Matthews Asia Dividend Investor

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Matthews Asia Dividend Investor MAPIX This fund provides an appealing way to get uncommon Asia exposure.
by William Samuel Rocco 5/9/2013
Morningstar's Take MAPIX

Morningstar Analyst Rating
Matthews Asia Dividend Fund makes a terrific complementary foreign holding. This fund has more diversification value than most diversified Pacific/Asia funds. Jesper Madsen and Yu
Morningstar Pillars Process Performance People Parent Price Positive Positive Positive Positive Positive
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Zhang use a distinctive dividend-driven strategy and readily buy smaller-market and smaller-cap stocks that meet their criteria, while most of their peers focus on Asia's biggest markets and names. The managers are also more comfortable with country, sector, and issue concentration than most of their peers. The result is a portfolio that normally has atypical country and sector weights--including a relatively modest stake in Japan--and provides ample
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Morningstar Analyst Rating Morningstar evaluates mutual funds based on five key pillars, which its analysts believe lead to funds that are more likely to outperform over the long term on a risk-adjusted basis. Analyst Rating Spectrum
exposure to Asia's less-followed markets and firms. (One third of this fund's 60 holdings as of Dec. 31--including the Malaysian bank AMMB and the Indonesian heavy-equipment distributor United Tractor--aren't not owned by any other diversified Pacific fund.) This fund has a personnel advantage over most of its rivals. Madsen, who is the lead manager, has been at Matthews for nearly a decade and on this fund's management team since it opened in 2006. Zhang has strong credentials. The two managers have earned superior results at Matthews China Dividend MCDFX using the same approach as they do here. And Matthews has added to its already sizable investment team in early 2013, so Madsen and Zhang are now supported by 31
Role in Portfolio Specialty
Fund Performance MAPIX

Year Total Return +/- Category
YTD 2012 2011
14.12 21.63 -10.02
2.38 1.23 7.95
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other Asia experts. Madsen and Zhang have earned great results here. Due to the strength of several
2010
22.83
6.26
of their Singapore and other picks, this fund is up 24% for the 12 months through Analyst Favorites by Category MAPIX May 6, 2013, while its average peer is up 22% and the MSCI AC Asia Pacific Index is up 20%. This fund also has outperformed in various climates in the past, and it has handily outgained all its peers and the index since inception. All of this bodes well, as does the fact that the fund has a significant cost edge over most peers. But investors seeking extra Asia exposure should note that this fund's dividend orientation has been in favor over much of its history and that same trait will hold it back at times. Process Pillar: Positive | William Samuel Rocco 05/09/2013
Name
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YTD Return %
Matthews Asia Dividend Investor

Diversified Pacific/Asia Category Average
13.98
11.74
Many diversified Pacific/Asia funds employ traditional growth strategies, while most of the others rely on straightforward value or blend disciplines. However, this one focuses on companies that currently pay dividends. And not just any dividend payer will do. Lead manager Jesper Madsen and comanager Yu Zhang insist on companies that have a clear dividend policy--and a commitment to growing the dividend--as well as stable cash flows, strong balance sheets, and solid franchises. They pay ample attention to valuations and have a real aversion to paying up for stocks. Meanwhile, like their Matthews colleagues, Madsen and Zhang take a benchmarkagnostic approach and make full use of their investment universe. They are quite comfortable if their stock selection leads to significant country and sector overweightings and underweightings, and they readily consider smaller-market, lesser-known, and smaller-cap names as long as they meet their standards, dividend and otherwise. They also focus on a limited number of names and move at a measured pace. The end result is a relatively compact portfolio of 55-70 stocks that has atypical country and sector exposure as well as a relatively small average market cap. This distinctive dividend-driven strategy has produced impressive results at Matthews China Dividend as well as at this fund.
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This fund differs from the typical diversified Pacific/Asia offering and the MSCI AC Asia Pacific Index in several significant ways. For starters, its geographic positioning stands out. it currently has a 22% Japan stake and a 20% China position, while its typical peer has a 31% Japan weight and a 13% China weight and the index has a 38% Japan stake and 11% China position. It also has much less exposure to South Korea and much more to Singapore than both its average rival and the index. Further, Jesper Madsen and Yu Zhang have found lots of compelling dividend payers in the consumer staples sector--including Thai Beverage Company, Indonesian noodle maker Indofood, and a couple of tobacco companies. The fund has a 16.9% weighting in that sector, while its typical peer has 5.9% stake and the index has a 6.7% position. It also has more exposure to the telecom and REITs sectors and less exposure to technology and non-REIT financials than both its average rival and the index. Finally, this fund also sports much more mid- and small-cap exposure (28% in total) than both its typical peer (21% in total) and the index (8% in total). It has an average market cap of $8.0 billion versus $13.6 billion for its average peer and $21.8 billion for the index. It owns 61 names, while its typical peer holds 142 stocks and the index includes 999 issues.
Performance Pillar:
Positive | William Samuel Rocco 05/09/2013
This fund has walloped its benchmark and rivals since opening in late 2006. For starters, it posted a 29% annualized loss in the late-2007 to early-2009 global meltdown, while the MSCI AC Asia Pacific Index lost 47% and its typical peer suffered a 48% annualized loss and the group's second-best performer incurred a 44% annualized loss. It also lost considerably less than the index and was the best performer in its category by far in the 2011 sell-off. It has been far less volatile than the index and all of its peers over its history. This fund also has shone in rallies and mixed conditions. For example, thanks to a medley of Singapore, Thailand, and other picks, this fund is up 24% for the 12 months through May 6, while the index is up 20% and its average peer is up 12%. Overall, it has posted a 12.2% annualized gain since its October 2006 launch,
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whereas the index has earned a 3.3% annualized return and its typical peer has posted a 4.5% annualized return over the period. That's quite impressive, and this fund has great long-term prospects. But this relatively conservative fund has had a stylistic edge over its history--partly because of the frequency and severity of the stock sell-offs during the past several years -- and no offering can crush its competition year after year. Because of its dividend focus, this fund makes regular income distributions, which impacts its tax efficiency.
People Pillar:
Lead manager Jesper Madsen joined Matthews International Capital Management in 2004. He has been on this fund's management team since it opened in 2006. He was the lead manager of Matthews China Dividend from its late 2009 inception through early 2013 and now serves as a comanager on that fund. (The two funds use the same stock-selection strategies and have lots of portfolio overlap.) Before Matthews, Madsen worked at Charter Equity Research and Barclays Global Investors. Yu Zhang has been a comanager on this fund since March 2011. He started as a comanager on Matthews China Dividend in April 2012 and was promoted to lead manager of that fund in April 2013. He joined Matthews in 2007, has worked on both funds since then, and previously had experience as an analyst on a long-short Japan-equity hedge fund and as an associate at a Japanese trading firm in China before he joined Matthews. The managers have two dedicated analysts on this fund--Vivek Tanneeru and Sherwood Zhang--and they also work very closely with the four other portfolio managers and the two other analysts who serve on the credit and income team at Matthews. The investment team at Matthews is quite large and collegial, and the members readily contribute on funds other than their own. All told, Madsen and Zhang have 31 Asia experts to draw on for support (including the other members of the credit and income team).
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Parent Pillar:
Positive | Rob Wherry 06/05/2012
Matthews Asia Funds has a solid 20-year reputation when it comes to investing in the Pacific Rim and the surrounding regions. The firm, based in San Francisco, has a dozen funds that are both country-specific and more broadly focused. It had $16.7 billion in assets under management as of May 31, 2012. Matthews has been a good steward of capital. While the funds have stumbled on occasion, overall they tend to sport solid records across a market cycle. Individual fund managers invest reasonable amounts of their personal wealth in the offerings they run, especially considering that many of the offerings have niche strategies. The funds' board of directors is experienced and has effectively negotiated reasonable fees on behalf of the shareholders it serves. In addition, the board and the firm have been proactive about closing funds when their strategies have neared capacity. Matthews has lost some key investment personnel over the years. For example, it lost a longtime and skilled portfolio manager in 2011 when he left to start his own investment shop. But overall the firm has done an excellent job of attracting and retaining investment talent. It currently has a team of 30 Asia experts on staff as well as three traders.
Price Pillar:
The retail share class, which opened in 2006 and has 70% of this fund's $5.4 billion in assets, has an expense ratio of 1.09% as of its Dec. 31, 2012, annual report and its April 30, 2013, prospectus. This expense ratio is 21 basis points below the median of 1.30% for no-load diversified Pacific/Asia and Japan funds. Meanwhile, the institutional share class, which opened in 2010 and has the remaining 30% of the assets, has an expense ratio of 0.97% as of its Dec. 31, 2012, annual report and its April 30, 2013, prospectus. This expense ratio is 5 basis points below the median of 1.02% for institutional diversified Pacific/Asia and Japan funds. The fund's modest turnover rate--which was just 9% in 2012--helps to moderate
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trading costs.
S&P 500 index data: S&P 500 Copyright @ 2013 All data from Morningstar except U.S. intraday real-time exchange quotes, which are provided by BATS when available. End-of-day quotes for Nasdaq, NYSE, and Amex securities will appear 15 minutes after close. Graph times are Eastern Standard. @ Copyright 2013 Morningstar, Inc.
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Morningstar Quicktake Report - Print Version

Morningstar's Take MAPIX

Authors can be reached at Analyst Feedback Morningstar's Editorial Policies

Discuss See what other investors are saying about MAPIX

Fund Performance MAPIX

YTD 2012 2011

14.12 21.63 -10.02

2.38 1.23 7.95

Morningstar Quicktake Report - Print Version