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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

21.71%

YTD Return

(as of 09/17/2021)

$31.56

Price

(as of 09/17/2021)

$394.26 million

Fund Assets

(as of 08/31/2021)

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.

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 $394.26 million (08/31/2021)
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 08/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Small Companies Fund
MSMLX
-1.48% 8.90% 20.40% 48.05% 20.78% 15.30% 9.22% 13.20% 09/15/2008
MSCI Emerging Markets Small Cap Index
1.23% 2.34% 19.90% 44.27% 13.01% 10.86% 5.91% 8.41%
MSCI All Country Asia ex Japan Small Cap Index
1.01% 2.26% 19.81% 41.67% 12.84% 10.83% 6.56% 8.96%
As of 06/30/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Small Companies Fund
MSMLX
7.15% 18.06% 18.47% 54.60% 18.28% 16.23% 8.20% 13.24% 09/15/2008
MSCI Emerging Markets Small Cap Index
2.39% 11.36% 19.95% 64.38% 12.74% 12.24% 4.88% 8.53%
MSCI All Country Asia ex Japan Small Cap Index
2.49% 9.61% 20.08% 62.52% 12.75% 12.17% 5.61% 9.10%
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 06/30/2021)

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 47 funds
  • 10 YEAR
  • out of 27 funds
  • 1 YEAR
  • 1st
  • 7 out of 36 funds
  • 3 YEAR
  • 1st
  • 8 out of 35 funds
  • 5 YEAR
  • 2nd
  • 11 out of 30 funds
  • 10 YEAR
  • 2nd
  • 9 out of 21 funds
  • SINCE INCEPTION
  • 1st
  • 2 out of 17 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 06/30/2021)
Fund Benchmark
Number of Positions 74 1,822
Weighted Average Market Cap $4.9 billion $1.9 billion
Active Share 50.5 n.a.
P/E using FY1 estimates 21.8x 13.5x
P/E using FY2 estimates 18.0x 11.9x
Price/Cash Flow 18.8 6.3
Price/Book 3.6 1.5
Return On Equity 10.4 9.9
EPS Growth (3 Yr) 7.4% -6.6%

Sources: BNY Mellon Investment Servicing (US) Inc., Factset Research Systems, Inc., Zephyr StyleADVISOR, Matthews Asia

Top 10 Holdings

(as of 08/31/2021)
Name Sector Country % Net Assets
Shriram City Union Finance, Ltd. Financials India 7.4
Silergy Corp. Information Technology China/Hong Kong 6.1
Ginlong Technologies Co., Ltd. Industrials China/Hong Kong 5.6
Phoenix Mills, Ltd. Real Estate India 3.6
Hugel, Inc. Health Care South Korea 3.1
Ecopro BM Co., Ltd. Industrials South Korea 3.1
Military Commercial Joint Stock Bank Financials Vietnam 2.9
Mobile World Investment Corp. Consumer Discretionary Vietnam 2.5
Andes Technology Corp. Information Technology Taiwan 2.2
Ashok Leyland, Ltd. Industrials India 2.1
TOTAL 38.6

 

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 06/30/2021)
  • 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.

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 6/30/21.

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 June 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 first half of 2021, the Matthews Emerging Markets Small Companies Fund returned 18.47% (Investor Class) and 18.59% (Institutional Class), while its benchmark, the MSCI Emerging Markets Small Cap Index, returned 19.95% over the same period. For the quarter ending June 30, the Fund returned 18.06% (Investor Class) and 18.09% (Institutional Class), while the benchmark returned 11.36%.

Market Environment:

From late January to early June, value stocks outperformed growth stocks as investors expected the strong global economic rebound from last year’s COVID-related slowdown to drive profit growth in economic cycle-sensitive industries. This view was further reinforced by investors’ belief that the U.S. Fed would let inflation run ahead of its target for a period of time to enable a stronger economic recovery. This scenario was also very conducive to the outperformance of small-cap stocks in relation to large-cap stocks in emerging markets (EM). Also not surprisingly, the industrials and materials sectors were the best performing during the first half of the year, while the performance of the health care sector lagged, as did expensive internet and other fast-growing industries. However that trend moderated somewhat after the Federal Open Market Committee meeting in June, when  the Fed signaled the potential for interest rate hikes sooner than expected, lowering the potential long-term growth overshoot from previous expectations.

During the first half of the year the best performing markets included India, South Africa and Saudi Arabia, while the worst performing markets were COVID- and political uncertainty-impacted Andean countries Columbia and Peru. In terms of currencies, the Brazilian real and South African rand appreciated the most during the first half of 2021, with the real gaining during the second quarter on the back of rate hikes and generally strong commodity prices. Meanwhile, the Turkish lira and Argentinian peso depreciated the most.

Performance Contributors and Detractors:

For the first half of the year, Vietnam and South Korea were the biggest contributors to relative performance, while stock selection in Taiwan and Indonesia, along with our overweight to Indonesia, were notable detractors from relative performance. From a sector perspective, industrials, health care and financials contributed positively, while information technology and consumer discretionary stocks detracted relative to the benchmark.

Turning to individual securities, Chinese solar inverter manufacturer Ginlong Technologies Co. was among the biggest contributors to absolute performance during the first half of the year. The company specializes in string inverters that are predominantly used in distributed solar panel applications globally. The fast growing underlying market for solar panel installations, potential for market share gains and market share growth in ground-mounted solar power stations have helped drive the stock price higher.

On the other hand, Indonesian stocks in general, and Bank Tabungan Negara in particular, were among the biggest detractors to relative performance during the quarter. Bank Tabungan Negara Persero is an Indonesian market leader in mortgage lending and the company specializes in middle to low income borrowers. There is a persistent shortage of housing in Indonesia and that demand in conjunction with the under-penetration of mortgages offers strong growth prospects for the company. We believe the bank could potentially see a sequential improvement in profits driven by reduced credit losses this year. But the Indonesian market in general, and its banking sector in particular, has been negatively affected by the latest wave of COVID infections. We remain positive on the mid- to long-term growth prospects of Bank Tabungan Negara, driven by strong underlying demand, a rebounding property market, supportive government policies in the sector and the potential for the Bank to improve its operational efficiencies. The investment case is also supported by very attractive valuations.

Notable Portfolio Changes:

During the second quarter, we initiated numerous positions in emerging markets outside of Asia, as part of the portfolio’s transition to emerging markets in countries including Russia, Brazil, Chile and Mexico, among others. As part of this transition we have initiated a position in Ozon Holdings, a leading Russian e-commerce company. Ozon has an attractive combination of exposure to a relatively large market with a low but fast-growing e-commerce penetration (a trend that was accelerated by COVID-19), strong execution capabilities and management team, superior investments in the underlying technology and physical infrastructure along with a good mix of both direct-to-consumer sales and marketplace formats.

Outlook:

Looking ahead, earnings growth, liquidity and valuations all appear supportive of emerging markets equities. We expect strong corporate earnings across emerging markets small caps in 2021, as the global recovery continues to expand. Across the region we see sufficient liquidity—while we have not seen as much uptake in corporate credit issuance, any pick up in credit issuance should further support economic growth.

In many emerging markets, we are seeing a return to normalcy, leading to better economic prospects for businesses. Parts of Asia have progressed from recovery to expansion, while others like Indonesia are still getting back to pre-pandemic levels of activity. Other emerging market countries like Peru, Columbia and South Africa, which have yet to recover from the pandemic, are also facing uncertain political climates. Overall, we continue to believe that emerging markets small companies are poised for attractive growth over the long term, driven by innovation, thriving entrepreneurism and strong consumption growth. Post-pandemic economic recovery should provide additional tailwinds to these growth prospects.

As of June 30, 2021, the securities mentioned comprised the Matthews Emerging Markets Small Companies Fund in the following percentages: Ginlong Technologies Co., Ltd. A Shares, 4.7%; PT Bank Tabungan Negara Persero, 1.4%; and Ozon Holdings PLC ADR, 1.0%.  Current and future holdings are subject to change and risk.

Earnings growth is not representative of the fund’s future performance.

 

Average Annual Total Returns - MSMLX as of 06/30/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
54.60% 18.28% 16.23% 8.20% 13.24% 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.