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Matthews Japan Fund MJFOX

Snapshot
  • High-conviction growth strategy seeks alpha in Japan
  • Unconstrained all-cap approach seeking Japanese companies positioned to benefit from Asia's growth
  • Invests in companies leveraged to the fast growing consumer demand across Asia, global industry leaders and entrepreneurial companies providing innovative domestic solutions

12/31/1998

Inception Date

4.95%

YTD Return

(as of 09/17/2021)

$26.52

Price

(as of 09/17/2021)

$1.66 billion

Fund Assets

(as of 08/31/2021)

Objective

Long-term capital appreciation

Strategy

Under normal circumstances, the Matthews Japan Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in Japan. The Fund seeks to invest in companies capable of sustainable growth based on the fundamental characteristics of those companies, including balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health.

Risks

Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.

The risks associated with investing in the Fund can be found in the prospectus.

Fund Facts
Inception Date 12/31/1998
Fund Assets $1.66 billion (08/31/2021)
Currency USD
Ticker MJFOX
Cusip 577-130-800
Portfolio Turnover 62.0%
Benchmark MSCI Japan Index
Geographic Focus Japan
Fees & Expenses
Gross Expense Ratio 0.95%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 08/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund
MJFOX
3.73% 2.30% -3.24% 17.78% 8.21% 10.37% 10.39% 6.82% 12/31/1998
MSCI Japan Index
3.08% 1.50% 3.25% 20.36% 8.04% 9.49% 8.20% 4.30%
As of 06/30/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund
MJFOX
-0.29% -0.33% -5.70% 22.37% 7.17% 9.15% 9.90% 6.75% 12/31/1998
MSCI Japan Index
-0.27% -0.25% 1.45% 25.25% 7.63% 10.58% 7.47% 4.26%
For the years ended December 31st
Name 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011
Matthews Japan Fund
MJFOX
29.82% 26.08% -20.18% 33.14% 0.40% 20.83% -2.60% 34.03% 8.32% -7.72%
MSCI Japan Index
14.91% 20.07% -12.58% 24.39% 2.73% 9.90% -3.72% 27.35% 8.36% -14.19%

Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.

Assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund’s fees and expenses had not been waived. Performance differences between the Institutional class and the Investor class may arise due to differences in fees charged to each class.

Additional performance, attribution, liquidity, value at risk (VaR), security classification and holdings information is available on request for certain time periods.

Growth of a Hypothetical $10,000 Investment Since Inception

(as of 06/30/2021)

Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.

The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gain distributions or redemption of fund shares.

Ratings

  • OVERALL
  • out of 35 funds
  • 3 YEAR
  • out of 35 funds
  • 5 YEAR
  • out of 29 funds
  • 10 YEAR
  • out of 21 funds
  • 1 YEAR
  • 3rd
  • 28 out of 41 funds
  • 3 YEAR
  • 3rd
  • 18 out of 34 funds
  • 5 YEAR
  • 4th
  • 23 out of 28 funds
  • 10 YEAR
  • 2nd
  • 8 out of 20 funds
  • SINCE INCEPTION
  • 2nd
  • 3 out of 7 funds

Ratings agency calculation methodology

Portfolio Managers

Taizo  Ishida photo
Taizo Ishida

Lead Manager

Shuntaro  Takeuchi photo
Shuntaro Takeuchi

Lead Manager

Portfolio Characteristics

(as of 06/30/2021)
Fund Benchmark
Number of Positions 52 272
Weighted Average Market Cap $43.6 billion $52.2 billion
Active Share 68.6 n.a.
P/E using FY1 estimates 20.5x 15.9x
P/E using FY2 estimates 18.6x 14.7x
Price/Cash Flow 14.7 10.9
Price/Book 2.2 1.5
Return On Equity 13.3 10.7
EPS Growth (3 Yr) 9.5% -0.1%

Sources: BNY Mellon Investment Servicing (US) Inc., Factset Research Systems, Inc., Zephyr StyleADVISOR, Matthews Asia

Top 10 Holdings

(as of 08/31/2021)
Name Sector % Net Assets
Sony Group Corp. Consumer Discretionary 5.1
Shin-Etsu Chemical Co., Ltd. Materials 4.0
Recruit Holdings Co., Ltd. Industrials 4.0
Toyota Motor Corp. Consumer Discretionary 3.4
ORIX Corp. Financials 3.4
Hoya Corp. Health Care 3.4
Toyota Industries Corp. Consumer Discretionary 2.8
Keyence Corp. Information Technology 2.8
JSR Corp. Materials 2.7
Olympus Corp. Health Care 2.6
TOTAL 34.2

Top 10 holdings may combine more than one security from the same issuer and related depositary receipts.
Source: BNY Mellon Investment Servicing (US) Inc.

Portfolio Breakdown (%)

(as of 06/30/2021)
  • Sector Allocation
  • Market Cap Exposure

Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.

Source: FactSet Research Systems.

Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Percentage values may be derived from different data sources and may not be consistent with other Fund literature.

Distributions

Record Date Ex, Pay and
Reinvest Date
Ordinary
Income
Short Term
Capital Gains
Long Term
Capital Gains
Total Distributions
Per Share
% of NAV Nondividend Distribution (Return of Capital)
12/15/2020 12/16/2020 $0.13240 $0.00000 $2.43277 $2.56517 10.5% N.A.
View History

 

There is no guarantee that the Fund will pay or continue to pay distributions. 

Past performance is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that shares, when redeemed, may be worth more or less than their original cost.

Commentary

Period ended June 30, 2021

For the first half of 2021, the Matthews Japan Fund returned -5.70% (Investor Class) and -5.65% (Institutional Class), while its benchmark, the MSCI Japan Index, returned 1.45% over the same period. For the quarter ending June 30, the Fund returned -0.33% (Investor Class) and -0.29% (Institutional Class), while its benchmark returned -0.25%.

Market Environment:

Japanese equity markets lagged global peers in the second quarter, as developed markets in the U.S. and Europe saw their COVID-19 vaccinations rise early in the quarter, along with increased economic activity. While Japan’s vaccinations lagged as its state of emergency status continued, the country is quickly catching up with the vaccination ratio going above 20% in late June, compared to approximately 5% in late May.

The country’s relative performance since mid-May has been roughly in-line within the developed markets. While the velocity of a rapid deep value rally (along with a sell-off in high-quality names) has slowed, Japanese growth stocks have yet to rally, mainly due to the lag in economic activity recovery.

Performance Contributors and Detractors:

For the first half of 2021, the Fund underperformed its benchmark, with our quality core growth portfolio weighed down by the market’s stark pivot toward value stocks amid a sudden surge in U.S. 10-year bond yields. The Fund delivered returns just slightly below the benchmark index during the second quarter.

Year-to-date performance was dragged down by our two key overweight sectors, information technology and health care. The industrials sector, which contains commodity price-sensitive trading companies and cyclical transport companies, was also a detractor to performance. On the other hand, the portfolio’s underweight to the consumer staples sector, along with stock selection within the consumer staples and materials sectors were notable contributors to relative performance.

Turning to individual securities, Roland Corp., a manufacturer of electronic music instruments, was the largest contributor to the Fund year to date. Roland revised its full-year earnings guidance in May as the company continued to benefit from “stay at home” demand as well as its stellar execution in securing key components amid semiconductor shortages. Over the mid to long term, we believe the ongoing shift from acoustic to digital pianos and drum sets—which command higher margins—will be significant growth drivers for the company.

Leading human resources and media marketing solution provider Recruit was also a major contributor. The company is a beneficiary of the reopening of economic activity. Recruit’s crown jewel, HR Technology, provides technology solutions that help job seekers and employers in the hiring and recruitment process. The division, which consists of Indeed.com and Glassdoor and operates in more than 60 countries, guided for 40%-50% topline growth for current fiscal year.

Japanese multinational TDK Corp., the world’s leading supplier of small- to mid-sized batteries via its core subsidiary Amperex Technology Limited, was the largest detractor to the Fund’s absolute performance year to date. The company's near-term earnings have slowed down due to weaker-than-expected personal computer and smartphone demand. Additionally, increased investment in its mid-size battery expansion is likely to press margins downward. While we have trimmed TDK’s position in the portfolio during the year, we continue to hold a positive view due to its unique and dominant position in small- to mid-sized batteries.

M3, Inc., an operator of an internet medical services platform for doctors, also detracted from absolute returns. While fundamentals remain intact for its CRO (contract research organization) platform and career businesses, valuation multiples have significantly expanded over the past 12 months, which spurred profit taking amid the sell-off in high-quality growth stocks.

Notable Portfolio Changes:

Our portfolio actions during the quarter were driven by our continuing shift to increase our exposure to cyclical growth companies as economic activity started to improve—a process that began in July of 2020.

With respect to new holdings during the second quarter, we initiated a position in Toyota Motor Corp. for the first time since early 2017. The company is viewed as a laggard in the ongoing shift to electric vehicles, and has underperformed global peers over the past year. However, we believe Toyota is in fact ahead of peers in terms of electrification technology, and initiated our position in view of the company’s planned launch of key electric vehicle models. In May, Toyota announced that on a global basis, it expects to sell approximately eight million electrified vehicles by 2030, of which two million will be BEVs (battery electric vehicles) and FCEVs (fuel cell electric vehicles).

We also initiated a position in Ushio Inc., an industrial light source manufacturer. Ushio specializes in optical components and boasts a high market share in niche markets: UV (ultraviolet light) lamps for legacy semiconductor lithography, UV lamps for FPD (flat panel display) lithography and steppers for PCB (printed circuit board) production. After several years of underperformance and slow growth, we view the company as turning the corner under its new management team. We believe EUV (extreme ultraviolet) light source used in lithography for FC-PKG (flip chip package) will be a key contributor to structural growth going forward, in addition to the cyclical recovery of Ushio’s cinema and industrial-related businesses.

To fund these positions, we exited Disco, Nihon M&A Center and Oracle Japan. 

Outlook:

Looking ahead, our base case scenario is that the global economy will continue its path to recovery towards pre-COVID levels and the bond yields to normalize. Therefore, we have continued to shift our portfolio towards a cyclical earnings recovery, and did not trade into low-quality names for the sake of short-term fix.

As we wrote in the 2020 year-end commentary, we think 2021 will not be such a one-way street like 2020, where growth-oriented names performed strongly in a recessionary environment coupled with lower interest rates and ample money supply. With profit recovery already “baked into” current consensus estimates and valuation levels, upside surprise in profits will be more important in investment returns going forward. We will continue to look for investment opportunities in high-quality companies that can continue to execute well, but at the same time we will also seek opportunities in cyclical areas that have a potential to achieve high growth via lower and easier competition.

Going forward, we believe Japan can still enjoy higher prices as countries linked to the global economy, like Japan, should fare better as prospects for exports improve. From a structural point of view, we continue to believe the earnings capability of Japanese companies has improved meaningfully over the past economic cycle, driven by better corporate governance and a higher focus on capital efficiency. We believe multiyear trends such as productivity growth and innovation in health care, technology and material science—where Japanese corporations historically excelled versus global peers—not only remain intact, but will accelerate.

As of June 30, 2021, the securities mentioned comprised the Matthews Japan Fund in the following percentages: Roland Corp., 1.5%; Recruit Holdings Co., Ltd., 3.6%; TDK Corp., 1.9%; M3, Inc., 0.6%; Toyota Motor Corp., 3.1%; Ushio, Inc., 0.9%.

The Fund held no positions in Disco Corp., Nihon M&A Center Inc. and Oracle Corp. Japan.

Current and future portfolio holdings are subject to change and risk.

 

Average Annual Total Returns - MJFOX as of 06/30/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
22.37% 7.17% 9.15% 9.90% 6.75% 12/31/1998

All performance quoted is past performance and is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. Please see the Fund's most recent month-end performance.

Fees & Expenses
Gross Expense Ratio 0.95%

Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.

 

Visit our Glossary of Terms page for definitions and additional information.

Index Definitions

The information contained herein has been derived from sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Neither the funds nor the Investment Advisor accept any liability for losses either direct or consequential caused by the use of this information.

The views and opinions in the commentary were as of the report date, subject to change and may not reflect current views. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the Fund's future investment intent. It should not be assumed that any investment will be profitable or will equal the performance of any securities or any sectors mentioned herein. The information does not constitute a recommendation to buy or sell any securities mentioned.