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Asia Growth

Matthews Korea Fund MAKOX

Snapshot
  • Unconstrained all cap strategy focused on secular growth opportunities in Korea
  • Fundamental bottom-up approach seeks companies with sustainable business models, strong governance and improving competitive advantages against global peers
  • Highly-differentiated portfolio offers exposure to new economy growth drivers overlooked by index

01/03/1995

Inception Date

7.19%

YTD Return

(as of 01/15/2021)

$6.56

Price

(as of 01/15/2021)

$154.12 million

Fund Assets

(as of 12/31/2020)

Objective

Long-term capital appreciation

Strategy

Under normal circumstances, the Matthews Korea 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 South Korea. 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. Investing in emerging markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. 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 01/03/1995
Fund Assets $154.12 million (12/31/2020)
Currency USD
Ticker MAKOX
Cusip 577-130-305
Portfolio Turnover 36.63%
Benchmark Korea Composite Stock Price Index
Geographic Focus South Korea
Fees & Expenses
Gross Expense Ratio 1.15%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 12/31/2020
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Korea Fund
MAKOX
13.97% 29.53% 40.77% 40.77% 4.36% 8.88% 8.38% 6.79% 01/03/1995
Korea Composite Stock Price Index
12.86% 32.53% 39.76% 39.76% 6.38% 11.52% 5.42% 4.36%
As of 12/31/2020
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Korea Fund
MAKOX
13.97% 29.53% 40.77% 40.77% 4.36% 8.88% 8.38% 6.79% 01/03/1995
Korea Composite Stock Price Index
12.86% 32.53% 39.76% 39.76% 6.38% 11.52% 5.42% 4.36%
For the years ended December 31st
Name 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011
Matthews Korea Fund
MAKOX
40.77% 3.80% -22.21% 43.70% -6.32% 15.16% -0.73% 10.11% 24.05% -6.45%
Korea Composite Stock Price Index
39.76% 4.46% -20.07% 37.71% 0.98% -4.61% -8.30% 2.90% 18.54% -13.01%

KOSPI performance data may be readjusted periodically by the Korea Exchange due to certain factors, including the declaration of dividends.

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.

Due to current market volatility associated with the COVID-19 pandemic, funds may experience significant negative short-term performance.

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

  • 1 YEAR
  • 1st
  • 10 out of 46 funds
  • 3 YEAR
  • 4th
  • 41 out of 43 funds
  • 5 YEAR
  • 4th
  • 36 out of 39 funds
  • 10 YEAR
  • 1st
  • 5 out of 26 funds
  • SINCE INCEPTION
  • 2nd
  • 4 out of 7 funds

Ratings agency calculation methodology

Portfolio Managers

Michael J. Oh, CFA photo
Michael J. Oh, CFA

Lead Manager

Elli  Lee photo
Elli Lee

Co-Manager

Portfolio Characteristics

(as of 12/31/2020)
32
Number of Securities

Source: BNY Mellon Investment Servicing (US) Inc.

17.1x
P/E using FY1 estimates
12.5x
P/E using FY2 estimates
$151.7 billion
Weighted Average Market Cap

Source: FactSet Research Systems

Top 10 Holdings

(as of 12/31/2020)
Name Sector % Net Assets
Samsung Electronics Co., Ltd., Pfd. Information Technology 19.4
Samsung Electronics Co., Ltd. Information Technology 6.8
SK Hynix, Inc. Information Technology 5.0
LG Chem, Ltd., Pfd. Materials 4.8
Samsung SDI Co., Ltd. Information Technology 4.2
Hyundai Mobis Co., Ltd. Consumer Discretionary 4.2
Kakao Corp. Communication Services 4.2
LG Household & Health Care, Ltd., Pfd. Consumer Staples 4.1
Shinhan Financial Group Co., Ltd. Financials 4.1
Orion Corp. Consumer Staples 3.5
TOTAL 60.3

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 41.8 35.7 6.1
Consumer Discretionary 12.3 10.4 1.9
Communication Services 11.7 8.4 3.3
Consumer Staples 10.0 5.4 4.6
Financials 7.7 7.4 0.3
Materials 6.8 9.4 -2.6
Health Care 5.9 9.3 -3.4
Industrials 2.2 10.8 -8.6
Energy 0.0 1.7 -1.7
Utilities 0.0 1.3 -1.3
Real Estate 0.0 0.3 -0.3
Cash and Other Assets, Less Liabilities 1.7 0.0 1.7

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) 53.0 47.3 5.7
Large Cap ($10B-$25B) 23.5 19.9 3.6
Mid Cap ($3B-$10B) 8.9 15.2 -6.3
Small Cap (under $3B) 12.9 17.6 -4.7
Cash and Other Assets, Less Liabilities 1.7 0.0 1.7

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 $0.04356 $0.00000 $0.00000 $0.04356 0.7% N.A.
12/16/2019 12/17/2019 $0.00000 $0.00000 $0.36797 $0.36797 8.5% 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.

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For the quarter ending September 30, 2020, the Matthews Korea Fund returned 13.33% (Investor Class) and 13.48% (Institutional Class), while its benchmark, the Korea Composite Stock Price Index, returned 13.43% over the same period.

Market Environment:

South Korean equities bounced and slightly outperformed global emerging markets in the third quarter. Korea’s response to COVID-19 was prompt and effective resulting in a relatively efficient command over the spread of cases. However by mid quarter, a second wave of COVID-19 caused the government to re-impose social distancing restrictions which should result in year-on-year economic growth to be revised downward. Korea has a couple of potential tailwinds going into the fourth quarter. The country’s external vulnerability and financing risks are low with room to ease monetary aggregates. Korea has fiscal firepower to stimulate and has begun to utilize its resources. Its valuations are some of the region’s most attractive and the prospect of earnings growth from a very low base is a good possibility, especially if its influential neighbor, China, continues to recover.

Performance Contributors and Detractors:

Contributors to performance during the quarter include Hyundai Motor and Kakao Corp. Hyundai Motor continues to gain market share globally with successful new model launches. In the U.S., the combined Hyundai Motor and Kia Motors market share reached historical peak during June and August, gaining shares from Japanese peers. In the EU, Hyundai gained shares through solid model pipelines in neighborhood electric vehicles (NEVs), which are smaller vehicles designed for slower speeds and shorter distances. In emerging countries like India, Hyundai’s sales have also recovered faster than the market. Kakao, the Korea’s largest messaging platform, continues to enhance its earnings visibility driven by a combination of its e-commerce functionality, payment platform and content services, while increasing its number of users and improving its ability to monetize services.

Detractors from performance include Koh Young Tech and BGF Retail. Koh Young technology makes robots that can conduct optical inspections for manufacturers. The company had a difficult year from an uncertain outlook that led to conservative capital investment spending among their customers, especially in the automotive industry. We expect it to further diversify its customer and product base and show better recovery next year. BGF Retail operates a chain of convenience stores. We decided to exit the position in the quarter and reallocate the capital toward other opportunities.

From a sector perspective, stock selection in health care and an underweight in industrials contributed to relative performance. While we are underweight on health care, our stock selection in companies such as Yuhan and Hugel showed positive impacts. Hugel, a health care company that focuses on beauty and cosmetics related products, is making constructive progress with the China Food and Drug Administration (CFDA) approvals for new products, while continuing to gain market share in Korea. On the other hand, stock selection in consumer staples and information technology sectors detracted from relative performance. In consumer staples, our largest positions are in confectionary company Orion and LG Household & Health Care. Both companies have strong product suites and meaningful marketing and distribution capabilities, both domestically in Korea and regionally across Asia. While their share prices were weak in the quarter, we remain constructive on these companies on a long-term view.

Notable Portfolio Changes:

During the quarter, we initiated a new position in KINX and Nongshim. As Korea’s only carrier-neutral, retail-oriented data center business, KINX is a key beneficiary of growing data traffic in Korea. Nongshim is Korea’s largest noodle manufacturer and second largest confectionary player, gaining market share in the global market especially in China and the U.S. with its premium product lines. We also reduced a number of holdings during the quarter to rotate and concentrate capital among higher conviction portfolio holdings. Positions we closed included AfreecaTV, Lock & Lock, and Lotte Reit.

Outlook:

We expect global consumption to gradually recover from the pandemic, with North Asia countries such as China and Korea continuing to recover faster than other parts of the world.

As before, we believe active security selection is essential to capturing Korea’s long-term growth potential. As bottom-up investors, we look for companies that can grow organically without the assistance of strong macroeconomic tailwinds. We continue to look for companies that can benefit from domestic consumption within Korea, as well as those companies headquartered in Korea that are effectively competing and innovating in global markets.

Over the long term, we believe the structural growth trends we are currently following remain intact. Asia’s growing middle classes are spending money on education, leisure and entertainment as incomes rise. Looking ahead, we continue to focus on the growth potential of Korea’s most innovative companies.

 

As of 9/30/2020, the securities mentioned comprised the Matthews Korea Fund in the following percentages: Hyundai Motor Co., Ltd., Pfd. 6.3%; Kakao Corp., 4.9%; Koh Young Technology, Inc., 2.2%; Yuhan Corp., 2.2%; Hugel, Inc., 3.4%; Orion Corp., 4.2%; LG Household & Health Care, Ltd., Pfd., 5.2%; KINX inc., 1.2%; Nongshim Co., Ltd., 1.8% . The Fund held no positions in BGF Retail, AfreecaTV Co., Lock & Lock Co., and Lotte Reit Co. Current and future portfolio holdings are subject to change and risk.

Average Annual Total Returns - MAKOX as of 12/31/2020
1YR 3YR 5YR 10YR Since Inception Inception Date
40.77% 4.36% 8.88% 8.38% 6.79% 01/03/1995

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 1.15%
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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.