The myriad personnel changes over the past decade at Matthews International Capital Management weaken Matthews Asia Dividend's investment case.

In recent weeks, the firm reshuffled the leadership of many of its strategies in the wake of their lackluster results and dismissed several of its portfolio managers. Other big organizational changes preceded it, including some directly affecting this strategy.

House-cleaning within an asset manager can be well warranted to put its strategies on better footing than before. Indeed, at around 2023's start, the firm replaced the leadership of this Asia-Pacific-focused strategy in part because the portfolio had struggled to reliably provide above-index current income, limit the downside of its total returns, and temper their volatility—all among the strategy's primary objectives.

The strategy is now in the hands of a management team that, for more than a decade, has guided Matthews Asian Growth and Income MICSX in a far more conservative way. It includes now-lead managers Robert Horrocks (one of Matthews Asia Dividend's longtime comanagers and previously a lead manager) and Kenny Lowe. Sid Bhargava and Elli Lee are now listed comanagers.

To return the portfolio to its risk-averse roots, Lowe and Horrocks have mostly pivoted away from Vietnam stocks in favor of those from Hong Kong, Taiwan, and Japan. Its country and sector exposures now align fairly closely with the MSCI All Country Asia Pacific Index (the strategy's prospectus benchmark). The portfolio now offers greater exposure to yield (dividend yield plus share repurchases) and quality, according to Morningstar’s risk model. It has less exposure to growth companies and those with highly volatile stock prices.

But many of the firm's changes in recent years have seemed the result of dithering rather than proactive deliberation. Some personnel departures have undoubtedly been losses to the firm. After a roughly five-year stretch of missteps, the firm is still working toward regaining its balance.

Analyst Rating

This strategy is risk-averse once again, but the firm itself remains volatile.

Strategist

Robby Greengold

Carlisle Companies

WisdomTree Asia Local Debt Fund

Fed Inter Mun In Fd Shs of Benef.Interest

Taiwan Liposome Company Ltd - ADR

Bluerock Residential Growth REIT

Atlantic Union Bankshares Corp

Yum China Hlds

The strategy's reawakened risk consciousness merits an Above Average Process rating.

Still-new co-lead managers Robert Horrocks and Kenny Lowe have guided the strategy back toward objectives that had not been reliably met for several years: to provide investors with current income, downside protection, and relatively mild volatility. They have a lengthy track record of meeting similar aims at Matthews Asian Growth and Income MICSX, whose geographic scope overlaps but generally does not invest in Japan or Australia—large portions of this dividend strategy's Asia-Pacific investable universe. The managers will also distinguish the strategies' risk appetites by continuing to invest exclusively in common stocks in the dividend strategy but a sizable allocation to safer securities—preferred stocks and convertible bonds—in the growth and income strategy, which is meant to be especially conservative.

This bottom-up-driven process relies on the collaborative and effective vetting of stock ideas with the broader group of portfolio managers and analysts at Matthews International Capital Management. Its instability has recently challenged the firm. Myriad personnel departures such as those from this firm can disrupt the research process, weigh on a team's morale, and diminish its ability to unearth unique insights.

Above Average

Process

The seemingly incessant organizational changes at Matthews International Capital Management warrant a downgrade of this strategy’s People rating to Average from Above Average.

The firm's investment team has endured many reshufflings over the past five years. Some personnel departures have undoubtedly been losses to the firm, while others seem warranted. What is certain is that the team has weathered a storm of changes. Their benefits are hard to discern.

At around 2023's start, this strategy endured an abrupt change in its management team in the wake of the strategy’s apparent drift from its dividend mandate. Kenny Lowe and Robert Horrocks took over from Yu Zhang and Joyce Li, who left the firm. (Horrocks was previously one of its lead managers and the firm's chief investment officer.) Sid Bhargava and Elli Lee are now listed comanagers.

These shifts followed a multiyear pattern of personnel churn at Matthews. The broader investment team on which the managers rely for insights has diminished; many analysts have left and have not been fully replaced. Since 2020, various departures of portfolio managers have affected nearly all the firm's strategies in a big way.

Lowe and Horrocks have more than 10 years of experience working alongside one another. Concurrent with running this strategy, they co-lead Matthews Asian Growth and Income MICSX. That strategy's value-add has waned in recent years.

Average

People

Matthews International Capital Management still has strengths, but a transforming strategy roster, personnel turnover, and a big decline in assets warrant a drop of its Parent rating to Average from Above Average.

Matthews has a long history of success with funds that focus on Asian equities, but it has overhauled its strategy roster in recent years. Since early 2020, it has liquidated three funds, merged another away, launched its first diversified emerging-markets fund, and converted two of its Asia funds into diversified emerging-markets offerings. It also has opened four active exchange-traded funds in the past 12 months. That's a lot of change, and the firm is unproven in the diversified emerging-markets arena, though the fact that Asian stocks dominate the emerging-markets universe is grounds for optimism.
 
Matthews still has 30 individuals—excluding portfolio strategists and traders—on its investment team, and many are seasoned and skilled. But the firm has lost quite a few managers and analysts since the start of 2020, and the investment team is much smaller than it was. Further, its management team has had notable departures and retirements, such as former CEO William Hackett. Fundholders have pulled sizable amounts from Matthews' funds in recent years, and assets under management fell to $12 billion as of May 31, 2023, from $27 billion as of Dec. 31, 2019.

Parent

Matthews Asia Dividend Active ETF

ADVE is an actively managed portfolio of dividend-paying companies located in Asia. The fund seeks to provide total return with a level of current income higher than average Asian equities.

Matthews Pacific Tiger Active ETF

Matthews Emerging Markets Sustainable Future Active ETF

Matthews India Active ETF

Matthews Japan Active ETF

Matthews Asia has launched five new actively managed emerging market ETFs on the New York Stock Exchange. The firm's full suite of transparent active ETF strategies will be similar to its existing mutual funds.

Matthews Asia Launches 5 New Active Emerging Market ETFs

SAN FRANCISCO, Sept. 22, 2023 (GLOBE NEWSWIRE) -- Matthews further enhanced its Emerging Markets leadership in Active ETFs today with the launch of five new actively managed exchange-traded funds (ETFs) on the New York Stock Exchange. Following the launch of its Active ETFs platform last year, this will bring the firm's suite of Emerging Market and Asia-focused ETFs to 10.

News for Matthews Asia Dividend Active ETF ETF (ADVE)