Time to Ride Pacific Tiger

12/13/2010 3:28 pm EST

Focus: FUNDS

Russel Kinnel

Editor, Morningstar FundInvestor

The Matthews Pacific Tiger Fund is a bargain that  benefits from the firm’s expertise and excellent track record in the region, write Russell Kinnel and Bill Rocco of Morningstar FundInvestor.  

The Matthews Pacific Tiger Fund (MAPTX) boasts impressive long-term returns and is an excellent choice for those who want to make a long-term investment in emerging Asia.

It has experienced moderate volatility relative to its boom-or-bust emerging markets category.

The fund has posted superior gains in this year’s turbulent but generally favorable conditions. [As of Friday’s close, it was up more than 20% year-to-date, seven percentage points above the average for emerging-markets funds. Its annualized return of 3.9% over the last three years ranks in the top 1% for its category—Editor.]

Strong stock selection has propelled this fund to good returns in most past rallies. Because of the managers’ taste for smaller markets and less-prominent names, the fund held up relatively well in awful 2008 and some prior downturns.

Pacific Tiger has a pronounced personnel edge over most rivals. Matthews International Capital Management is an all-Asia shop that opened its first funds in 1994. It now has a diverse roster of 11 mutual funds. Its investment team has expanded along with its fund lineup and currently includes 22 Asia experts with a broad array of specialties.

This fund’s co-lead managers have impressive resumes. Richard Gao has ample investment experience in both China and the region as a whole. (He has served as the lead manager of the Matthews China Fund (MCHFX) for nearly a decade.)

Sharat Shroff knows India really well and has served as the lead manager of Matthews India Fund (MINDX) for two years. Gao and Shroff are skilled as well as seasoned: Their single-country funds have strong long-term records. [Shroff’s India fund is in the top 2% of emerging-markets funds this year with a 27% gain. He discussed the region’s prospects and some of his stock picks with Moneyshow.com earlier this year—Editor.]

Pacific Tiger’s strategy takes full advantage of Matthews’ broad Asia expertise. Gao and Shroff use the same growth approach as has worked successfully at Matthews China, Matthews India, Matthews Asia Pacific (MPACX), and Matthews Korea (MAKOX). They’re focusing on strong and sustainable growers with relatively moderate valuations. And they’re keen on up-and coming firms that will profit from the rising income levels in the region, while many Pacific/Asia ex-Japan managers concentrate on the largest markets as well as the trendiest sectors in the area and favor prominent exporters.

The result is one of the more wide-ranging and distinctive portfolios in the category. For example, this fund often has relatively sizable stakes in some of the region’s smaller markets, and it currently has an 8% position in Indonesia—while the typical pan-emerging-Asia offering has a 4% weight there.

This fund has an expense ratio of 1.13%. That’s 37 basis points below the median for the category. It is open to new investors with a minimum stake of $2,500.

Matthews has a good corporate culture. It has long used redemption fees, fair-value pricing, and other tools to mitigate the cash-flow fluctuations that can hurt such funds. It has done a good job of attracting talent and expanding its investment team over time. And it has shown that it will lower costs significantly on individual funds as assets grow.

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