Thanks to quite a few discussions here I've become a bigger fan of Matthews Asia and have added to investments I had previously (MAPIX), made investments in new funds that fit my needs (MEASX) and started tracking funds that I find interesting and/or possible future additions to my portfolio (MSMLX, MAINX).
When I read their literature, which I do on a regular basis as I suspect many others do because most of it is kindly linked here, I'm excited about the opportunities in Asia. I'm also aware that they don't write much that's negative about Asia and in many cases they take on what they apparently consider misperceptions about Asia. They have recently defended China's property market, China's growth prospects and they have suggested that China's perceived protectionism is a healthy aspect of financial reform.
While I don't disagree with many of their points I continue to worry a little that they have an incentive to market arguments that are supportive of their funds rather than a purely objective analysis of each topic. I would welcome any thoughts about Matthews' literature, investing in Asia generally or any other related topics.
Comments
The MAPIX decision not to post a distribution for q4 is somewhat baffling but it's probably a one time thing. I too await the commentary to see if they offer a explanation.
I just saw that particular Morningstar thread which our InformalEconomist shared from Morningstar, about no MAPIX 4Q pay-out. The fellow who posted over there summarized the reply he got from Matthews this way: "The reason for the "nothing coming to us" at year-end according to their (admitted) talking points, is the tax treatment of passive foreign investment company holdings for US citizens."
Can someone tell me what that means? Thanks.
Copy and paste from the M* thread. Response from Matthews.
Thank you for your inquiry. To clarify, there was no ordinary income distribution of the Matthews Asia Dividend Fund for the most recent quarter-end primarily due to the tax treatment of the portfolio's Passive Foreign Investment Companies (PFICs). A PFIC is a non-United States company that primarily derives its income from investments. U.S. investors who invest in PFICs must follow unique tax regulations that differ from regular investments.
U.S. tax code requires investors under certain circumstances to deduct from the distributable income capital losses stemming from holdings in companies deemed to be PFICs. The Fund's holdings in real estate investment trusts (REITs) are deemed PFICs.
This is not an indication of a change in how the portfolio is managed. The strategy remains focused on total return while investing in companies with high dividend payouts and growth-oriented businesses.
Should we be able to assist you further, please do not hesitate to reply to this email or contact us at 800-789-ASIA (2742) Monday through Friday, 9 a.m. to 7 p.m. Eastern Time.
Regards,
Matthews Asia
matthewsasia.com
http://us.matthewsasia.com/investor-resources/fund-distributions.fs
I do not remember seeing that paragraph there before. Unfortunately, there are more questions than answers as investors are asking about the PFICs . I am starting to sense a PR blunder on the part of Matthews. A lot of upset posters over at M* are beginning to question their investments with them.
"2014 year end ordinary income distribution is not estimated for the Matthews Asia Dividend Fund ...." Yes it is. It's 'estimated' as zero.
Then they "explain" about REITs, but for some reason can't bring themselves to just say right out what they (apparently) mean - they had some REITs that lost money, and those losses offset all the dividend income the portfolio produced.
How can it be so hard to write a couple of simple sentences that says clearly what happened?
http://www.investopedia.com/terms/p/pfic.asp
Doing a search of PFICS and mutual funds brings up a number of sources and from what I have gleaned from these is that the tax treatments on these investments are not good at all.
Now, is this new tax law? Either Matthews never invested the fund's money in this manner before or new laws have changed the circumstances mid-stream.
Great question.
John, the way I interpret your comment is that while it might be very poor from a taxation standpoint, the actual tax would depend upon the individual account holder, not the fund itself. If that is correct, then I don't understand why the fund isn't just paying out whatever they made, and letting the individuals worry about their tax issues. Certainly the fund has no idea what the tax status may be for any individual account?
To me, it smells more like whatever they did, there wasn't one hell of a lot left to distribute.
OJ
Manoj (Tito) K. Pombra
Chief Compliance Officer
He would know. Perhaps, with a nicely-worded e-mail (if we can find the address), he would be able to explain the When and the Why of the PFICs, and perhaps offer a reason why these investments were taken. I doubt they were made thoughtlessly, but perhaps they were made without a full appreciation of what would happen if they went south (re. tax treatment of dvds). Like AndyJ exclaimed, in so many words, what's done is done; you guys just want to know what happened. Is that too much to expect?
Matthews International Funds
4 Embarcadero Ctr # 550, San Francisco, 94111
California
Phone: (415) 788-6036
We're leaving for San Diego in the early morning, but perhaps someone could give them a call and inquire as to the email address.
Mr. Pombra is the DIRECTOR of the National Society of Compliance Professionals
(October 2011 – Present)
The National Society of Compliance Professionals is a nonprofit, membership organization dedicated to serving and supporting compliance officials in the securities industry.
(Taken from LinkedIn, to which I don't belong, so I could see only a bare minimum of stuff.)
Old Joe: Recorded female voice: "You have reached a number which has been disconnected or is no longer in service."
The only phone number I know of, offhand, without looking deeper, is 1-800-789-ASIA.
If that's the case, their explanation seems pretty straight forward: they sold some REITs at a loss and tax law says you have to deduct the tax loss from distributions on passthrough entities. At the end of the day, they know the upcoming distribution will be small enough they didn't even bother estimating.
What is left unsaid said is that the portfolio probably now yields a smaller amount because it's sold out of income producers, that foreign taxes eat up more of that amount, that the ER eats up still more, and that the rising dollar is providing a short term headwind to begin with.
@JohnChisum My apologies for "mis-remembering;" yes, it was the Pacific Tiger from which you "took leave," and your rationale for the exit was clear and sensible, and your timing seemed right (to me).
With respect to when this REIT stuff happened, the MAPIX semiannual shows 22% financial (end of June) and the most recent MAPIX fact sheet (end of Sept) shows 14% financial. Like most foreign MFs, MAPIX's investments are reported by country, so it is hard to tell which holding companies were involved, and when.
"Regarding the ZERO estimated pay-out for December, 2014 in MAPIX:
You have a big bunch of investors in MAPIX who are a great deal less than happy, myself included. The short thumbnail little blurb you have offered at the bottom of the Estimates page doesn't even make sense in English. ... Be that as it may, questions remain, and so far, the response offered by Matthews is a lot less than satisfactory. Actually, your response/explanation leaves a lot to be desired. It's a cookie-cutter, canned, meaningless response, rather than a true explanation.
How did the fund lose so much money because of PFICs that it erased all dividend income for the 4th Quarter? Did MAPIX invest in something it did not understand? Is this the first time MAPIX invested in such products?
Were the tax laws re-written in midstream? Did Matthews rely on faulty investment advice?
A great many of us want to know. There are no guarantees in investing. But MAPIX has always paid shareholders in every Quarter, until now. And MAPIX is DESIGNED to pay dividends. So what happened? Shareholders deserve a straight answer, rather than the meaningless, sanitary pile of junk which has so far been offered."
To me their explanation -- recognizing FINRA and the SEC have some regulatory requirements for mumbo jumbo -- looks pretty straight forward, other than not talking about the things I mentioned above.
One other aside. Matthews own page for MAPIX lists the 12 mth yield at 2.97%. This is down quite a bit in the past year, and I have to believe they're finding it hard to get income and maybe are taking risk off the table. In any case, it doesn't leave a lot of wiggle room with fees and foreign taxes.
So this thread is actually a pretty good example of thoughts on Matthews Asia. Their basic story had always been Asia has 60% of the world's population, and much of that population is moving into the middle class with all that entails. They also feel Asia/Pacific indices are constructed looking at what the economies had been, and that you get a better representation of the region hiring Matthews. They always emphasize that this is a long term demographics story and that there can be short term pains.
Their writing can certainly seem glossy at times, but if you read with that basic story in mind, they always seem to do what they say. It's up to the individual investor to choose whether they believe the folks at Matthews or not, but to my mind, these are buy and hold funds with occasional very obvious warts.
I have a longer time horizon than many here, and I've chosen to believe what they write at face value. If your circumstances are different, or you hate short term volatility and need curent income, YMMV (your mileage may vary).
Your e-mail pretty much covers the ground, with all the essential questions anyone could hope to have answered in this situation. However, to me, it seems unnecessarily strident and kinda punchy, sort of "I have been wronged, and I demand an explanation." That might be a turn-off for them. If they can look past this and contact you, I'd suggest more of a soft glove approach, coming from a different place, albeit with the same questions in mind: "MAPIX is one of my largest foreign holding, and this was so unexpected that I'm just really disappointed, more than anything else; could you give me something that would restore faith in this fund?" "Are you gonna diminish your focus on producing a high level of current income from MAPIX investments for awhile, or was this a one-off event?"
After all (from the Sept 2014 fact sheet):
Investment Objective
Total return with an emphasis on providing current income. (my emphasis)
Strategy
{..} the Mathews Asia Dividend Fund seeks to achieve its investment objective by investing at least 80% of its total assets {...} in income-producing securities of companies located in Asia, {...}. The Fund seeks to provide a level of current income that is higher than the yield generally available in Asian equity markets over the long term. (my emphasis)
http://us.matthewsasia.com/contact-us/individual-investors.
I was thinking of emailing also but I got interrupted by a tropical depression which hit our area directly. The storm spawned a number of tornadoes, one which passed about 100 meters from the house. Forty two hours later our power is back on.
Later on I will send a email too and wait for their response. Thanks Max for your efforts. We all want to know the skinny on this situation.