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Global Emerging Markets

Matthews Emerging Markets Equity Fund MEGMX

Snapshot
  • Seeks Alpha in Global Emerging Markets—capitalizes on consumption and innovation trends
  • Quality Growth Portfolio—based on deep, holistic analysis
  • All-Cap, Company-First Approach—emphasizes fundamental research over top-down country or sector allocation

04/30/2020

Inception Date

-20.08%

YTD Return

(as of 05/20/2022)

$11.46

Price

(as of 05/20/2022)

$41.97 million

Fund Assets

(as of 04/30/2022)

Objective

Long-term capital appreciation

Strategy

Under normal circumstances, the Matthews Emerging Markets Equity 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 emerging market countries. Emerging market countries generally include every country in the world except the United States, Australia, Canada, Hong Kong, Israel, Japan, New Zealand, Singapore and most of the countries in Western Europe. Certain emerging market countries may also be classified as “frontier” market countries, which are a subset of emerging market countries with newer or even less developed economies and markets, such as Sri Lanka and Vietnam. The list of emerging market countries and frontier market countries may change from time to time. The Fund may also invest in companies located in developed countries; however, the Fund may not invest in any company located in a developed country if, at the time of purchase, more than 20% of the Fund’s assets are invested in developed market companies.

Risks

Investments in emerging and frontier securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Additionally, investing in emerging and frontier markets countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets.

These and other risks associated with investing in the Fund can be found in the prospectus.

Fund Facts
Inception Date 04/30/2020
Fund Assets $41.97 million (04/30/2022)
Currency USD
Ticker MEGMX
Cusip 577-130-651
Portfolio Turnover 88.5%
Benchmark MSCI Emerging Markets Index
Geographic Focus Emerging Markets - Countries generally include every country in the world except the United States, Australia, Canada, Hong Kong, Israel, Japan, New Zealand, Singapore and most of the countries in Western Europe
Fees & Expenses
Gross Expense Ratio 1.52%
Net Expense Ratio 1.13%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 04/30/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Equity Fund
MEGMX
-6.69% -16.26% -17.36% -20.39% n.a. n.a. n.a. 15.08% 04/30/2020
MSCI Emerging Markets Index
-5.55% -10.40% -12.09% -18.06% n.a. n.a. n.a. 10.57%
As of 03/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Equity Fund
MEGMX
-2.61% -11.44% -11.44% -13.29% n.a. n.a. n.a. 20.03% 04/30/2020
MSCI Emerging Markets Index
-2.22% -6.92% -6.92% -11.08% n.a. n.a. n.a. 14.40%
For the years ended December 31st
Name 2021
Matthews Emerging Markets Equity Fund
MEGMX
-0.60%
MSCI Emerging Markets Index
-2.22%

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

Year to Date and Since Inception performance with less than one year of history represents actual performance, not annualized.

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 03/31/2022)

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.

Portfolio Managers

John Paul Lech photo
John Paul Lech

Lead Manager

Alex  Zarechnak photo
Alex Zarechnak

Co-Manager

Portfolio Characteristics

(as of 03/31/2022)
Fund Benchmark
Number of Positions 56 1,399
Weighted Average Market Cap $127.3 billion $125.3 billion
Active Share 83.1 n.a.
P/E using FY1 estimates 13.0x 11.8x
P/E using FY2 estimates 12.0x 10.9x
Price/Cash Flow 9.5 7.5
Price/Book 2.4 1.8
Return On Equity 18.5 17.3
EPS Growth (3 Yr) 11.2% 13.7%

Sources: Factset Research Systems, Inc.

Top 10 Holdings

(as of 04/30/2022)
Name Sector Country % Net Assets
Taiwan Semiconductor Manufacturing Co., Ltd. Information Technology Taiwan 7.0
Samsung Electronics Co., Ltd., Pfd. Information Technology South Korea 6.0
FPT Corp. Information Technology Vietnam 4.2
Tencent Holdings, Ltd. Communication Services China/Hong Kong 4.0
Capitaland Investment, Ltd. Real Estate Singapore 3.8
First Quantum Minerals, Ltd. Materials Zambia 3.6
Infosys, Ltd. Information Technology India 2.8
HDFC Bank, Ltd. Financials India 2.6
Prologis Property Mexico SA de CV, REIT Real Estate Mexico 2.5
AIA Group, Ltd. Financials China/Hong Kong 2.2
TOTAL 38.7

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 03/31/2022)
  • Sector Allocation
  • Country Allocation
  • Market Cap Exposure

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

Not all countries are included in the benchmark index(es).

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)
12/14/2021 12/15/2021 $0.18047 $0.68627 $0.43302 $1.29976 8.5% N.A.

 

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, 2022

For the first quarter of the year, the Fund returned -11.44% (Investor Class) and -11.44% (Institutional Class), while its benchmark, the MSCI Emerging Markets Index, returned -6.92% over the same period.

Market Environment:

The first quarter of 2022 saw two defining events. The first was the Russian regime’s tragic decision to pursue a full-scale invasion of Ukraine. The humanitarian consequences of the invasion are horrible and ongoing. The other was the first interest rate-rise by the Federal Reserve since 2018. For economies and markets the main challenge related to these events continues to be supply side inflation, due to higher food and energy prices resulting from sanctions on Russia and the ongoing distribution bottle necks as the world recovers from the pandemic.

In addition, regulatory ambiguity and weak performances by companies with good narratives but little current earnings continued in China. In fact, the negative impact of China’s headwinds on emerging market equity performance was almost three times the impact of the decline and eventual removal of Russia equities from the MSCI Emerging Markets Index.

Performance Contributors and Detractors:

From a regional perspective, our overweight in Russia detracted the most from relative performance after Russian equities fell and were then removed from indexes after the start of the invasion. Prior to the conflict, we consciously lowered our exposure to Russia. We have never held Russian local shares but we did hold London-traded Global Depositary Receipts (GDRs). At the end of the first quarter, our exposure to Russia stood at effectively zero. China/Hong Kong was a large detractor, however, our allocation choice actually made it a small net positive relative to the index. Our overweight allocation to Brazil led to both positive contribution and relative performance in the quarter, as did our overweight and allocation to Vietnam.

At the sector level, our allocation and stock selection in materials, health care and real estate contributed the most to relative performance, while our stock selection in energy and financials detracted the most.

Looking at individual securities, Banco BTG Pactual SA, Vale SA and FPT Corp. were among the top contributors to relative performance. Brazilian equities in general performed well in the first quarter, and FPT, an IT service company in Vietnam, performed well and is still reasonably valued. On the other hand, the Russian GDRs, including Sberbank Russia PJSC, gas producer Novatek JSC, and energy producer Lukoil PJSC, detracted the most from absolute and relative performance.

Notable Portfolio Changes:

Our long-term orientation and investment philosophy had to quickly react to the unprecedented events of the period. Consequently, we undertook more portfolio changes than in a typical quarter. We proactively de-risked prior to Russia’s invasion by exiting two positions, Fix Price Group Ltd., a retail chain, and Polyus PJSC, a gold producer. We also initiated positions that we felt would benefit if tensions rose, including Qatar National Bank and additional exposure to Brazil. After the invasion, we felt it prudent to replace some of the energy exposure we’d exited. For example, we bought Australian Woodside Petroleum Ltd., a leading producer of natural gas, the majority of which goes to Asia.

The second big change–tighter monetary policy–has also impacted the portfolio. Early-stage companies that lack current earnings or cash flow may be disproportionately impacted by higher rates. We trimmed some longstanding positions and exited others, like Sea Ltd., a leading e-commerce company based in Singapore. Overall, we’re focused on understanding how inflation impacts the earnings and prospects of our individual holdings. The portfolio reflects this, with greater exposure to companies that are either direct beneficiaries or who have substantial pricing power combined with the ability to generate near-term cash flow.

Outlook:

A sea change in the first quarter occurred regarding how to think about geographic risk. Many of the companies we’d been involved with in Russia were independent of state ownership and not viewed as particularly close to the Kremlin or Russia’s leadership. Yet, they are no longer investable, and not without good reason. The events of the first quarter have brought to the fore an awareness that even companies seen as independent of their governments can be damaged and destroyed because of the actions of those governments.

Prior to the invasion the dominant mantra in portfolio management was one of engagement–to proactively work with good companies and worry less about geopolitics. This mantra may have unalterably shifted. Companies who are not party to state actions may still be deeply affected by them. We may have entered a protracted era where the concept of geographic risk for equities becomes a more prominent decision factor. What this means for international portfolio investing, particularly in markets like China, is not a settled issue.

That said, we’re quite optimistic that our security selection and portfolio construction is appropriate for the likely market conditions ahead. There are many reasons to be constructive. There are great companies and narratives out there. Sometimes, however, reflection can be more important than trying to foresee. The first quarter was one of those times. We hope the rest of the year will be different.


Top 10 holdings as of March 31, 2022. Current and future holdings are subject to change and risk.

 

Average Annual Total Returns - MEGMX as of 03/31/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-13.29% N.A. N.A. N.A. 20.03% 04/30/2020

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 1.52%
Net Expense Ratio 1.13%

Matthews has contractually agreed to waive fees and reimburse expenses to limit the Total Annual Fund Operating Expenses until April 30, 2023. Please see the Fund’s prospectus for additional details.

Investments in emerging and frontier securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Additionally, investing in emerging and frontier markets countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets.

 

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.