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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

-4.39%

YTD Return

(as of 06/17/2021)

$24.16

Price

(as of 06/17/2021)

$1.68 billion

Fund Assets

(as of 05/31/2021)

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 $1.68 billion (05/31/2021)
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 05/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund
MJFOX
1.06% -0.95% -5.42% 26.25% 6.36% 9.93% 10.13% 6.79% 12/31/1998
MSCI Japan Index
1.57% 1.22% 1.73% 25.60% 6.82% 10.09% 7.66% 4.29%
As of 03/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund
MJFOX
-0.91% -5.38% -5.38% 45.10% 5.52% 10.52% 10.34% 6.85% 12/31/1998
MSCI Japan Index
1.19% 1.70% 1.70% 40.18% 6.70% 10.86% 7.52% 4.32%
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 03/31/2021)

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 34 funds
  • 3 YEAR
  • out of 34 funds
  • 5 YEAR
  • out of 29 funds
  • 10 YEAR
  • out of 19 funds
  • 1 YEAR
  • 2nd
  • 17 out of 41 funds
  • 3 YEAR
  • 3rd
  • 24 out of 33 funds
  • 5 YEAR
  • 3rd
  • 16 out of 28 funds
  • 10 YEAR
  • 2nd
  • 7 out of 18 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 03/31/2021)
48
Number of Securities

Source: BNY Mellon Investment Servicing (US) Inc.

22.8x
P/E using FY1 estimates
21.9x
P/E using FY2 estimates
$40.6 billion
Weighted Average Market Cap

Source: FactSet Research Systems

Top 10 Holdings

(as of 05/31/2021)
Name Sector % Net Assets
Shin-Etsu Chemical Co., Ltd. Materials 5.4
Sony Group Corp. Consumer Discretionary 4.8
Recruit Holdings Co., Ltd. Industrials 3.7
TDK Corp. Information Technology 3.2
ORIX Corp. Financials 3.2
Advantest Corp. Information Technology 2.9
FANUC Corp. Industrials 2.7
Hoya Corp. Health Care 2.7
Toyota Motor Corp. Consumer Discretionary 2.7
SoftBank Group Corp. Communication Services 2.6
TOTAL 33.9

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 03/31/2021)
  • 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 March 31, 2021

For the quarter ending March 31, 2021, the Matthews Japan Fund returned -5.38% (Investor Class) and -5.37% (Institutional Class), while its benchmark, the MSCI Japan Index, returned 1.70%.

Market Environment:

Japan’s equity markets generated positive returns in the quarter, continuing a market rebound that began in March 2020. Swift monetary expansion actions by the major central banks along with large scale fiscal policy measures to offset the negative economic impact resulted in risk-taking investment actions especially in growth oriented stocks for the year of 2020. However the first three months of 2021 painted a completely different picture in terms of factor returns, where high-quality names got sold off while deep value names rose rapidly amid a sudden surge in U.S. 10 year bond yields.

While there was a shift in sentiment toward value in the first quarter, we continue to view Japan as a cyclical growth market. We expect bond yields to normalize over time, likely rising at a slower pace ahead as the global economy continues its recovery to pre-COVID levels. Viewing Japan’s market environment through the lens of a cyclical earnings recovery, sectors such as industrials and exports are likely to benefit from the ongoing rebound in global economic growth and resumption of global trade.

Performance Contributors and Detractors:

After five consecutive quarters of delivering above benchmark investment results, the first quarter 2021 was a difficult one given the characteristics of our portfolio. The Fund is a quality core growth portfolio with a focus on high return on assets and return on invested capital, attractive cashflow generation and medium-term (36 months) earnings momentum. As a result, our portfolio companies naturally tend to trade at a premium valuation to overall market average, and arevulnerable to a sudden change in equity risk premiums, which has happened during the quarter amid a rapid rise in bond yields. The majority of our underperformance versus the benchmark happened in a matter of six weeks, when the U.S. 10 year bond yield moved from 1% to 1.6% in a very short window of time.

The investment results for the recent three months were dragged down by our two key overweight sectors, information technology and health care. The industrial sector, which contains commodity price sensitive trading companies and cyclical transport companies, also was a detractor to our performance. With regards to market cap, our overweight in small and mid-cap stocks (those under US$10 billion) also contributed negatively as large caps outperformed small caps.

Turning to individual securities, Advantest, a leading manufacturer of semiconductor testing devices, was a contributor to performance. On top of the continued shortage of semiconductors, we believe there is a structural trend in increasing complexity and sophistication of semiconductors leading to longer-test times and more item subjects to test, which will benefit the company's testing equipment demand.

Specialty chemical company Sumitomo Bakelite also was a contributor. 50% of the company’s profits come from semiconductor materials segment, where they are a global leader in semiconductor insulating materials.

AI inside, a SaaS providor of OCR software, was a detractor from performance. One of their core KPIs (Key Performance Indicators), new account growth, decelerated in their most recent quarterly results. While overall growth remain high, expensive valuation levels left very little room for error. We exited the name during the quarter after meeting the CEO.

SMS, a top health care sector staffing specialist in Japan, with emphasis on elderly care managers and nursing care professionals, also was a detractor. While we have trimmed our position into earnings, recognizing a disconnect between short term share price momentum and near term earnings, an in-line result led to equity multiple contraction.

Notable Portfolio Changes:

Our portfolio actions during the quarter were a continuation of increasing our exposure to cyclical growth companies as economic activity started to bottom out and improve.

We initiated a new position in AGC, a leading global glass manufacturer that leverages its technical prowess in chemical (PVC), electronics (Optoelectronics & Semi Materials), and health care (Contract Development and Manufacturing Organization) field. We have a positive view on the new management taking more extensive measures to improve earnings in its existing core glass business, and as the profit contribution from its strategic businesses increase at rapid rate. Inexpensive valuation levels provided an attractive entry point, as we believed the stock price did not yet reflect management initiatives.

Toyota Industries, a top global supplier of forklifts and A/C compressors used for cars, is another position initiated during the quarter. We believe the company is set to grow both of its core divisions. Its auto parts business is benefiting from higher penetration of electric vehicles (EVs).The stock is still attractively valued and we expect re-rating to continue as overall return on equity improves with rising contribution from high profit margin products.

To fund these positions, we exited AI inside, East Japan Railway, Fast Retailing, Itochu Techno-Solutions, Kaonavi, Makita, Plaid, Takeda Pharmaceuticals, Tokio Marine, and Yappli.

Outlook:

As we wrote in the year-end commentary, we think 2021 will not be as much of a one-way street as 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 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 can continue to execute well, but 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 comp.

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. Multiyear trends such as productivity growth, health care, technology and material science innovation—where Japanese corporations excel versus global peers—not only remains intact, but we think the pace of change will accelerate as COVID-19 provided a stress test on the health care system and costs, as well as labor productivity issues in white collar jobs as more people work remotely.

 

As of 3/31/21, the securities mentioned comprised the Matthews Japan Fund in the following percentages: Advantest Corp., 3.0%; Sumitomo Bakelite Co., Ltd., 2.0%; SMS Co., Ltd., 1.7%; AGC, Inc., 2.0%; Toyota Industries Corp., 2.4%. The Fund held no positions in AI inside, East Japan Railway, Fast Retailing, Itochu Techno-Solutions, Kaonavi, Makita, Plaid, Takeda Pharmaceuticals, Tokio Marine, and Yappli. Current and future holdings are subject to change and risk.

Average Annual Total Returns - MJFOX as of 03/31/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
45.10% 5.52% 10.52% 10.34% 6.85% 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.