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Global Emerging Markets

Matthews Emerging Markets Small Companies Fund MSMLX

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

-19.05%

YTD Return

(as of 07/01/2022)

$24.22

Price

(as of 07/01/2022)

$369.25 million

Fund Assets

(as of 05/31/2022)

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.

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

Fund Facts
Inception Date 09/15/2008
Fund Assets $369.25 million (05/31/2022)
Currency USD
Ticker MSMLX
Cusip 577-125-206
Portfolio Turnover 50.8%
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 1.51%
Net Expense Ratio 1.35%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 05/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Small Companies Fund
MSMLX
4.70% -3.10% -12.23% -3.04% 19.07% 11.28% 9.24% 11.49% 09/15/2008
MSCI Emerging Markets Small Cap Index
-1.61% -3.99% -10.49% -8.86% 11.66% 6.38% 6.15% 7.02%
As of 03/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Small Companies Fund
MSMLX
-1.88% -11.13% -11.13% 8.17% 18.69% 12.15% 8.52% 11.74% 09/15/2008
MSCI Emerging Markets Small Cap Index
2.70% -4.27% -4.27% 6.03% 12.39% 8.22% 5.67% 7.65%
MSCI All Country Asia ex Japan Small Cap Index
1.23% -6.86% -6.86% 3.07% 12.32% 8.23% 6.37% 8.09%
For the years ended December 31st
Name 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
Matthews Emerging Markets Small Companies Fund
MSMLX
22.14% 43.68% 17.38% -18.05% 30.59% -1.44% -9.43% 11.39% 7.19% 23.92%
MSCI Emerging Markets Small Cap Index
19.29% 19.72% 11.93% -18.30% 34.22% 2.56% -6.57% 1.34% 1.35% 22.60%
MSCI All Country Asia ex Japan Small Cap Index
21.23% 26.60% 7.58% -18.63% 33.84% -2.05% -3.28% 2.56% 7.16% 22.76%

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.

Before April 30, 2021, the Fund was managed with a materially different investment strategy and may have achieved materially different performance results under its current investment strategy from the performance shown for periods before that date.

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 03/31/2022)

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 34 funds
  • 1 YEAR
  • 1st
  • 15 out of 777 funds
  • 3 YEAR
  • 1st
  • 4 out of 703 funds
  • 5 YEAR
  • 1st
  • 13 out of 600 funds
  • 10 YEAR
  • 1st
  • 5 out of 339 funds
  • SINCE INCEPTION
  • 1st
  • 1 out of 206 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 03/31/2022)
Fund Benchmark
Number of Positions 58 1,766
Weighted Average Market Cap $4.2 billion $1.9 billion
Active Share 98.5 n.a.
P/E using FY1 estimates 17.5x 12.0x
P/E using FY2 estimates 13.6x 10.7x
Price/Cash Flow 13.2 6.8
Price/Book 2.8 1.6
Return On Equity 12.6 14.3
EPS Growth (3 Yr) 2.7% 6.0%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 03/31/2022)
8.63%
Alpha
0.76
Beta
87.05%
Upside Capture
65.65%
Downside Capture
0.87
Sharpe Ratio
0.49
Information Ratio
12.81%
Tracking Error
68.29

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 05/31/2022)
Name Sector Country % Net Assets
Shriram City Union Finance, Ltd. Financials India 5.8
Ecopro BM Co., Ltd. Industrials South Korea 5.8
Ginlong Technologies Co., Ltd. Industrials China/Hong Kong 5.5
Bandhan Bank, Ltd. Financials India 5.2
Silergy Corp. Information Technology China/Hong Kong 5.0
Phoenix Mills, Ltd. Real Estate India 4.3
Vamos Locacao de Caminhoes Maquinas e Equipamentos SA Industrials Brazil 3.6
Mobile World Investment Corp. Consumer Discretionary Vietnam 3.4
Lemon Tree Hotels, Ltd. Consumer Discretionary India 3.3
Legend Biotech Corp. Health Care United States 3.3
TOTAL 45.2

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

 

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).

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 3/31/22.

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 $0.00000 $1.52123 $0.22299 $1.74422 5.5% 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, 2022

For the first quarter of the year, the Fund returned -11.13% (Investor Class) and -11.08% (Institutional Class), while its benchmark, the MSCI Emerging Markets Small Cap Index, returned -4.27% over the same period.

Market Environment:

The first quarter brought sharp changes to the emerging markets small-cap landscape. The notion that inflation is more embedded than transitory gained traction while Russia’s invasion of Ukraine led to a rapid reassessment of geopolitical, energy and defense priorities globally. The market sentiment this created didn’t support growth stocks and energy and commodity prices rallied on concerns over supply disruptions. Weakness in Chinese equities also continued, fueled by the ongoing delisting threat to Chinese ADRs, economic cost of China’s zero-COVID policy and concerns over China’s stance over the Ukraine invasion.  

Energy was the best performing sector among emerging market-small cap equity indexes while communication services and health care were the worst performers. The Latin American countries of Peru, Brazil, Chile, Mexico and Colombia were the best-performing emerging markets while South Africa, Kuwait and Saudi Arabia also did well. The worst performing markets were energy and commodity importers such as Egypt, South Korea, Taiwan and China. Eastern European markets were also challenged and Russian equities were removed from MSCI indexes, effectively marking them at zero.

During the quarter, the best-performing emerging markets currencies against the U.S. dollar were the Brazil real, the South African rand, the Peruvian sol, the Chilean peso and the Colombian peso. The Turkish lira and the Russian ruble were the worst performers.  

Performance Contributors and Detractors:

From a country perspective, the portfolio’s overweight allocation and stock selection within India contributed the most to the Fund’s relative performance during the quarter, followed by Vietnam. On the other hand the portfolio’s overweight allocation and stock selection within China/Hong Kong detracted the most from the Fund’s absolute and relative performance.

At the sector level, stock selection within consumer discretionary, overweight in financials and underweight in communication services added to performance. Consumer discretionary stocks contributed most to performance during the quarter as economic activity in general and consumer services spending in areas such as travel, in-person shopping and hotels, in particular, rebounded strongly in Asia and elsewhere. On the other hand, stock selection within information technology, industrials and health care detracted most from performance. In light of market’s fast-evolving rate expectations and the energy and commodity price spikes during the quarter, the rotation away from expensive growth stocks continued apace. This has particularly negatively impacted high growth sectors such as technology and biotech, which had done well last year.

Among individual holdings, positive contributors included Bandhan Bank, India’s largest microfinance lender. After several quarters of turbulence on the back of COVID lockdowns and general weakness in India’s rural economy, Bandhan’s operations have seemingly stabilized and problem assets mostly provided for, giving a positive background for Bandhan’s stock price. As the Indian economy bounces back to normalcy, we expect Bandhan’s formidable rural franchise to deliver strong growth and profitability in the coming quarters and years. On the other hand, the portfolio’s health-care holdings in China, including Innovent Biologics, were impacted by potential changes in clinical trial design requirements for the U.S Food and Drug Administration (FDA).

Notable Portfolio Changes:

During the quarter, the fund initiated a new position in Banco Pan SA, a small-cap Brazilian bank that specializes in payroll and auto loans. We saw an attractive entry point after its share price had weakened due to market concerns over asset quality. We believe the bank has materially improved governance and management over the past few years, has a large-collateralized book and a well-executed digital strategy.

In the quarter, our exits included small stub positions held in Indian Railway Catering & Tourism and Wilcon Depot.

Outlook:

Fed moves to raise interest rates and shrink its asset portfolio, together with market expectations for the Fed’s monetary tightening plan, remain the most important variables to watch given their near-term implications for regional, sector and style performance. From a portfolio standpoint, we will look to maintain a balance between growth and value exposure while staying broadly diversified across sectors and countries. We remain watchful about the impact of inflation on corporate earnings, which we expect to moderate in 2022.

Across emerging markets we believe there is sufficient liquidity and there are early signs of the rate hiking cycle coming to a potential close in commodity-orientated markets like Brazil. While we have not seen much uptake in credit, any pickup in credit issuance should further support economic growth. In many parts of the emerging markets, the COVID-19 vaccination is progressing well and provides hope for economic activity normalization in the coming quarters. Barring another serious pandemic wave, we believe small companies are poised for attractive growth at attractive valuations.

View the Fund’s Top 10 holdings as of March 31, 2022. Current and future holdings are subject to change and risk.


Average Annual Total Returns - MSMLX as of 03/31/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
8.17% 18.69% 12.15% 8.52% 11.74% 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 1.51%
Net Expense Ratio 1.35%

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.

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.