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Global Emerging Markets

Matthews Emerging Markets Small Companies Fund MSMLX

The Fund's name changed from the Matthews Asia Small Companies Fund to the Matthews Emerging Markets Small Companies Fund on April 30 2021.

Snapshot
  • Seeks alpha in innovative, capital efficient entrepreneurial companies in emerging markets
  • Focus on firms that have a strong competitive advantage through pricing power, distribution capability, and/or differentiated technologies and services
  • Bias toward businesses that cater to rising domestic consumer demand

09/15/2008

Inception Date

24.84%

YTD Return

(as of 11/30/2021)

$32.37

Price

(as of 11/30/2021)

$407.45 million

Fund Assets

(as of 10/31/2021)

Objective

Long-term capital appreciation

Strategy

Under normal circumstances, the Matthews Emerging Markets Small Companies 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 Small 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 defines Small Companies as companies with market capitalization no higher than the greater of US $5 billion or the market capitalization of the largest company included in the Fund's primary benchmark, the MSCI Emerging Markets Small Cap Index.

Risks

Investing in international and emerging markets may involve additional 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 securities involves greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. The Fund is non-diversified as it concentrates its investments in small sized companies. Investing in small- and mid-size companies is more risky and volatile than investing in large companies as they may be more volatile and less liquid than larger companies.

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

Fund Facts
Inception Date 09/15/2008
Fund Assets $407.45 million (10/31/2021)
Currency USD
Ticker MSMLX
Cusip 577-125-206
Portfolio Turnover 111.9%
Benchmark MSCI Emerging Markets Small Cap Index MSCI All Country Asia ex Japan Small Cap Index
Geographic Focus 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.
Fees & Expenses
Gross Expense Ratio 1.67%
Net Expense Ratio 1.40%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 10/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Small Companies Fund
MSMLX
4.14% 2.31% 25.03% 52.66% 28.97% 16.14% 10.60% 13.35% 09/15/2008
MSCI Emerging Markets Small Cap Index
0.25% -0.49% 17.85% 44.93% 17.92% 10.52% 6.58% 8.16%
MSCI All Country Asia ex Japan Small Cap Index
1.27% 0.81% 19.57% 42.88% 19.28% 11.08% 7.41% 8.82%
As of 09/30/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Small Companies Fund
MSMLX
-0.29% 1.33% 20.05% 47.55% 22.66% 14.70% 11.09% 13.09% 09/15/2008
MSCI Emerging Markets Small Cap Index
-1.95% -2.00% 17.56% 43.79% 13.53% 10.14% 7.55% 8.19%
MSCI All Country Asia ex Japan Small Cap Index
-1.45% -1.68% 18.07% 41.35% 13.80% 10.23% 8.31% 8.78%
For the years ended December 31st
Name 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011
Matthews Emerging Markets Small Companies Fund
MSMLX
43.68% 17.38% -18.05% 30.59% -1.44% -9.43% 11.39% 7.19% 23.92% -20.03%
MSCI All Country Asia ex Japan Small Cap Index
26.60% 7.58% -18.63% 33.84% -2.05% -3.28% 2.56% 7.16% 22.76% -26.66%

Effective April 30, 2021, in connection with changes to the Fund’s name and principal investment strategies, the primary benchmark changed from the MSCI All Country Asia ex Japan Small Cap Index to the MSCI Emerging Markets Small Cap Index.

MSCI AC Asia ex Japan Small Cap Index since inception value calculated from 9/15/08.

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 09/30/2021)

MSCI AC Asia ex Japan Small Cap Index since inception value calculated from 9/15/08.

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 52 funds
  • 3 YEAR
  • out of 52 funds
  • 5 YEAR
  • out of 46 funds
  • 10 YEAR
  • out of 33 funds
  • 1 YEAR
  • 1st
  • 15 out of 758 funds
  • 3 YEAR
  • 1st
  • 24 out of 680 funds
  • 5 YEAR
  • 1st
  • 37 out of 575 funds
  • 10 YEAR
  • 1st
  • 8 out of 311 funds
  • SINCE INCEPTION
  • 1st
  • 2 out of 207 funds

Ratings agency calculation methodology

Portfolio Managers

Vivek  Tanneeru photo
Vivek Tanneeru

Lead Manager

Jeremy  Sutch, CFA photo
Jeremy Sutch, CFA

Co-Manager

Portfolio Characteristics

(as of 09/30/2021)
Fund Benchmark
Number of Positions 68 1,817
Weighted Average Market Cap $5.2 billion $2.0 billion
Active Share 98.4 n.a.
P/E using FY1 estimates 23.7x 12.8x
P/E using FY2 estimates 18.3x 11.7x
Price/Cash Flow 19.9 6.3
Price/Book 3.6 1.7
Return On Equity 10.9 10.1
EPS Growth (3 Yr) 8.5% -2.6%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 09/30/2021)
10.79%
Alpha
0.79
Beta
97.68%
Upside Capture
70.01%
Downside Capture
1.02
Sharpe Ratio
0.79
Information Ratio
11.56%
Tracking Error
75.48

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 10/31/2021)
Name Sector Country % Net Assets
Silergy Corp. Information Technology China/Hong Kong 6.8
Shriram City Union Finance, Ltd. Financials India 6.7
Ginlong Technologies Co., Ltd. Industrials China/Hong Kong 5.8
Ecopro BM Co., Ltd. Industrials South Korea 4.1
Phoenix Mills, Ltd. Real Estate India 3.8
Hugel, Inc. Health Care South Korea 3.0
Military Commercial Joint Stock Bank Financials Vietnam 2.9
Mobile World Investment Corp. Consumer Discretionary Vietnam 2.9
Lemon Tree Hotels, Ltd. Consumer Discretionary India 2.7
Andes Technology Corp. Information Technology Taiwan 2.5
TOTAL 41.2

 

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

Matthews Emerging Markets Small Companies Fund Composition as of April 30 2021 Matthews Emerging Markets Small Companies Fund Composition

Portfolio Breakdown (%)

(as of 09/30/2021)
  • 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).

The Portfolio’s market cap exposure breakdown presented is used for comparison purposes and the definition of the capitalization breakdown is from MSCI.

The Fund defines Small Companies as companies with market capitalization no higher than the greater of US$5 billion or the market capitalization of the largest company included in the Fund's primary benchmark, the MSCI Emerging Markets Small Cap Index.

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.

Portfolio Breakdown benchmark reflects the MSCI Emerging Markets Small Cap Index as of 9/30/21.

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 $0.05487 $0.00000 $0.01710 $0.07197 0.3% 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 September 30, 2021
As of April 30 2021, Matthews Asia Small Companies Fund name has been changed to the Matthews Emerging Markets Small Companies Fund

For the quarter ending September 30, 2021, the Matthews Emerging Markets Small Companies Fund returned 1.33% (Investor Class) and 1.37% (Institutional Class), while its benchmark, the MSCI Emerging Markets Small Cap Index, returned -2.00% over the same period.

Market Environment:

The emerging markets small cap equities rally took a breather during the third quarter, after a strong first half performance. The specter of inflation driven by supply shortages (especially in semiconductors), shipping bottlenecks, higher energy prices, and the emergence of political and regulatory risks in many emerging markets led to a tepid performance during the third quarter. We also saw a spate of interest rate hikes across emerging markets as the very accommodative post-COVID-19 monetary policy environments normalize. Despite these headwinds, emerging market small cap stocks continued to outperform large caps, which were disproportionately affected by the regulatory and political risks in countries such as China, Brazil and Chile.

During the quarter Latin American countries like Brazil, Chile and Peru were among the worst performing emerging markets, weighed down by a rise in perceived political and regulatory risks. China was also weak on the back of the Chinese government’s targeted regulatory action in sectors such as education, internet gaming, social media platforms, and ride hailing services. On the other hand India and Indonesia were the best performing markets during the quarter on normalizing COVID-19 case rates, improving vaccination rates and normalizing economic activity. The Indonesian rupiah and the Russian ruble were the best performing emerging markets currencies during the quarter, while Latin American currencies such as the Chilean peso, Brazilian real, and Peruvian sol were the worst performers.

From a sector perspective, energy and materials were among the best performers, while the health care and consumer discretionary sectors were the worst performers.

Performance Contributors and Detractors:

On a country basis, South Korea and Brazil were the biggest contributors to relative performance during the third quarter, while Taiwan was the biggest detractor. Stock selection in China, South Korea and India contributed positively to relative performance, while our underweight to Brazil and overweight to India also contributed positively. Our overweight to China was a significant detractor.

From a sector standpoint, stock selection in industrials and consumer discretionary were the biggest positive contributors, while health care, information technology and materials stock selection were notable detractors to relative performance.

Looking at individual portfolio holdings, South Korea’s Ecopro BM Co., developer and manufacturer of  advanced materials such as high-nickel cathode materials used in electric vehicles, was among the positive contributors to performance during the quarter. The market was enthused about the progress the company has made in growing its order book for high-nickel cathodes on the back of their key customers expanding their footprint to new geographies in a fairly significant way.

On the other hand, Peijia Medical, a China-based heart and neurovascular device manufacturer, detracted from performance during the quarter, as investors worried about the potential negative effects on revenue from volume-based procurement tenders from the government. Peijia’s stock price also suffered from the general sell-off in health care-related names in China. The company continues to execute well on its product pipeline and had received approval for its second-generation TAVR (transcatheter aortic valve replacement) product. We take a favorable view of its product pipeline and its ability to actively commercialize its recently approved products.

Notable Portfolio Changes:

During the quarter we initiated a position in Bandhan Bank, a microfinance and small-ticket mortgage lender in India. Bandhan is a market leader in microfinance lending, a sector that has been negatively impacted by the mobility restrictions imposed during COVID-19 shutdowns as well as political risk during recent state elections in East India. We expect Bandhan’s operations and credit costs to normalize over time, as economic activity and mobility normalizes, especially in rural India. The company has an attractive deposit franchise and is actively diversifying from its core microlending business through both organic and inorganic growth initiatives. Bandhan has been actively adding to its senior leadership to increase depth within its ranks, is  strongly capitalized, and trades at attractive valuations.

During the quarter we have exited positions in names such as Wonik IPS Co. and Eugene Technology Co. after a strong run and redeployed capital elsewhere.

Outlook:

Looking ahead, earnings growth buoyed by strong cyclical recovery and valuations all appear supportive of emerging markets small cap stocks. We expect strong corporate earnings in 2021 as the global recovery continues to expand. Across the region we see sufficient liquidity, and while we have not seen as much uptake in credit, any pick up in credit issuance should further support economic growth. In many parts of the emerging markets COVID-19 vaccination is progressing well and provides hope for economic activity normalization in the coming quarters. Therefore, we believe small companies are poised for attractive growth, barring another devastating COVID-19 wave.

 

As of September 30, 2021, the securities mentioned comprised the Matthews Emerging Markets Small Companies Fund in the following percentages: Ecopro BM Co., 4.4%; Peijia Medical, 1.7%; Bandhan Bank, 0.7%. The Fund held no positions in Wonik IPS Co. and Eugene Technology Co.

Current and future holdings are subject to change and risk. Investing in small- and mid-size companies is more risky than investing in large companies as they may be more volatile and less liquid than larger companies. Earnings growth is not representative of the fund’s future performance.

 

Average Annual Total Returns - MSMLX as of 09/30/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
47.55% 22.66% 14.70% 11.09% 13.09% 09/15/2008

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 1.67%
Net Expense Ratio 1.40%

Matthews has contractually agreed to waive fees and reimburse expenses to limit the Total Annual Fund Operating Expenses until April 30, 2022. Please see the Fund’s prospectus for additional details.

Investing in international and emerging markets may involve additional 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 securities involves greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. The Fund is non-diversified as it concentrates its investments in small sized companies. Investing in small- and mid-size companies is more risky and volatile than investing in large companies as they may be more volatile and less liquid than larger companies.

 

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.