Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Hello. It's 12:55 p.m. (EST) on the Friday after Thanksgiving. I just got a call back from the Matthews "compliance officer" named Tito. I believe his surname appears further up in this thread. I hung up on him twice without knowing who was calling, with a quick "on" then "off" with my phone buttons, because the Caller ID registered a bunch of unidentifiable nonsense. When he called back a 3rd time, I DID pick up, because the unidentifiable source of the call was becoming a nuisance. I answered the phone with "This better be good." He immediately identified himself. I made the point that if the Matthews funds are calling a shareholder, it would make sense that the receiver of the call be able to identify the source of the call, because these days, all manner of junk and cold-sales calls and crap comes in on the phone. He didn't like that much. He even went a bit further, to say that "I know for a fact that the caller ID comes up as Matthews Funds, and I don't like your tone. And if you don't like that, you are welcome to redeem your shares."
I didn't want to act rashly, so I waited a moment and bit my tongue, and simply said: "You called to tell me something?" He went on to tell me what he intended to tell me in response to my own call, on Wednesday, before the Thanksgiving holiday. He was almost finished--- and I could TELL that he was almost finished--- because he was reading from a script. He was using the same "talking points" blurb we have all already seen. I stopped and said: "Pardon me, Tito, but it sounds as though you are reading to me from off a script." He replied, "I AM reading from a script..." and continued a bit further.
At which point, I told him, deliberately giggling: "I'll be going now, Tito." And I hung up. And that's it. The Fat Lady has sung. I'll be moving all of my Matthews money. .......When I called back, the switchboard even refused to let me talk to anyone else. End of story. Almost all of my Matthews money is in a Trad. IRA. I will do the simplest thing, and not even take the cash into my hands, but arrange for it to be sent directly to a new Custodian. Recommendations from any of you here at MFO for foreign exposure would be most appreciated. I've been with Matthews since 2003. Shareholders do not deserve to be dismissed and told they are not seeing what they are seeing, and then get their questions answered by reading from a blurb. This is all just shameful. I'm literally sick to my stomach just now. I will wait and research and not act rashly.
Your questions may have been justifiable, but your rude tone to an individual trying to work with you to explain their side makes me side with Matthews. Sounds like you are biting off your nose to spite your face. But I believe this isn't the first time for you.
Matthews not taking your call back also seems justifiable to me. They have every right to protect their employees from verbal abuse. My 2-cents.
Shareholders do not deserve to be dismissed and told they are not seeing what they are seeing, and then get their questions answered by reading from a blurb.
Matthews delegated someone to talk to you. He takes his marching orders from Matthews. It sounds as though he was required to read from the script. When you cut him off, you foreclosed any opportunity to converse afterward: "Thank you. I am wondering... " and perhaps find out when and how (and if) Matthews plans to add more detail. IMO, the actions you took were not designed to win you your goal. After calm returns, it might be a good time to look over the entire portfolio and see whether reconfiguring it would be of benefit.
Max, A cool off period right here will benefit you the most. Take a few days and think over your situation before making any decision on moving money. My 2¢.
I commend max for voting with his feet. We must in the world of investing trust our instincts honed by years of experience and after serious introspection make valid, for us, decisions. Maxl's action is proper. For the 56 million a year they collect from MAPIX fund's expense ratio, it is incumbent on them to be obsequious to Maxl and courteous in their response. Maxl pays Tito's salary and is justified in being irate. In a tax sheltered account his immediate response to rudeness is correct and my hat is tipped to him.
Thanks to everyone for the discussion! While it may not all relate precisely to my original thoughts, the reality is that it was a somewhat open question about Matthews and there's a lot of value here.
@mrdarcey, like you I have a long-term time frame and I'm almost always care far more about total return than income. Although I don't like the surprise related to MAPIX or their opaque explanations, I don't care that much whether they pay a dividend or not because its in an IRA.
The thinking behind my original question was that I enjoy Matthews' commentary but I also believe in the opportunity for greater returns in Asia and I'm considerably overweight Asian emerging markets. Understanding I'm susceptible to confirmation bias, however, I wanted to see how others feel about Matthews' message so I can try to make sure I think about it objectively.
@MaxBialystock It is regrettable you did not take my suggestion. You were speaking to the Big Kahuna, the chief compliance office for ALL Mathews funds. Prior to Mathews, he did this for 10 yrs @ FranklinTempleton. If you had simply heard him out (he was probably following the policy he had written for everyone in the company to follow, as mandate; would you have expected him to leave the boundaries he had set for others to follow, at least initially?), and then come in with the "really disappointed" angle (which is not untrue) to engender some empathy, you might have been able to ask how this law re. PFICs was so effective in derailing the Fund's primary objective. He isn't the person responsible for this happening, the PM Horrocks is.
@LLJB, this thread did go off in a different direction from your question.
I have noticed the bias in Matthews news and information articles. Also on their webcasts. It hasn't bothered me that much. The performance of the funds outweighs the sales pitch here.
Regarding MAPIX, any fund that has Dividend in its name and does not pay one out is newsworthy amongst us. I would not invest in MAPIX for the dividends anyway as they are erratic. There are better dividend funds out there. My strategy of investing in MAPIX was that it would be relatively conservative compared to the Growth funds. That has been blown apart with this news of the fund investing in PFICs. Everything I have read points to the fact that they are risky. The tax implications are huge also if someone has invested in this fund with taxable money. The biggest issue here is that Matthews is making a big PR blunder by not being upfront with their shareholders. Reading Max's comment above, I would suspect Tito had been dealing with a number of angry and demanding shareholders.
All of this has convinced me to start looking elsewhere. It will be interesting to track the AUM of MAPIX from here on out to see if there is any impact from this incident.
John, pulling your money from Matthews based on the voices heard on this thead would be crazy. You have likely only heard part of the story by a single individual. Matthews has been a terrific Steward of money in Asia. Could they have handled these dividend distribution questions differently? Sure. But again, you have only heard one side of a phone conversation. I think heezsafe is right-on the money. It could of been handled differently in a business manner.
@MikeM, I am just considering it. I do hope Mr. Horrocks will have more details when the commentaries come out. It would be pretty sad to learn he was eating Thansgiving turkey while this was going on.
I emailed Matthews the evening prior to Thanksgiving so I do not expect any reply until Monday at the very earliest.
One thing I learned early on is to never make decisions under emotional stress. As I recommended to MaxB, I take a step back and ponder on things for a while. Just by coincidence, I have been looking at my position in MAINX and considering closing that out to go into another fund.
It seems to me that Horrocks didn't make the best judgment not only from a return perspective but from a tax perspective as well. The 3 year returns for the fund are now below the category average and although I don't normally pay a lot of attention to 3 years, I've been considering my allocation for next year and MAPIX is going to be reduced.
Interestingly, I wrote a note to Horrocks a few days ago about the article he wrote for Asia Insight on Asia's Deepening Capital Markets. In it he said that Asia Pacific equity markets compose roughly 32% of the world's free-floating market capitalization and that it represents $20 trillion in market capitalization. When I look at MSCI's ACWI + Frontier Markets IMI index, they say 99% of the global investable equity opportunity set is a bit less than $43 trillion, and I calculate Asia's portion of that somewhere around 25%. I wrote to him because I was hoping he could help me understand the $17 trillion of global market cap that I'm missing, more than half of which is apparently in Asia. I don't have any response yet, which isn't that surprising given the holiday and all, but I'm wondering if his mistakes are growing in number.
This morning I had a email response from Matthews Asia. Their explanation is a bit more thorough than previous replies other posters have noted. One question is still on my mind. They did not pay the distribution due to the tax rules on PFICs and what impact that would have on their shareholders. Would this also apply to future distributions as well? I replied back with that question in mind.
Here is their response:
Thank you for your investment in the Matthews Asia Dividend Fund and for contacting us. As you noted, there was no ordinary income distribution estimates for the Matthews Asia Dividend Fund 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. A corporation is classified as a PFIC if it passes one of two tests (with a few exceptions)—the Income Test (75% or more of the company's gross income is passive income) or the Asset Test (50% or more of the company's assets produce passive income). 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. And while our inclusion of REITs in the portfolio can result in higher variability—both negatively and positively—in the income distribution, we continue to find them attractive for their significant yield premium to other equities. Please note that the Matthews Asia Dividend Fund does have income from dividends (book income) and the income is built into the value of the Fund but is not being distributed primarily because of the above tax rules. 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.
Thanks john. You verified for me that Matthews is a top notch outfit. But even with that, it is always good to use the motto, trust but verify. You did just that.
I also received a reply from Matthews confirming their numbers for Asia's share of global market capitalization but indicating their numbers were not free-floating market capitalization (MSCI's numbers) but total market capitalization. They also said they had updated their article to correct the mistake and thanked me for raising the question. I was pretty impressed with the professionalism and action-orientation of their response.
Comments
I didn't want to act rashly, so I waited a moment and bit my tongue, and simply said: "You called to tell me something?" He went on to tell me what he intended to tell me in response to my own call, on Wednesday, before the Thanksgiving holiday. He was almost finished--- and I could TELL that he was almost finished--- because he was reading from a script. He was using the same "talking points" blurb we have all already seen. I stopped and said: "Pardon me, Tito, but it sounds as though you are reading to me from off a script." He replied, "I AM reading from a script..." and continued a bit further.
At which point, I told him, deliberately giggling: "I'll be going now, Tito." And I hung up.
And that's it. The Fat Lady has sung. I'll be moving all of my Matthews money. .......When I called back, the switchboard even refused to let me talk to anyone else. End of story. Almost all of my Matthews money is in a Trad. IRA. I will do the simplest thing, and not even take the cash into my hands, but arrange for it to be sent directly to a new Custodian. Recommendations from any of you here at MFO for foreign exposure would be most appreciated. I've been with Matthews since 2003. Shareholders do not deserve to be dismissed and told they are not seeing what they are seeing, and then get their questions answered by reading from a blurb. This is all just shameful. I'm literally sick to my stomach just now. I will wait and research and not act rashly.
Matthews not taking your call back also seems justifiable to me. They have every right to protect their employees from verbal abuse. My 2-cents.
IMO, the actions you took were not designed to win you your goal.
After calm returns, it might be a good time to look over the entire portfolio and see whether reconfiguring it would be of benefit.
You've got this inside-out.
You stated: "When I called back, the switchboard even refused to let me talk to anyone else."
Why did you call again ???
Maxl's action is proper. For the 56 million a year they collect from MAPIX fund's expense ratio, it is incumbent on them to be obsequious to Maxl and courteous in their response. Maxl pays Tito's salary and is justified in being irate. In a tax sheltered account his immediate response to rudeness is correct and my hat is tipped to him.
@mrdarcey, like you I have a long-term time frame and I'm almost always care far more about total return than income. Although I don't like the surprise related to MAPIX or their opaque explanations, I don't care that much whether they pay a dividend or not because its in an IRA.
The thinking behind my original question was that I enjoy Matthews' commentary but I also believe in the opportunity for greater returns in Asia and I'm considerably overweight Asian emerging markets. Understanding I'm susceptible to confirmation bias, however, I wanted to see how others feel about Matthews' message so I can try to make sure I think about it objectively.
I have noticed the bias in Matthews news and information articles. Also on their webcasts. It hasn't bothered me that much. The performance of the funds outweighs the sales pitch here.
Regarding MAPIX, any fund that has Dividend in its name and does not pay one out is newsworthy amongst us. I would not invest in MAPIX for the dividends anyway as they are erratic. There are better dividend funds out there. My strategy of investing in MAPIX was that it would be relatively conservative compared to the Growth funds. That has been blown apart with this news of the fund investing in PFICs. Everything I have read points to the fact that they are risky. The tax implications are huge also if someone has invested in this fund with taxable money. The biggest issue here is that Matthews is making a big PR blunder by not being upfront with their shareholders. Reading Max's comment above, I would suspect Tito had been dealing with a number of angry and demanding shareholders.
All of this has convinced me to start looking elsewhere. It will be interesting to track the AUM of MAPIX from here on out to see if there is any impact from this incident.
I emailed Matthews the evening prior to Thanksgiving so I do not expect any reply until Monday at the very earliest.
One thing I learned early on is to never make decisions under emotional stress. As I recommended to MaxB, I take a step back and ponder on things for a while. Just by coincidence, I have been looking at my position in MAINX and considering closing that out to go into another fund.
It seems to me that Horrocks didn't make the best judgment not only from a return perspective but from a tax perspective as well. The 3 year returns for the fund are now below the category average and although I don't normally pay a lot of attention to 3 years, I've been considering my allocation for next year and MAPIX is going to be reduced.
Interestingly, I wrote a note to Horrocks a few days ago about the article he wrote for Asia Insight on Asia's Deepening Capital Markets. In it he said that Asia Pacific equity markets compose roughly 32% of the world's free-floating market capitalization and that it represents $20 trillion in market capitalization. When I look at MSCI's ACWI + Frontier Markets IMI index, they say 99% of the global investable equity opportunity set is a bit less than $43 trillion, and I calculate Asia's portion of that somewhere around 25%. I wrote to him because I was hoping he could help me understand the $17 trillion of global market cap that I'm missing, more than half of which is apparently in Asia. I don't have any response yet, which isn't that surprising given the holiday and all, but I'm wondering if his mistakes are growing in number.
Here is their response:
Thank you for your investment in the Matthews Asia Dividend Fund and for contacting us. As you noted, there was no ordinary income distribution estimates for the Matthews Asia Dividend Fund 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. A corporation is classified as a PFIC if it passes one of two tests (with a few exceptions)—the Income Test (75% or more of the company's gross income is passive income) or the Asset Test (50% or more of the company's assets produce passive income). 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. And while our inclusion of REITs in the portfolio can result in higher variability—both negatively and positively—in the income distribution, we continue to find them attractive for their significant yield premium to other equities. Please note that the Matthews Asia Dividend Fund does have income from dividends (book income) and the income is built into the value of the Fund but is not being distributed primarily because of the above tax rules. 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.