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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

-1.31%

YTD Return

(as of 02/24/2021)

$24.94

Price

(as of 02/24/2021)

$1.67 billion

Fund Assets

(as of 01/31/2021)

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 $1.67 billion (01/31/2021)
Currency USD
Ticker MJFOX
Cusip 577-130-800
Portfolio Turnover 25.42%
Benchmark MSCI Japan Index
Geographic Focus Japan
Fees & Expenses
Gross Expense Ratio 0.93%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 01/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund
MJFOX
-2.02% 13.72% -2.02% 33.34% 6.32% 12.49% 10.29% 7.07% 12/31/1998
MSCI Japan Index
-1.00% 15.99% -1.00% 15.33% 4.52% 10.70% 6.68% 4.22%
As of 12/31/2020
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund
MJFOX
4.23% 15.87% 29.82% 29.82% 9.32% 11.80% 10.66% 7.19% 12/31/1998
MSCI Japan Index
4.15% 15.29% 14.91% 14.91% 6.45% 9.04% 6.80% 4.29%
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 12/31/2020)

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 19 funds
  • 1 YEAR
  • 1st
  • 4 out of 42 funds
  • 3 YEAR
  • 2nd
  • 10 out of 34 funds
  • 5 YEAR
  • 2nd
  • 10 out of 28 funds
  • 10 YEAR
  • 2nd
  • 6 out of 18 funds
  • SINCE INCEPTION
  • 1st
  • 2 out of 7 funds

Ratings agency calculation methodology

Portfolio Managers

Taizo  Ishida photo
Taizo Ishida

Lead Manager

Shuntaro  Takeuchi photo
Shuntaro Takeuchi

Co-Manager

Portfolio Characteristics

(as of 12/31/2020)
49
Number of Securities

Source: BNY Mellon Investment Servicing (US) Inc.

27.9x
P/E using FY1 estimates
25.4x
P/E using FY2 estimates
$43.5 billion
Weighted Average Market Cap

Source: FactSet Research Systems

Top 10 Holdings

(as of 01/31/2021)
Name Sector % Net Assets
Shin-Etsu Chemical Co., Ltd. Materials 5.2
Sony Corp. Consumer Discretionary 4.5
TDK Corp. Information Technology 4.2
SMC Corp. Industrials 3.5
Hoya Corp. Health Care 3.2
Recruit Holdings Co., Ltd. Industrials 3.2
PeptiDream, Inc. Health Care 3.1
Keyence Corp. Information Technology 2.8
Nidec Corp. Industrials 2.8
SoftBank Group Corp. Communication Services 2.7
TOTAL 35.2

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 12/31/2020)
  • Sector Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Information Technology 22.3 14.0 8.3
Industrials 19.7 20.6 -0.9
Consumer Discretionary 16.8 18.4 -1.6
Health Care 16.8 11.3 5.5
Financials 8.5 8.3 0.2
Communication Services 7.7 9.6 -1.9
Materials 7.0 5.2 1.8
Consumer Staples 0.0 7.6 -7.6
Real Estate 0.0 3.4 -3.4
Utilities 0.0 1.2 -1.2
Energy 0.0 0.5 -0.5
Cash and Other Assets, Less Liabilities 1.2 0.0 1.2

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

Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 49.3 58.9 -9.6
Large Cap ($10B-$25B) 27.7 22.3 5.4
Mid Cap ($3B-$10B) 13.9 18.9 -5.0
Small Cap (under $3B) 7.9 0.0 7.9
Cash and Other Assets, Less Liabilities 1.2 0.0 1.2

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 December 31, 2020

For the year ending December 31, 2020, the Matthews Japan Fund returned 29.82% (Investor Class) and 29.85% (Institutional Class), while its benchmark, the MSCI Japan Index, returned 14.91%. For the fourth quarter of the year, the Fund returned 15.87% (Investor Class) and 15.87% (Institutional Class), versus 15.29% for the Index.

Market Environment:

Japan’s equity markets were volatile but resilient in 2020. Equity prices declined sharply in February and March, triggered by the COVID-19 pandemic, but had rebounded strongly by year end. Swift monetary expansion actions by the major central banks, along with large-scale fiscal policy measures to offset the negative economic impact, improved sentiment toward growth-oriented stocks globally, including Japan. The Bank of Japan announced an option to double exchange-traded fund (ETF) purchases, while the Japanese government passed a significant stimulus package to help bolster the economy.

Against this backdrop, Japanese equities handily outperformed their EAFE counterparts in 2020. We believe this was driven by Japanese corporates' ample cash balance, which helped to cushion against extreme situations during the COVID outbreak. Equity prices were also bolstered by an incremental improvement in the outlook for corporate profits and economic conditions. Ample liquidity provided by the central banks around the world also benefited the Japanese equity market, as this liquidity lead to improvements in the global manufacturing cycle.

At current levels, we view the recovery scenario has somewhat been reflected in share prices. Going forward, it will be a tug of war between the trajectory of the COVID-19 situation and the pace of vaccine distribution, which will influence the pace and the magnitude of economic recovery.

Performance Contributors and Detractors:

From a sector perspective, stock selection in industrials, health care and information technology contributed to Fund performance over the course of the year. On the other hand, stock selection in consumer staples, real estate and financials was a slight detractor, even though these sectors in aggregate were contributors due to allocation effects. From a market-cap perspective, stock selection contributed across all capitalizations—mega, large, mid and small.

Turning to individual securities, photomask inspection equipment maker Lasertec was the largest contributor to the overall performance for the full year. Currently the only provider of mask and mask-blank inspection equipment using EUV (extreme ultraviolet lithography) as a light source, EUV adoption in major foundries and increased usage in memory makers is likely to further enhance the business opportunity of the company. However, we exited the name during the year, as we viewed the market is starting to build lofty expectations to justify the share price momentum.

Medical platformer M3 was also a major contributor to the performance with its Japan platform now covering 90% of all doctors. The company is utilizing the platform to expand and disrupt the areas of contract research organizations and career business recruitment and networking, in Japan and other markets. Overseas is a meaningful part of overall revenue, with China being the largest growth driver.

On the other hand, engineer-staffing company Technopro dragged within our portfolio companies. We see long-term trend of labor tightness and trend of outsourcing in IT engineering remain intact. However, the slowdown of the economy in Japan and other economies overseas may impact the staffing industry both in terms of demand and pricing for staffing services. We exited the stock during the year.

Notable Portfolio Changes:

Our portfolio actions in 2020 occurred in two phases. During the first three months of the year, we reduced the number of names in the Fund and shifted to high-quality names that we believed could generate positive cash flow regardless of the macro economic situation. Later in the year, during July and August, we started to increase our exposure to cyclical growth companies as economic activity started to improve.

In the fourth quarter, we initiated a new position in medical equipment manufacturer Olympus. Olympus had previously struggled with governance issues, including past accounting issues and several large-scaled recalls. However, under a new management along with much stronger board oversight, we are seeing some positive changes, especially over the past year, in fundamentals and ESG measures.

We have also participated in a few IPOs, including musical instrument manufacturer Roland and application development platform Yappli. Roland has strong brand equity in its digital musical instruments, with a strong following of "Roland sound" by many professional and amateur music enthusiasts. We also believe with the current capable management, there are company specific margin improvement opportunities in product average selling price growth and reducing stock keeping units (SKUs). Yappli is one of the leading no-code mobile app development companies based in Japan, benefitting from e-commerce growth in Japan.

Outlook:

In terms of market leadership, 2020 turned out to be another great year for growth equity investing. In a recessionary environment coupled with lower interest rates and ample money supply, high-quality, stable growth, large cap, innovation sectors outperformed strongly against value, small cap, cyclical and lower-quality names. We think 2021 will not be such a one-way street like 2020. With profit recovery already baked in current consensus estimates and valuation levels, upside surprise in profits will ever be more important in investment returns going forward. We will continue to look for investment opportunities in high-quality companies that are able to execute well. At the same time we will also seek for opportunities in cyclical areas that have a potential to achieve high growth via lower and easier competition.

For many years, Japanese equities have not been considered a place to invest by many investors, but rather a place to trade in and out of. Investors tend to buy Japan when things bottom out and improve, then get out when things start to peak. However, the dynamic has meaningfully changed since 2010 as Japanese corporates have been generating improving levels of profits in each bottom of the cycle. 2020 showed another year of resiliency of Japanese corporate profits. We believe Japan’s equity market fundamentals have turned from pure value to cyclical growth, but many global investors are still skeptical of this change. In our opinion, this creates opportunities for attractive alpha generation through bottom-up, active stock selection.

 

As of 12/31/2020, the securities mentioned comprised the Matthews Japan Fund in the following percentages: M3, Inc., 3.0%; Olympus Corp., 1.5%; Roland Corp., 0.5%; Yappli, Inc., 0.5%. The Fund held no positions in Lasertec Corporation or Technopro Holdings Inc.o. Current and future portfolio holdings are subject to change and risk.

Average Annual Total Returns - MJFOX as of 12/31/2020
1YR 3YR 5YR 10YR Since Inception Inception Date
29.82% 9.32% 11.80% 10.66% 7.19% 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 0.93%
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MPACX

Matthews Asia Growth Fund

MAPIX

Matthews Asia Dividend Fund

MATFX

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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.