Since bottoming at the end of October, the MSCI Emerging Market Index (MXEA) and MSCI Asia Ex-Japan ...
Matthews: Conservative Path to Asia
04/28/2016 10:00 am EST
Stock markets of the Asia-Pacific region can be erratic and scary, but the region’s growth potential is immense, cautions Tim Begany, editor of Personal Finance.
To invest in the region as safely as possible, we recommend Matthews Asia Growth (MPACX).
The $686 million mutual fund knows how to get category-leading returns from Asia-Pacific stocks while sparing shareholders the worst of the region’s market turbulence.
Over the past five years, MPACX returned an average annualized 4.7%, compared with only a 2.1% rate of return for its peer group.
But those figures undersell the fund’s potential. We see the fund’s returns increasing as concern about a US recession fades and China’s economy avoids a hard landing.
Co-managers Taizo Ishida and Sharat Shroff have been running the fund for most of the past decade, and we like their conservative style.
They make sure they diversify—MPACX currently holds 63 stocks in 10 economic sectors—and stick mainly with large caps, which usually don’t get hit as hard as smaller stocks when markets crash.
Ishida and Shroff also shy away from popular momentum stocks. They tilt the fund toward steady, shock-resistant businesses.
In all cases, Ishida and Shroff look for signs of sustainable growth such as stable cash flow, established products and adaptable management teams.
They find such companies mainly in Japan, which accounts for a third of fund holdings and 46% of assets. MPACX currently has 13% of assets in India and 11% in China.
It also makes substantial allocations to the Philippines and Indonesia, as well as small but still potentially lucrative investments in Thailand and South Korea.
MPACX also shows the buy-and-hold tendency we prefer in our fund picks. Managers typically only replace a quarter of fund stocks annually; a third of holdings have been in the portfolio at least five years.
Low turnover keeps a lid on trading costs and, in turn, expense ratios, which have been steadily declining under present management.
Like many growth offerings, MPACX pays no dividends. With expenses at 1.11% of assets, MPACX is a reasonably priced option for conservative investors seeking a high-performing play on Asia-Pacific equities.
By Tim Begany, Editor of Personal Finance
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