Posted inHead To Head

HEAD-TO-HEAD: First State vs Matthews Asia

Fund Selector Asia compares the First State Indian Subcontinent Fund with the Matthews Asia India Fund.

Indian stocks have been driven by expectations that Prime Minister Narendra Modi will implement much needed reform. But the country also faces macro-economic headwinds. As an emerging market, India is vulnerable to outflows from foreign investors. Indian banks are saddled with non-performing loans and the government is struggling to lift its rural poor into the middle class.

But on the bright side, India is less reliant on the global economy, and less focused on commodities. Against this volatile backdrop, Fund Selector Asia compares the Matthews Asia India Fund with the First State Indian Subcontinent Fund, which has been shortlisted for an FSA fund management award in Hong Kong.

Luke Ng, senior vice president of research at FE Advisory Asia, provides a comparative analysis.

Investment strategy review


The First State fund, led by Vinay Agarwal and co-managed by Richard Jones, uses the MSCI India as its reference benchmark. In contrast, the Matthews Asia fund led by Sunil Asnani and co-managed by Sharat Shroff uses the S&P BSE 100 as it benchmark.

Launched in 2011, the Matthews Asia fund is relatively new. The First State fund has a longer history, having launched in 1999.

Both funds employ a bottom-up approach to investing and have the ability to invest in small to large cap stocks. While both funds have a bias toward small to mid-cap stocks, Ng said that the Matthews Asia fund has a stronger tendency to focus on small caps.

In theory, the First State fund has a slightly broader mandate and is able to invest in Sri Lanka, Bangladesh and Pakistan in addition to India.  However, as of November 2015, 93.7% of its portfolio was allocated to India and only 1.3% was allocated to Bangladesh, so in reality there isn’t a huge difference.

The top sector for the First State fund is consumer staples (26.4%) followed by financials (22.3%). In contrast, Matthews Asia’s top sector is financials (27.6%) followed by consumer (19.1%).

                                     Sector comparison


 First State     Matthews Asia   
Consumer staples  26.4%  Financials  27.6%
Financials    22.3%  Consumer Staples  19.1%
Infotech   12.3%  Infotech  17%
Industrials  10.5%  Healthcare  14%
Healthcare 8.8%  Industrials  9.3%
Materials 8.5%  Consumer discretionary  8.5%
Consumer discretionary  5.5%  Materials  4.4%
Utilities 0.7%  Energy/Utilities/Telecom  0%
 Source: Firms’ factsheets


According to FE data, First State’s top three holdings are IT firm Infosys (6.6%), HDFC Bank (6%) and Nestle India (5.8%)

Matthews Asia’s top three are Shriram City Union fnance (5.17%), ITC (5%) and Taro Pharma (4.6%).

The top ten weightings are fairly close. The top ten holdings for First State’s fund account for 46.5% of the portfolio versus 42.2% for Matthews Asia vheicle. 

Fund performance


Cumulatively, over the trailing three years, volatility has been lower with the First State product (16.23) compared to Matthews Asia’s vheicle (17.28), FE data shows.

According to Ng, both funds outperformed their respective benchmarks for the calendar years 2012 to 2015.

However, the Matthews Asia fund, which has the stronger focus on the small to mid-cap sector, performed better when market sentiment was strong. For example, when Indian equities rallied in 2014, it posted returns of 53.4% versus First State’s 43.7%.

When Indian equities traded sideways in calendar years 2013 and 2015, First State delivered the stronger performance, posting returns of 5.9% and 3.7% versus Matthews Asia’s returns of -5.2% and -3.2%, according to FE data. Ng said that the First State fund offers the better downside protection of the two.

Calendar year performance comparison:

  YTD* 2015 2014 2013 2012
First State India Subcont II USD -9.9% 3.66% 43.7% 5.9% 28.4%
Matthews Asia India A Acc USD -10% -3.18% 53.5% -5.2% 28.1%
*to 21 Jan 2016. Source: FE Advisory


A comparison of the trailing three-year performance versus each other: 

Source: FE. the Matthews Asia fund has been converted from GBP to USD.


Part of the Mark Allen Group.