Is It Time to Reduce Exposure to the Matthews Asia Growth Fund?



Matthews Asia Growth Fund overview

In this article, we’ll outline the performance of the Matthews Asia Growth Fund Investor Class (MPACX), which is the class available for retail investors. As of February 2016, the fund was managing assets worth $663 million. The latest holding report shows that it was invested in 57 securities including the stocks of companies like ORIX (IX), HDFC Bank (HDB), Nidec (NJ), Alibaba Group Holding Limited (BABA), and FANUC (FANUY).

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Matthews Asia Growth Fund’s returns

From a purely net asset value return standpoint, MPACX was a below-average performer among its peer group for the one-year period ending March 31, 2016. When we refer to the peer group, we mean the group of nine funds chosen for this review.

As a benchmark for all funds in this review, we’ll look at the metrics of the MSCI AC Asia Pacific Index. Although not all funds use this index as their benchmark, we’ll use this index across this series for parity. For comparison, we’ll use two combinations of ETFs that provide exposure to stocks from the region. The first group consists of the Vanguard FTSE Pacific ETF (VPL) and the Vanguard FTSE Emerging Markets ETF (VWO), and the second group consists of the iShares Core MSCI Pacific ETF (IPAC) and the iShares MSCI Emerging Markets ETF (EEM).

Quantitative metrics of the Matthews Asia Growth Fund

For the one-year period ending in March 2016, the standard deviation for MPACX stood at 16.2%. This was lower than both the MSCI AC Asia Pacific Index’s standard deviation of 17.8% and the arithmetic average (16.8%) of the standard deviation of all funds in this review.

The Sharpe ratio for MPACX was negative both in the one-year period ending in March 2016 and in 1Q16.

The information ratio shows the consistency of fund managers and measures their ability to generate excess returns over a benchmark. Considering the MSCI AC Asia Pacific Index as the benchmark, the information ratio of MPACX placed it seventh among its peer group for the one-year period ending in March 2016.

Investor takeaway

MPACX’s quantitative metrics vis-à-vis the aforementioned index were below average for 2015. There was some improvement in 1Q16, but not much. Sometimes, the benchmark chosen may not be the most suitable for a fund. However, in this case, the index is the same as that used by the fund house. Hence, we can say that the fund is not working as hard as a few other funds are. A fund’s long-term performance gives you better insight into whether it has been an underperformer. If so, it may be time to reduce exposure to MPACX.

The next fund in this review is the BlackRock Pacific Fund Investor A Shares (MDPCX).


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