We take an investment approach that is focused on developing deep insights into the region through fundamental research and identifying the most attractive long-term investment opportunities. Rather than passively relying on equity indices built on historical performance, we seek alpha by actively managing our portfolios and conducting in-depth, on-the ground fundamental research to identify the most compelling opportunities while minimizing downside risk. This is how we built our 25-year track record in Asia—and how we plan to carry our work forward into the next 25 years and beyond.
Asia’s growth and dynamism tempt speculation. But we believe that to consistently capitalize on Asia’s potential, investors must take a long-term approach, rooted in deep understanding of the economic evolution of the region and combined with bottom-up research on individual businesses that may benefit from that evolution. We develop our understanding of the economic forces driving growth in Asia—and our insight into the businesses that are best positioned to thrive in Asia—through an unwavering commitment to in-person, on-the-ground fundamental research and objective analysis.
Passively gaining exposure to Asia through equity indices is not enough. Many of Asia’s equity indices are weighted by market capitalization. This means they’re effectively backward-looking—rife with yesterday’s winning companies, but missing tomorrow’s biggest opportunities. Investors seeking alpha potential—the potential to generate excess return—can’t afford to settle for a passive approach.
That’s why we pursue active, high-conviction, index-agnostic portfolio management, based on 25 years of experience in selecting Asian equities, rather than a passive, index-based approach. Our process draws on our collective knowledge and experience to develop expectations not just at the country, industry, or sector level, but at the individual business level.
With an active investment approach we believe we are well positioned to drill down into lesser-known and less-followed businesses to identify long-term opportunities that may not be readily visible to others. The result is portfolios that differ substantially from benchmarks, with high active share. Our in-depth assessment of financial positions, resource allocation decisions, incentive structures, ownership history, governance practices—and much more—ensures that we understand the facts behind the reporting as we work to generate alpha for our clients.
Developing the information and insight we need to identify superior opportunities in Asia takes commitment—of time, of resources, and of ourselves. When we engage with a company, we seek to gain not just a narrow assessment of its prospects, but a broader understanding of the entire ecosystem in which it operates.
A typical on-site company visit includes not just meetings with the CEO and decision-makers of a company, but also trips to their production facilities and warehouses. Our on-the-ground analysis then extends to supply chain partners, competitors, and industry and economic experts. In addition, we visit property developments, hotel chains, department stores, and other retailers to gain a sense of the consumer environment, and we meet with local individuals, including real estate professionals, trade association representatives, and government and central bank officials, to gain first-hand perspective on various segments of the economy. This effort translated into more than 2,600 company meetings in 2019, including over 1,000 on-site visits in locations ranging from Asian financial centers to remote inland outposts.
The depth and rigor of our research process provides us with a high degree of confidence in the businesses we hold. While we continually revisit our thesis, debating the merits of continued ownership and maintaining positions only when our conviction remains high, our long-term approach paired with our extensive, on-the-ground research allows us to use volatility as an opportunity. When sentiment is negative and markets are volatile, when shorter-term or less-informed investors are typically selling and valuations are low, our research gives us confidence that we can use that opportunity to increase our exposure to quality companies at attractive valuations.
Asia is inherently volatile. Over the course of nearly three decades of our experience in the region, Matthews Asia has developed a rigorous—and tested—approach to risk management. Our organizational structure reflects the high priority we place on risk management, with a dedicated, independent risk-management function, housed with the Risk and Compliance Department, overseeing both enterprise and investment risk. The Risk and Compliance Department is led by our Global Head of Risk and Compliance, who reports directly to the firm’s CEO.
At the portfolio level, we manage risk through our in-depth, bottom-up research process and rigorous sell discipline. An investment approach that focuses on assessing corporate governance and identifying high quality business that are aligned with the interests of minority shareholders lies at the heart of our approach.