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questions for Teresa Kong, Matthews Asia Strategic Income?

Hi, guys.

Our call with Teresa is Tuesday night at 7. You're most welcome to join in and to help out.

MAINX has returned 14% in a bit over a year. It's largely alone in its space. I know of two direct competitors, Aberdeen Asia Bond and WisdomTree Asia Local Debt ETF, in addition to simple world bond and aggregate bond benchmarks. Two things are true so far: MAINX has outperformed all four and the performance gap seems to have widened in the past six months. Like T Rowe Price Spectrum Income, MAINX holds a stake in income-producing equities, which is likely helping.

I'd be delighted to aggregate and pass along any questions you might have for here. The text I shared with the folks who've signed up for the conference call mailing list follows. Please excuse the slightly-goofy layout. It looked nice in the email but I couldn't quite get it to translate here.

David

-------------------------------

The Observer is pleased to invite you to join a conversation with Teresa Kong, manager of Matthews Asia Strategic Income (MAINX). The fund combines Ms. Kong's dauntingly rich background, Matthews' depth in Asia investing and a fundamentally intriguing set of opportunities. It has just completed its first year of operations.

Our conference call with Teresa will be Tuesday, January 22, from 7:00 - 8:00 EST. Just click REGISTER and you'll take been to the Chorus Call website where you'll register and receive a toll-free number and a PIN. As before, we'll try to divide the call in thirds: in the first third, Teresa will talk us through the fund's genesis, universe and strategy. In the middle third, I'll ask a handful of questions - some suggested by folks on the Observer's discussion board. For the final third, we'll open the lines to your questions.

For a sense of what's coming, here are her thoughts on the topics she'd like to talk with you about:

Investors’ global quest for yield has fueled interest in emerging market bonds. Given the low yields available in the U.S., what are the opportunities within Asia fixed income and why are a growing number of investors now allocating to this asset class?

The rationale for investing in Asia fixed income and how it can be included within a diversified fixed income portfolio

The region’s key drivers of return: credit, currency and interest rates

Matthews Asia Strategic Income seeks to add value through individual security selection based on that security’s credit, currency of denomination and underlying interest rate
The global macroeconomic environment: given the U.S.’s slow path to recovery, what is the interest rate outlook and how will it impact fixed income markets in Asia?
If U.S. outperforms its current path of employment growth then are interest rates more likely to rise?

The Great Rotation (sound dramatic, doesn't it?)
Is the interest rate bull run of the 30 years over?

So it's Tuesday, January 22, from 7:00 - 8:00 EST. Just click REGISTER. I'm really looking forward to the conversation and hope that you'll join us.

As ever,

David
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Comments

  • Here's a question, David:

    I own a moderate-size position in the investor shares of the fund, have been impressed with the portfolio and performance, and am considering approximately doubling my investment in the fund. I'd like to get an idea first, however, of how Matthews will handle the expense ratio over time: will the two waivers in place now continue, and will the E.R. probably stay in the neighborhood of the current 1.40% for the foreseeable future, or are there AUM breakpoints already established for fee reductions?

    Thanks, AJ
  • Reply to @AndyJ: It's on the list! Thanks, big guy.
  • Aberdeen's FAX is a competitor in the CEF space.
  • Reply to @BenWP: FAX Great Fund !
    Regards,
    Ted
  • Reply to @BenWP: Excellent! I knew there was another and couldn't find it this morning when I was composing.

    Aberdeen Asia-Pacific Income Common (FAX) is a Gold-rated CEF. $2 billion in AUM. Expenses and returns close to MAINX. Two clear distinctions: FAX is 40% or so in Australia, MAINX is 3%. And MAINX is about 10% equities.

    Thanks for the catch!

    David
  • FAX is a very good CEF. The other difference w/ MAINX is currency exposure: MAINX has more Asian currency exposure, and negligible Australian, at least now ... in very round numbers, FAX is 20% Asian, 40% Oz, & 40% U.S.:

    http://www.aberdeenfax.com/doc.nsf/Lit/FactsheetUSClosedFAX
  • What would be the main advantage in investing in MAINX as compared e.g. in the emerging markets bond funds. For example, FNMIX outperformed MAINX since inception of MAINX.
  • Yes, just using the M* thumbnail statistic going back one year (from today, not at the inception of MAINX) shows MAINX at +14.05% since 18 January, 2012.

    FNMIX at +20.52%
    PREMX at +19.11%

    Maybe it sounds too convenient an excuse, but chalk up the difference to "growing pains?" I seem to recall from a previous fund report on MAINX that Ms. Kong reduced or eliminated some underperforming bonds from a particular country. The realty bonds from "Kwg Property Holdings" have been a very positive addition.
  • Kinda a tough compare between FNMIX and MAINX; as FNMIX is spread around the world for the "em" exposure.
    Since inception (Nov. 30, 2011), for MAINX finds the following:
    FNMIX = + 21.9%
    MAINX = + 10.7%
  • Interestingly, during the last 6 months FNMIX and MAINX have similar results, but MAINX does it with smaller volatility. So maybe indeed this is the growing pains.

    Even more interestingly, during the same time interval PIMIX beats both of these funds, with even smaller volatility...
  • Reply to @andrei: But PIMCO Income (PIMIX) is a domestic bond fund - 83% US and maybe 3% emerging markets - so it's not terribly surprising that it would have a different profile, especially in the short term.
  • edited January 2013
    Reply to @David_Snowball: >>>>But PIMCO Income (PIMIX) is a domestic bond fund - 83% US and maybe 3% emerging markets - so it's not terribly surprising that it would have a different profile, especially in the short term. <<<<


    End of December, PIMIX AKA PONDX held 22% in non-U.S. Developed bonds and 19% in emerging markets bonds.
  • Reply to @andrei: I think it's a tough comparison to be matching up a world bond fund (MAINX) to an emerging market bond fund (FNMIX). I would expect differences.
  • Reply to @Hiyield007: How odd. The Morningstar "country breakdown" is 82.77% US but the analyst does note that they hold "non-U.S. developed-markets (19% of assets) and emerging-markets debt (21%)." Presumably holdings like "Irs Brl Zcs R 8.44/cdi 07/06/12 Boa" (3.97% of the portfolio) are international debt somehow coded as a domestic bond.

    Yeeeesh. I may go back to writing about stocks and propaganda.

    Thanks for the heads up!

    David
  • edited January 2013
    Reply to @David_Snowball: David, I am a huge Morningstar fan, primarily their performance rankings. But when it comes to portfolio holdings and breakdowns I always go direct to the fund site. Then again, with 95% of my liquid net worth in PONDX, I am a bit obsessive about that one.
  • Dear Hiyield007,

    Thanks a lot for attracting my attention to PIMIX lsome time ago; I am using it quite heavily now. By the way, is there any reason why you are 95% in PIMIX rather than in PDI?

    Andrei
  • edited January 2013
    Reply to @andrei: Andrei, I looked long and hard at PDI but I simply have a bias against exchange traded/closed end funds that I can't overcome. It's been a super performer. Last I checked it was a different animal than PONDX in that it was almost entirely leveraged in mortgages. Today was the first trading day this year PONDX was not up (it was unchanged) It's been hard to diversify more into equity funds (only 5% now in PCKDX) with PONDX rarely having a down day the past few months. Hard for me to let go or cut back on winners with so much momentum. I would love to add some FSLRX and PIXDX as well as increase my position in PCKDX.
  • Thanks for the answer, I understand. PDI is the first closed end fund for me; let us hope that its exit doors will not be closed when I decide to leave...
  • edited January 2013
    Reply to @andrei: MAINX at times has some risk-off characteristics that most straight-EM debt funds don't. Looking purely at Asia, there are quite a few days when it's up in price when Asian stock funds are down. I think it fits pretty well in a lower-risk Asia sub-portfolio, which squares with how I want to invest ~ 25% of assets. I think people not particularly interested in Asia as a region on its own would have much less reason to invest in MAINX.
  • Reply to @Mark:

    As mentioned below by Hiyield007, in December 2012 PIMIX aka PONDX held 22% in non-U.S. Developed bonds and 19% in emerging markets bonds.
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  • edited January 2013
    Reply to @Maurice: From David's post above:

    Our conference call with Teresa will be Tuesday, January 22, from 7:00 - 8:00 EST. Just click REGISTER and you'll take been to the Chorus Call website where you'll register and receive a toll-free number and a PIN.

    The word "REGISTER" in the original post is a link to the registration page.

    Good question about Java.
  • You just need a telephone to participate. You dial the number that's provided in the registration email, and follow the prompts to enter your pin code. It's an audio only call, and I often listen in as I drive home from work.
  • Reply to @Maurice: Hi, big guy!

    As AndyJ and chip note, it's just a phone call. Click the link, enter your email, and you'll get an 800 number and a PIN (no, not share of an India ETF). Dial in just before 7 Eastern. You'll be on hold until the call starts and muted throughout, so feel free to whoop loudly. If you've got questions for Teresa, Emily or Jamie (one of whom will facilitate the call) will prompt you to press #1 on the phone and they'll queue you up.

    Remarkably easy.

    Hope to see you there,

    David
  • edited January 2013
    David,

    I am curious about who is paying for this conferencing service? Are you paying or the fund company?
  • edited January 2013
    Hi David.

    Like you, I too found few offerings comparable to this intriguing fund.

    I searched for fixed income funds focused on same Asian region that MINCX/MAINX provides in its literature:

    image

    Below is comparison of funds I found:

    image

    MAINX tops list of life time APR relative to cash, though of course it is a young fund. Still, it seems to have low down side volatility (so far) and a very good yield. Most of the offerings here are young, actually, except Aberdeen Asia Bond Institutional CSABX and Western Asset Global Government Bond I WAFIX, although the latter seems to have a bit broader global domain.

    Here's look at just relative time frame, since inception of MAINX in Dec '11:

    image

    And the attendant risk measures, all over same time period:

    image

    I like that Teresa Kong and Robert Horrocks both appear to have invested in the fund, since you first posted the profile last year.

    A question I would have for the teleconference is what is their philosophy in handling down side and draw down volatility.

    Very much looking forward to this call.

    Thanks again for all you do with MFO.
  • Reply to @Investor: Hey, pal.

    It varies. Depending on the number of folks in attendance and whether we run over our one-hour limit, a call costs something in the $400-600 range. In general I pursue a cost-sharing arrangement with the funds. Some of the fund companies have preferred to cover the entire cost.

    David
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  • edited January 2013
    Hi again David.

    Another question if I may...

    I noticed that MINCX/MAINX has no holdings in India, Pakistan, New Zealand or Taiwan. Is that because Ms Kong does not see equivalent opportunities there, or are there additional issues holding investments in these countries? Similarly, are there issues/restrictions holding bonds in mainland China? It seems the fund's holdings focus on companies traded on Hong Kong exchange versus say Shanghai or Shenzhen exchanges.
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