor Manufacturing Co., Ltd. Information Technology Taiwan 5.2
PDD Holdings, Inc. Consumer Discretionary China/Hong Kong 5.1
Trip.com Group, Ltd. Consumer Discretionary China/Hong Kong 5.1
Samsung Electronics Co., Ltd. Information Technology South Korea 4.8
KE Holdings, Inc. Real Estate China/Hong Kong 4.5
H World Group, Ltd. Consumer Discretionary China/Hong Kong 3.9
Meituan Consumer Discretionary China/Hong Kong 3.5
HDFC Bank, Ltd. Financials India 3.3
TOTAL 46.9

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 28/02/2023)
  • Sector Allocation
  • Country Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Consumer Discretionary 31.5 14.5 17.0
Information Technology 19.6 22.8 -3.2
Communication Services 17.7 10.3 7.4
Financials 10.2 21.1 -10.9
Industrials 6.3 6.6 -0.3
Real Estate 4.5 3.9 0.6
Health Care 3.8 3.9 -0.1
Consumer Staples 2.2 5.3 -3.1
Energy 1.7 3.5 -1.8
Materials 0.0 5.5 -5.5
Utilities 0.0 2.6 -2.6
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 60.7 43.8 16.9
South Korea 11.1 13.3 -2.2
India 9.9 14.9 -5.0
Taiwan 6.8 17.0 -10.2
Singapore 6.1 3.9 2.2
Vietnam 1.8 0.0 1.8
Indonesia 1.0 2.2 -1.2
Thailand 0.0 2.3 -2.3
Malaysia 0.0 1.7 -1.7
Philippines 0.0 0.8 -0.8
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) 63.5 57.3 6.2
Large Cap ($10B-$25B) 20.7 21.5 -0.8
Mid Cap ($3B-$10B) 10.0 19.7 -9.7
Small Cap (under $3B) 3.2 1.6 1.6
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 31 December 2022

For the year ending December 31, 2022, the Matthews Asia Innovative Growth Fund returned -24.74%, while its benchmark, the MSCI All Country Asia ex Japan Index returned -19.36%. For the fourth quarter of the year, the Fund returned 9.09% versus 11.43% for the benchmark.

Market Environment:

2022 was another challenging year for Asian markets, particularly Taiwan, South Korea and China—the latter as the country’s ongoing zero-COVID policy materially impacted the domestic economy. Further pressuring China’s markets were ongoing concerns about the government’s regulatory interventions across sectors including technology and health care, as well as the challenges facing the country’s real estate sector. This combination weighed on investor sentiment and, in turn, market returns throughout the year.

Fortunately, starting in December, China’s government started to rapidly dismantle its zero-COVID policy and announced the reopening of its borders to international travel. We believe this will lift a major market—and economic—overhang as 2023 begins.

There were bright spots in 2022, including Indonesia’s and India’s markets, both of which were quite resilient given their relatively lower exposure to technology and lack of regulatory pressure. Investors seemed to view both markets as relatively stable havens, which helped deliver more moderate returns—4.23% for Indonesia and -7.49% for India.

Performance Contributors and Detractors:

From a regional perspective, our stock selection in China/Hong Kong was the biggest detractor to performance during 2022 as China’s zero-COVID policy pressured business activity and consumer spending. Our underweight and stock selection in Singapore also detracted from performance. Conversely, the Fund’s overweight to India, as well as stock selection, was the biggest contributor to performance. Our underweight to technology-heavy Taiwan was also a positive contributor.

From a sector perspective, the Fund’s stock selection in communication services detracted the most from performance. Stock selection in health care was also a detractor as was stock selection in industrials. On the other hand, the Fund’s underweight to information technology (IT) was a positive contributor, while the Fund’s stock selection in financials was a top contributor as companies in the sector benefited from global interest-rate hikes. By the end of the year, both IT and communication services had experienced a rerating as many economies reopened and post-pandemic recoveries began.

At the holdings level, electronic vehicle (EV) maker XPeng was the biggest detractor as the company faced intensifying competitive pressures in a robustly growing industry. Singapore-based e-commerce platform Sea was another big detractor. It was a casualty of 2022’s technology downturn which especially punished companies without profits, like Sea. Long term, we maintain our conviction in Sea given its already dominant market share in Southeast Asia and its growing share in other emerging markets like Brazil. Conversely, Trip.com and Pinduoduo were among the top performers. Trip.com, a leading online travel agency in China, may be a major beneficiary as China lifts its pandemic restrictions policy. Chinese e-commerce platform Pinduoduo is similarly poised to benefit from China’s reopening. Having cut costs during the pandemic, Pinduoduo is well-positioned to expand margins and improve profitability as consumption rebounds, in our view.

Notable Portfolio Changes:

Over the course of the year, we exited positions including XPeng given the growing headwinds facing the company. We also pared our exposure to Indian and Indonesian banks, such as ICICI Bank, Bajaj Finance, Bank Rakyat Indonesia and Bank Mandiri, where valuations have risen materially. We used this capital to increase our exposure to technology and semiconductor names, including Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung Electronics, where valuations became highly compelling amid the broad technology downturn.

The delisting risk to Chinese stocks trading on U.S. exchanges has materially decreased after the U.S. Public Company Accounting Oversight Board (PCAOB) last year gained full access to the audit books of these firms. Accordingly, we shifted some capital from China local shares to Chinese American Depositary Receipts (ADRs) given ADRs can be much more liquid. 

Outlook:

We are constructive on the broad outlook for 2023. As China shelves its zero-COVID policy, we expect consumption to pick up and overall sentiment to improve—though we expect bumps along the road to recovery. For example, normalization will pressure China’s health-care system as COVID rates rise. 

We also believe the regulatory outlook has improved in China. Following several years of stringent crackdown, we are seeing positive signs the government is signaling its understanding of private companies’ important role—especially technology companies, which create many high-quality jobs, which China needs. Further, China seems to be making headway in stabilizing its real estate market.

We are also increasingly seeing signs of a different interest-rate cycle in Asia, especially China. The U.S. faces a tougher inflation fight than China, which could result in lower interest rates and more stimulus in China and lead to some decoupling between the two economies in 2023.

The combination of relatively lower (and therefore, more compelling) valuations, improved investor sentiment and positive economic and regulatory outlooks give us relative optimism about the year ahead. That said, investing is hardly ever without its surprises—and we will remain ready to reposition the portfolio accordingly, should developments warrant.

 

Rolling 12 Month Returns For the period ended 31/12/2022 - I (Acc)
Name 2022 2021 2020 2019 2018 Inception Date
Matthews Asia Innovative Growth Fund (USD)
-24.74% N.A. N.A. N.A. N.A. 23/03/2021
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. 23/03/2021
MSCI All Country Asia ex Japan Index (GBP)
-9.19% N.A. 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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