Snapshot
- Bottom-up Asia credit strategy, with a focus on risk-adjusted returns
- Invest primarily in USD-denominated high yield Asian bonds
- Flexibility to invest across the spectrum of credit quality and issuers’ capital structure
A focus on Asia—and providing compelling investment solutions for our clients—is what we believe distinguishes us among investment managers. Our insights into investment opportunities and risks are backed by proprietary research, a collaborative culture and 30 years of experience.
30/09/2015
Inception Date
-16.41%
YTD Return (USD)
(as of 10/08/2022)
$7.27
NAV (USD)
(as of 10/08/2022)
0.00
1 Day NAV Change
(as of 10/08/2022)
Total return over the long term.
Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 65% of its net assets in income-producing securities including, but not limited to, debt and debt-related instruments and derivative instruments with fixed income characteristics, issued by governments, quasi-governmental entities, supra-national institutions and companies in Asia. On an ancillary basis, the Fund may invest in dividend-paying equity securities of the foregoing issuers. 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.
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.
Inception Date | 30/09/2015 | |
Fund Assets | $25.94 million (31/07/2022) | |
Base Currency | USD | |
ISIN: | LU1275263116 (USD) LU1275263389 (GBP) | |
Bloomberg Symbol | MACOIUS:LX (USD) MACOIGB:LX (GBP) | |
Benchmark | 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 |
Management Fee | 0.65% | |
Total Expense Ratio As of 31/03/2022 | 1.25% ( USD ) 1.25% ( GBP ) |
Objective | Total return over the long term. |
Strategy | Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 65% of its net assets in income-producing securities including, but not limited to, debt and debt-related instruments and derivative instruments with fixed income characteristics, issued by governments, quasi-governmental entities, supra-national institutions and companies in Asia. On an ancillary basis, the Fund may invest in dividend-paying equity securities of the foregoing issuers. 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.
The risks associated with investing in the Fund can be found in the prospectus |
Source: Brown Brothers Harriman (Luxembourg) S.C.A., Index data from J.P. Morgan.
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.
Yield to Worst | 10.73% |
Source: FactSet Research Systems, Bloomberg, Matthews Asia
Source: Brown Brothers Harriman (Luxembourg) S.C.A
Modified Duration | 2.5 |
Number of Positions | 42 |
Fund Risk Metrics are reflective of Class I USD DIST shares.
Sources: Zephyr StyleADVISOR
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
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.
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).
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.
Lead Manager
Portfolio Manager
Satya Patel is a Portfolio Manager at Matthews Asia and manages the firm’s Asia Credit Opportunities and Asia Total Return Bond Strategies and co-manages Asian Growth and Income Strategy. Prior to joining Matthews Asia in 2011, Satya was an Investment Analyst with Concerto Asset Management. He earned his MBA from the University of Chicago Booth School of Business in 2010. In 2009, Satya worked as an Investment Associate in Private Placements for Metlife Investments and from 2006 to 2008, he was an Associate in Credit Hedge Fund Sales for Deutsche Bank in London. He holds a Master’s in Accounting and Finance from the London School of Economics and a B.A. in Business Administration and Public Health from the University of Georgia. Satya is proficient in Gujarati.
Co-Manager
Portfolio Manager
Wei Zhang is a Portfolio Manager at Matthews Asia and co-manages the Asia Total Return Bond and Asia Credit Opportunities Strategies. Prior to joining the firm in 2015, he earned an MBA from Columbia University. From 2008 to 2012, Wei worked as an analyst at Bluecrest Capital Management, evaluating fundamental investments in equity and credit, with a focus on industrials, basic materials and energy sector opportunities. From 2007 to 2008, he was also an analyst with GF Capital Management, where he performed in-depth fundamental research, built and maintained financial models and participated in acquisition contact negotiations. He started his career as an analyst at Sowood Capital Management in 2006. Wei received a B.S. in Finance and International Business from the Leonard N. Stern School of Business at New York University. He is fluent in Mandarin.
Performance figures discussed in the Fund Manager Commentary above reflect that of the Institutional Distribution 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.
The Markit iBoxx Asian Local Bond Index tracks the total return performance of a bond portfolio consisting of local-currency denominated, high quality and liquid bonds in Asia ex-Japan. The Markit iBoxx Asian Local Bond Index includes bonds from the following countries: China (on- and offshore markets), Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand.
The J.P. Morgan Asia Credit Index (JACI) tracks the total return performance of the Asia fixed-rate dollar bond market. JACI is a market cap-weighted index comprising sovereign, quasi-sovereign and corporate bonds and is partitioned by country, sector and credit rating. JACI includes bonds from the following countries: China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea and Thailand.
The MSCI All Country Asia ex Japan Index is a free float–adjusted market capitalization–weighted index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI All Country Asia Pacific Index is a free float–adjusted market capitalization–weighted index of the stock markets of Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Index is a free float-adjusted market capitalization-weighted index of Chinese equities that includes H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges, Hong Kong-listed securities known as Red chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China) and foreign listings (e.g. ADRs).
The MSCI China All Shares Index captures large and mid-cap representation across China A shares, B shares, H shares, Red chips (issued by entities owned by national or local governments in China), P chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g. ADRs). The index aims to reflect the opportunity set of China share classes listed in Hong Kong,Shanghai, Shenzhen and outside of China.
The S&P Bombay Stock Exchange 100 (S&P BSE 100) Index is a free float–adjusted market capitalization–weighted index of 100 stocks listed on the Bombay Stock Exchange.
The MSCI Japan Index is a free float–adjusted market capitalization–weighted index of Japanese equities listed in Japan.
The MSCI All Country Asia ex Japan Small Cap Index is a free float–adjusted market capitalization–weighted small cap index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Small Cap Index is a free float-adjusted market capitalization-weighted small cap index of the Chinese equity securities markets, including H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges,Hong Kong-listed securities known as Red Chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g., ADRs).
Commentary
Period ended 30 June 2022
For the first half of 2022, the Matthews Asia Credit Opportunities Fund returned -14.67% (Institutional Class), while its benchmark, the J.P. Morgan Asia Credit Index, returned -10.74% over the same period. For the quarter ending June 30, 2022, the Fund returned -7.62% (Institutional Class), while the benchmark returned -4.74%.
Market Environment:
Asia credit, along with just about every other asset class with the exception of commodities saw material declines in the first half of 2022. It has been a tough market, marked by price declines driven by both credit spread widening and rising U.S. interest rates.
The U.S. dollar-denominated Asia credit market continues to grapple with rising defaults and ongoing uncertainly. Asia high yield default rates hit a multi-year high of 14.24% in the first half of this year that includes the default of 11 issuers on US$35 billion notional of debt outstanding. Asia high yield spreads ended the first half close to the highs experienced at the peak of the pandemic at 965 basis points (9.65%). Asia investment grade spreads widened to 206 basis points (2.06%) at the end of June, though the spread widening reflected a repricing of relative value in comparison to sub-investment grade credit rather than a material rise in risk.
The Asia credit market in the first half was dominated by China’s zero-COVID policy and its consequences on the economy. The start-and-stop quarantines that paralyzed mobility in much of the country sterilized much of the macro policy easing designed to ease credit conditions and reaccelerate the economy. Within this macro backdrop, several sub investment grade property developers in China were unable to refinance their maturities as there was no marginal buyer willing to lend. With the lack of credit, liquidity and workers, construction remains at a standstill, resulting in continued deterioration in the sector. In the U.S., inflation continues to run significantly above the Federal Reserve’s mandate, with investors pricing in a higher likelihood of the Fed having to slam the brakes to slay the inflation dragon at the expense of economy. Oil and food prices remain elevated given the ongoing conflict in Ukraine, though several commodities had fallen off their peaks by the end of June.
Performance Contributors and Detractors:
Overall, the top contributors to performance came from Chinese corporates that bounced off of the bottoms. These included Baozun, an e-commerce provider; Dalian Wanda, one of the largest developers of integrated malls; and iQIYI, an online video platform company.
The biggest detractors to returns include Sino Ocean, Times China and KWG Holdings, all of which are Chinese property developers that have not been able to refinance in the USD market because of the lack of appetite for any China real estate exposure.
In terms of sectors, sovereigns were the best performing sector as our holdings in the Viet Nam Debt and Asset Trading Corp remained solid while other financials, which include real estate developers, were the biggest detractor from performance.
Notable Portfolio Changes:
We made a number of changes to the portfolio in the first half of the year. In the first quarter, we excited the convertable bonds of two Chinese health care companies, Pharmaron and Hansoh. Both companies face increasing regulatory risk, and we believed the upside-downside skew was unattractive given the uncertainty. During the second quarter, we exited positions that we deemed their prices to offer limited upside, including bonds issued by Baozun and Khazanah Investment, a Malaysian sovereign wealth fund (Cerah).
We also added a handful of positions in the quarter where we thought the yield was attractive relative to the underlying credit quality of the company. These included the bonds of three banks, Bangkok Bank and Krung Thai Bank in Thailand, as well as HSBC. We also added the convertible bonds of Xero , an Australian accounting software company, after the bonds fell in price with the sell-off in technology stocks around the world.
Outlook:
There is an ancient saying, “As things tend to their extremes, they give way to their opposites.” By all measures, Asia credit has priced in much of the risks and uncertainties in the market today. With credit spreads again close to historic highs, they have already baked in expected defaults across much of the sub-investment grade real estate sector. While we believe defaults are likely to continue, we expect the overwhelming number of restructurings to be amended and extended exercises which should result in an extension of the maturity, but no haircut in principal so that bondholders should ultimately see a recovery of 100% in principal. The other component to Asia credit returns is U.S. interest rates, which unfortunately have more risks of rising than falling. We have seen high volatility driven by waning or waxing inflation and the market’s expectation of the Fed’s ability to tame the U.S.’s stubborn and persistent inflation. With the yield curve pricing in at least a 50 basis points (0.50%) rate hike at the upcoming July Fed meeting, the market is increasingly pricing in a challenging inflation picture that would likely land the U.S. into a recession in the coming year. With the persistence of inflation and defaults, buyers have been waiting on the sidelines, reluctant to catch a falling knife. However, as any of the storm clouds we outline dissipate, we expect the patient marginal buyer to finally step in to take advantage of depressed valuations to reap price appreciation and potential outsized returns in the coming years.
Rolling 12 Month Returns For the period ended 30/06/2022 - I (Dist)
Sources: Brown Brothers Harriman (Luxembourg) S.C.A, Matthews Asia, FactSet Research Systems, Bloomberg