Matthews Pacific Tiger

Matthews Asia is a specialist Asian manager based in San Francisco. Pacific Tiger is its flagship fund, and aims to invest in high quality companies for the long term. It is a high conviction, low turnover portfolio with an emphasis on domestically or regionally-oriented companies that stand to benefit from the long-term evolution and growth of the Asian consumer. Although the fund can invest across all market capitalisations, it does tend to favour mid- and small-cap companies.

Our opinion

This is a core Asian equity fund run by a well-structured and well-resourced specialist team. We particularly like the fund's ability to differ from the benchmark and its aim to invest in long-term Asian winners. The focus on corporate governance, expert local knowledge and numerous company meetings are all reasons to think this fund will continue to outperform over the long term.

Fund manager

Lead manager Sharat Shroff has been running the fund since 2010. Prior to joining Matthews Asia in 2005, he worked in Hong Kong and San Francisco as an equity research associate for Morgan Stanley. Sharat received a Batchelor of Technology from the Institute of Technology in Varanasi, India, and an MBA from the Indian Institute of Management in Calcutta. Sharat is supported on the fund by co-managers Raymond Deng and Inbok Song.

Sharat Shroff

As long-term investors in Asia, we believe the best opportunities for wealth creation arise when market reforms, enhanced competition and rising household incomes combine to spur new and growing markets.

Sharat ShroffFund manager

Investment process

Matthews Pacific Tiger's investment philosophy is to ignore short-term macroeconomic issues and focus entirely on the long term. Matthews is deliberately based in San Francisco to remove the day-to-day noise of the Asian markets. However, the team makes regular visits to the region and see thousands of companies, including suppliers and customers of potential stock ideas.

Matthews has a large investment team from diverse backgrounds. The members have a wide range of local knowledge and speak 13 different languages between them. All fund managers sit with their team and work as analysts. The fund aims to buy high quality, capital-light businesses, which are typically more expensive than the index, but which have great potential for growth. Corporate governance is extremely important. The team spends 3-12 months working on each new idea.

ESG

ESG - Integrated
While this strategy is not explicitly managed with a dedicated ESG mandate, ESG factors - particularly governance - are an important input into the investment process. From a portfolio management perspective, a critical component of meetings with company management is an in-depth analysis of the company’s corporate governance structure, philosophy and commitment. The team probes management’s thinking on business models, capital allocation, budgeting and utilisation, as well as future growth initiatives, competition and other issues. It seeks to develop a view on the integrity of management, its alignment with minority shareholders and ability to effectively manage the company through market and economic cycles. The analysis also includes a strong focus on certain factors which some investors consider to be “ESG” factors, but which Matthews considers “core” to understanding the sustainability of revenues, cash flows and profits, regardless of what label may be ascribed to this analysis. These factors include the commitment and ability of a firm to sustainably address labour matters, policy and regulatory requirements, customer interests, dividend policies, and minority shareholder rights.

Risk

Risk is managed through very detailed research – typically 3 to 12 months on each idea. The team then builds a position slowly; only adding further once the company hits certain milestones. The fund has a strong bias to quality and is typically underweight more cyclical sectors such as energy, materials and technology. It is also more exposed to the Asian consumer than Asian exporters. As a result, Matthews Pacific Tiger may experience periods of underperformance in the short term, when low quality shares rally. Investors should also be aware of the currency risk.

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