Matthews is little-known by retail investors despite strong performance, but is upping its marketing game in a bid to attract more UK investors.
FE data shows that two of its most popular funds are top-quartile performers over three years, while its newest fund is a top-quartile performer since its launch almost a year ago.
Several fund managers have recently told FE Trustnet they are fans of Matthews Asia and hold its funds.
Tony Lanning, manager of the JPM Fusion funds of funds, holds Matthews Asia Dividend, which he says provides exposure to the longer term consumer growth story in Asia, while also providing an attractive yield.
The Fusion range is a risk-rated suite of funds that launched in March 2013 under Lanning, formerly of Henderson and Gartmore.
“Lead managers Yu Zhang and Robert Horrocks [of Matthews Asia Dividend] place a heavy dependence on corporate governance and quality of company management, believing these are crucial determinants in dividend sustainability,” Lanning said.
“Crucially, in the face of rising US interest rates, the current focus is on businesses able to generate dividend growth rather than simply delivering a high headline yield.”
“The fund also has a notable allocation to Japan, an area where we remain particularly constructive at present.”
The multi-manager Witan investment trust has also recently picked Matthews to run its Asian equity exposure.
The $751m Matthews Asia Dividend fund is domiciled in Luxembourg. It has a five crown-rating, the highest score possible.
It is the best performer in its sector over three years, according to data from FE Analytics, returning 19.92 per cent compared with 7.96 per cent from the sector and 9.94 per cent from the MSCI Asia Pacific index.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
Yu Zhang has co-managed the fund since March 2011 and he was joined by Robert Horrocks in July 2013.
Zhang thinks a particular strength of the fund is its need to search for companies that are focused on paying dividends rather than high-growth ones.
He says that with a slowing Chinese economy, the ability of a company to deliver a dividend stream is becoming more important for investors.
“Asia has been a good place to find income. It's not just a good place to find income but companies that pay dividends say a lot about the quality of those businesses and their management teams,” Zhang said.
“Dividend paying makes a lot of sense to us and for clients who want income, but also for any investor who wants to participate in quality investing in Asia.”
“In a market like Asia where you see a lot of good growth companies, you might ask yourself why you would want to go with the dividend-investing angle.”
“However, given the backdrop of a slowing economy in China, you want to think, 'will investing for quantity continue to work or do you want to start investing more for quality?'”
“Our strategy is that instead of focusing on top-line growth, you want to see if this company gives you a good cash flow and dividends.”
Some managers warn Asian income investing may have seen its best days, however.
Jonathan Pines, manager of the Hermes Asia ex Japan fund, told FE Trustnet today that investors should stay away from the asset class altogether.
“I would be very cautious if I was an investor in an [Asian] income or yield fund. I would say that’s exactly where you don’t want to be right now,” he said.
He claimed Asian income funds are holding stocks that are in a bubble and advises investors to exit the sector.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
Matthews Asia Pacific Tiger is also top-quartile over three years in the IMA Asia Pacific ex Japan sector, having returned 14.04 per cent over three years.
The growth-orientated fund has doubled the returns of the sector over that time, which made 7.12 per cent.
One of the group's newest funds, Matthews Asia Small Companies, is a top-quartile performer since it launched on 30 April 2013, even though it has lost money.
It is down just 1.25 per cent compared with a sector average loss of 8.42 per cent and a fall in the MSCI ASIA ex Japan Small Cap index of 4.89 per cent, according to data from FE Analytics.
Performance of fund since launch vs sector and benchmark
Source: FE Analytics
The fund’s lead manager Lydia So says negative sentiment over emerging markets has discouraged people from investing in Asia in general but she expects this trend to reverse in 2014.
So is also drawn to dividend-paying businesses in her investment strategy, particularly where the majority shareholders of companies are former owners looking for income.
She says this provides an extra layer of reassurance of a company’s corporate governance credentials.
“There are a number of ways you can extract cash from companies,” she said. “The only really good legal way is to pay a dividend.”
“If there's a dividend, it means there is actually cash on the balance sheet and if earnings are not retained but distributed out, it means managers have to be prudent with whatever is left.”
“It sends two signals: that cash is real and even though money has been paid out, managers have enough confidence to grow the business. It’s like putting managers on a capital diet.”
“Companies can often buy companies that are not related to the core business if you have excess money sitting around.”
“I'm not saying when you pay dividends you are automatically wonderful, but at the same time extreme cases show when you keep a lot of cash on your balance sheet, it can negatively affect the business in the long-term.”
Matthews Asia China Smaller Companies is also a top-quartile performer in the IMA China/Greater China sector, with returns of 16.62 per cent over a year in which the average fund has lost 2.35 per cent.
