Under normal circumstances, the Matthews Asia Growth 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 Asia. The Fund may also invest in the convertible securities, of any duration or quality, of Asian companies. 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 and frontier markets involves different and greater risks, as these 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.
Asia - Consists of all countries and markets in Asia, including developed, emerging, and frontier countries and markets in the Asian region
Fees & Expenses
Gross Expense Ratio
1.13%
Objective
Long-term capital appreciation.
Strategy
Under normal circumstances, the Matthews Asia Growth 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 Asia. The Fund may also invest in the convertible securities, of any duration or quality, of Asian companies. 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 and frontier markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets.
The risks associated with investing in the Fund can be found in the prospectus
Performance
Monthly
Quarterly
Calendar Year
As of 08/31/2023
Average Annual Total Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews Asia Growth Fund - MPACX
10/31/2003
MPACX
-3.67%
1.07%
-0.34%
-3.13%
-10.48%
-2.65%
3.46%
6.50%
MSCI All Country Asia Pacific Index
-4.87%
3.26%
6.11%
5.29%
0.51%
2.29%
5.00%
6.08%
As of 06/30/2023
Average Annual Total Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews Asia Growth Fund - MPACX
10/31/2003
MPACX
0.39%
-3.69%
-1.01%
-3.65%
-8.55%
-3.18%
2.99%
6.53%
MSCI All Country Asia Pacific Index
3.48%
1.43%
6.35%
6.44%
3.81%
2.38%
5.04%
6.15%
For the years ended December 31st
Name
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
Matthews Asia Growth Fund - MPACX
MPACX
-33.12%
-14.65%
46.76%
26.18%
-16.25%
39.39%
0.92%
-0.05%
1.49%
19.35%
MSCI All Country Asia Pacific Index
-16.92%
-1.19%
20.07%
19.74%
-13.25%
32.04%
5.21%
-1.68%
0.29%
12.19%
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 $10,000 Investment Since Inception
(as of 06/30/2023)
Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.
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.
Past performance is no guarantee of future results. High ratings and rankings does not assure favorable performance.
The Overall Morningstar® Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and (if applicable) ten-year ratings.
Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.
Lipper Analytical Services, Inc., rankings are based on total return, including reinvestment of dividends and capital gains for the stated periods. Funds are assigned a rank within a universe of funds similar in investment objective as determined by Lipper. For the absolute rankings shown the lower the number rank, the better the Fund performed compared to other funds in the classification group. Lipper also calculates a quartile ranking which divides the peer group into quartiles to identify funds of similar quality. Funds in the 1st or 2nd quartile had outperformed the average fund in the peer group while funds in the 3rd or 4th quartile had underperformed.
Taizo Ishida is a Portfolio Manager at Matthews and manages the firm’s Asia Growth and Japan Strategies, and co-manages the firm’s Asia Innovators Strategy. Prior to joining Matthews in 2006, Taizo spent six years on the global and international teams at Wellington Management Company as a Vice President and Portfolio Manager. From 1997 to 2000, he was a Senior Securities Analyst and a member of the international investment team at USAA Investment Management Company. From 1990 to 1997, he was a Principal and Senior Research Analyst at Sanford Bernstein & Co. Prior to beginning his investment career at Yamaichi International (America), Inc. as a Research Analyst, he spent two years in Dhaka, Bangladesh as a Program Officer with the United Nations Development Program. Taizo received a B.A. in Social Science from International Christian University in Tokyo and an M.A. in International Relations from The City College of New York. He is fluent in Japanese.
Michael Oh is a Portfolio Manager at Matthews and manages the firm’s Asia Innovators and Korea Strategies and co-manages the Asia Growth Strategy. Michael joined Matthews in 2000, and has built his investment career at the firm. Michael was promoted from Research Analyst to Assistant Portfolio Manager in 2003. In 2006 and 2007, he was promoted to Lead Manager of the Matthews Asia Innovators Strategy and the Matthews Korea Strategy, respectively. From 2000-2003, Michael’s research focused on the technology sector supporting multiple strategies managed by the founders of the firm. As a research analyst, he contributed investment ideas to the broader Matthews investment teams. Michael received a B.A. in Political Economy of Industrial Societies from the University of California, Berkeley. He is fluent in Korean.
Peeyush Mittal is a Portfolio Manager at Matthews and manages the firm’s India Strategy and co-manages the Emerging Markets Equity, Emerging Markets ex China and Asia Growth Strategies. Prior to joining the Matthews in 2015, he spent over three years at Franklin Templeton Asset Management India, most recently as a Senior Research Analyst. Previously, he was with Deutsche Asset & Wealth Management New York, from 2009 to 2011, researching U.S. and European stocks in the industrials and materials sectors. Peeyush began his career in 2003 with Scot Forge as an Industrial Engineer, and was responsible for implementing Lean Manufacturing systems on the production shop floor. Peeyush earned his M.B.A from The University of Chicago Booth School of Business. He received a Master of Science in Industrial Engineering from The Ohio State University and received a Bachelor of Technology in Metallurgical Engineering from The Indian Institute of Technology Madras. He is fluent in Hindi.
Portfolio Characteristics
(as of 06/30/2023)
Fund
Benchmark
Number of Positions
47
1,531
Weighted Average Market Cap
$97.1 billion
$87.6 billion
Active Share
81.8
n.a.
P/E using FY1 estimates
20.1x
14.1x
P/E using FY2 estimates
17.4x
12.6x
Price/Cash Flow
13.5
7.8
Price/Book
2.8
1.6
Return On Equity
10.6
14.7
EPS Growth (3 Yr)
27.0%
15.8%
Sources: Factset Research Systems, Inc.
Risk Metrics (3 Yr Return)
(as of 06/30/2023)
Category
3YR Return Metric
Alpha
-11.41%
Beta
1.07
Upside Capture
74.18%
Downside Capture
131.86%
Sharpe Ratio
-0.46
Information Ratio
-1.08
Tracking Error
11.44%
R²
71.74
-11.41%
Alpha
1.07
Beta
74.18%
Upside Capture
131.86%
Downside Capture
-0.46
Sharpe Ratio
-1.08
Information Ratio
11.44%
Tracking Error
71.74
R²
Fund Risk Metrics are reflective of Investor share class.
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 06/30/2023)
Sector Allocation
Country Allocation
Market Cap Exposure
Sector
Fund
Benchmark
Difference
Consumer Discretionary
22.8
14.7
8.1
Health Care
18.6
6.4
12.2
Financials
17.0
18.9
-1.9
Information Technology
12.4
18.4
-6.0
Industrials
9.0
12.5
-3.5
Communication Services
7.7
8.1
-0.4
Consumer Staples
4.1
5.6
-1.5
Energy
3.5
2.9
0.6
Materials
3.3
7.2
-3.9
Real Estate
0.0
3.4
-3.4
Utilities
0.0
2.0
-2.0
Cash and Other Assets, Less Liabilities
1.8
0.0
1.8
Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.
Country
Fund
Benchmark
Difference
Japan
43.7
33.3
10.4
China/Hong Kong
25.1
22.5
2.6
India
15.0
9.3
5.7
Indonesia
5.2
1.3
3.9
Taiwan
4.5
9.9
-5.4
Australia
3.6
10.9
-7.3
Singapore
1.2
2.1
-0.9
South Korea
0.0
7.8
-7.8
Thailand
0.0
1.2
-1.2
Malaysia
0.0
0.8
-0.8
Philippines
0.0
0.4
-0.4
New Zealand
0.0
0.3
-0.3
Macau
0.0
0.1
-0.1
Cash and Other Assets, Less Liabilities
1.8
0.0
1.8
Not all countries are included in the benchmark index(es).
Equity market cap of issuer
Fund
Benchmark
Difference
Mega Cap (over $25B)
62.5
59.4
3.1
Large Cap ($10B-$25B)
18.5
21.5
-3.0
Mid Cap ($3B-$10B)
8.4
18.0
-9.6
Small Cap (under $3B)
8.9
1.0
7.9
Cash and Other Assets, Less Liabilities
1.8
0.0
1.8
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.
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.
For the first half of 2023, the Matthews Asia Growth Fund returned -1.01% (Investor Class) and -0.95% (Institutional Class), while its benchmark, the MSCI All Country Asia Pacific Index, returned 6.35% over the same period. For the quarter ending June 30, 2023, the Fund returned -3.69% (Investor Class) and -3.64% (Institutional Class), while the benchmark returned 1.43%.
Market Environment:
The story of 2023’s first half has inarguably been about China. The year started on a positive note as markets anticipated that China’s lifting of zero-COVID would meaningfully boost economic activity—but the anticipation quickly faded as China’s economy struggled to regain its footing and domestic sentiment proved a meaningful drag. Consequently, China’s market returns have been negative year-to-date. Further weighing on China’s macro picture has been the property market, which has contributed to dour sentiment as many Chinese hold their wealth via real estate. Property market downturns make many Chinese citizens feel relatively poorer which decreases the likelihood they will spend money and help the economy.
Beyond China’s shores, the macroeconomic picture hasn’t been much better with much of the West (notably the U.S. and Europe) still battling inflation—an extended effort that has resulted in notably higher interest rates. If there is a bright spot, it may be Japan where the markets are improving thanks to fundamentals which appear to be turning for the first time in several decades. Spurred on by the Tokyo Stock Exchange, Japan-domiciled companies are finally working to improve their price-to-book ratios via share buybacks. Many Japanese companies have also increased their dividend payout ratios, improving their value to shareholders. In our view, these changes are meaningful and substantive and we believe Japan may be at the beginning of long-needed structural change. Another market offering encouragement has been India, which is benefiting in part from moves by some companies to make their supply chains less dependent on China.
Performance Contributors and Detractors:
Regionally, our overweight and stock selection in China was the biggest detractor to relative performance in the first half of the year. Our underweight to Taiwan—a relative bright spot given ongoing geopolitical tensions around the semiconductor industry—was also a large detractor. Our holdings in Japan, while positive on an absolute basis, trailed the benchmark and detracted from performance. On the flip side, our stock selection in Indonesia and our overweight to India were strong contributors to performance.
At the sector level, relative weakness was concentrated in our health care exposure—which detracted from performance due to our overweight position and stock selections. Our selections in consumer discretionary and industrials, and our underweight in IT also detracted. Conversely, our stock selections in financials were a source of relative strength, as were our materials holdings.
At the individual holdings level, JD.com and InnoCare Pharma were among our bottom contributors in the first half. Chinese e-commerce giant JD.com suffered as Chinese consumers were slow to increase consumption in the wake of zero-COVID’s lifting. Though many investors have seemingly soured on the outlook, we maintain our conviction in the company’s quality and are attracted to its solid balance sheet with ample cash. Shares of China-based InnoCare Pharma declined sharply following the company’s announcement that its exclusive global licensing (ex-China) agreement with the U.S.’s Biogen to develop and market a BTK inhibitor for multiple sclerosis had been discontinued. As a result, we exited our position.
Among our top individual contributors were Legend Biotech and Shin-Etsu Chemical. China-based biopharmaceutical Legend Biotech has developed arguably a best-in-class CAR T-cell therapy for cancer—an area with few competitors. Given the company’s solid fundamentals, we like the outlook from here and its positioning in the space. Shares of Shin-Etsu Chemical, a premier Japanese semiconductor wafer company with large global market share, rose on the back of strength in semiconductor stocks. We favor the company’s solid fundamentals despite its exposure to the U.S. housing market as a dominant PVC maker.
Notable Portfolio Changes:
During the last quarter, we initiated positions in Toyota and Mahindra & Mahindra. Japanese automaker Toyota has solid fundamentals, a long history as one of Japan’s premier companies and is exposed to the ongoing transition to electric vehicles (EVs). Similarly, Mahindra & Mahindra is an India-based automaker specializing in SUVs—a growing vehicle category in India which we expect to boost the company’s sales in the period ahead.
In addition to exiting InnoCare Pharma, we sold our positions in Taiwanese power management chip company Silergy and long-time holding Vietnam Dairy Products following conversations with both companies’ management teams which weakened our confidence in their outlooks. We opted to redeploy our capital into more compelling opportunities.
Outlook:
We don’t have a crystal ball that can tell us what will happen in China, which continues to be the primary concern. Many have called a bottom several times in China’s market only to see it decline further. It’s hard to see much of a reason for sentiment in China to shift meaningfully in the near term. The likelihood the government can effect a quick turnaround seems low. We think, however, that an uptick in IPOs in the Hong Kong market should encourage global investors to participate in the market in the next three to six months.
Elsewhere, we are encouraged by the progress we’re seeing in Japan and expect it to continue along its current structural change path. Compounding our enthusiasm are valuations which, though certainly higher in the wake of the recent market rally, remain relatively cheap, in our view. By way of contrast, India, which also remains a relative bright spot, has much higher, and consequently less attractive, valuations. As we’ve gained confidence in Japan and its companies’ fundamentals, we’ve decreased our exposure to China while increasing our Japan holdings.
Over the next six months, we would like to think sentiment will gradually improve—and that perhaps the rate-hike cycle will conclude in the West and markets will find more reasons to continue climbing the proverbial wall of worry. We will certainly watch with interest and are prepared to position the portfolio accordingly as events unfold.
View the Fund’s Top 10 holdings as of June 30, 2023. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MPACX as of 06/30/2023
1YR
3YR
5YR
10YR
Since Inception
Inception Date
-3.65%
-8.55%
-3.18%
2.99%
6.53%
10/31/2003
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
1.13%
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 and frontier markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets.
The MSCI All Country Asia ex Japan Index is a free float–adjusted market capitalization–weighted index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI All Country Asia Pacific Index is a free float–adjusted market capitalization–weighted index of the stock markets of Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Index is a free float-adjusted market capitalization-weighted index of Chinese equities that includes H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges, Hong Kong-listed securities known as Red chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China) and foreign listings (e.g. ADRs).
The MSCI China All Shares Index captures large and mid-cap representation across China A shares, B shares, H shares, Red chips (issued by entities owned by national or local governments in China), P chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g. ADRs). The index aims to reflect the opportunity set of China share classes listed in Hong Kong,Shanghai, Shenzhen and outside of China.
The MSCI Emerging Markets (EM) Asia Index is a free float-adjusted market capitalization weighted index of the stock markets of China, India, Indonesia, Malaysia, Pakistan, Philippines, South Korea, Taiwan and Thailand. The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets ex China Index is a free float-adjusted market capitalization-weighted index that captures large and mid cap representation across 23 of the 24 Emerging Markets (EM) countries excluding China: Brazil, Chile, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets Small Cap Index is a free float-adjusted market capitalization weighted small cap index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungry, India, Indonesia, Kuwait, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan Thailand, Turkey and United Arab Emirates.
The S&P Bombay Stock Exchange 100 (S&P BSE 100) Index is a free float–adjusted market capitalization–weighted index of 100 stocks listed on the Bombay Stock Exchange.
The MSCI Japan Index is a free float–adjusted market capitalization–weighted index of Japanese equities listed in Japan.
The Korea Composite Stock Price Index (KOSPI) is a market capitalization–weighted index of all common stocks listed on the Korea Stock Exchange.
The MSCI All Country Asia ex Japan Small Cap Index is a free float–adjusted market capitalization–weighted small cap index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Small Cap Index is a free float-adjusted market capitalization-weighted small cap index of the Chinese equity securities markets, including H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges,Hong Kong-listed securities known as Red Chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g., ADRs).
The MSCI India Index is a free float-adjusted market capitalization-weighted index of Indian equities listed in India.
The MSCI Korea Index is a free float-adjusted market capitalization-weighted index of Korean equities listed in Korea.
Indexes are for comparative purposes only and it is not possible to invest directly in an index.
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.
Commentary
Period ended June 30, 2023
For the first half of 2023, the Matthews Asia Growth Fund returned -1.01% (Investor Class) and -0.95% (Institutional Class), while its benchmark, the MSCI All Country Asia Pacific Index, returned 6.35% over the same period. For the quarter ending June 30, 2023, the Fund returned -3.69% (Investor Class) and -3.64% (Institutional Class), while the benchmark returned 1.43%.
Market Environment:
The story of 2023’s first half has inarguably been about China. The year started on a positive note as markets anticipated that China’s lifting of zero-COVID would meaningfully boost economic activity—but the anticipation quickly faded as China’s economy struggled to regain its footing and domestic sentiment proved a meaningful drag. Consequently, China’s market returns have been negative year-to-date. Further weighing on China’s macro picture has been the property market, which has contributed to dour sentiment as many Chinese hold their wealth via real estate. Property market downturns make many Chinese citizens feel relatively poorer which decreases the likelihood they will spend money and help the economy.
Beyond China’s shores, the macroeconomic picture hasn’t been much better with much of the West (notably the U.S. and Europe) still battling inflation—an extended effort that has resulted in notably higher interest rates. If there is a bright spot, it may be Japan where the markets are improving thanks to fundamentals which appear to be turning for the first time in several decades. Spurred on by the Tokyo Stock Exchange, Japan-domiciled companies are finally working to improve their price-to-book ratios via share buybacks. Many Japanese companies have also increased their dividend payout ratios, improving their value to shareholders. In our view, these changes are meaningful and substantive and we believe Japan may be at the beginning of long-needed structural change. Another market offering encouragement has been India, which is benefiting in part from moves by some companies to make their supply chains less dependent on China.
Performance Contributors and Detractors:
Regionally, our overweight and stock selection in China was the biggest detractor to relative performance in the first half of the year. Our underweight to Taiwan—a relative bright spot given ongoing geopolitical tensions around the semiconductor industry—was also a large detractor. Our holdings in Japan, while positive on an absolute basis, trailed the benchmark and detracted from performance. On the flip side, our stock selection in Indonesia and our overweight to India were strong contributors to performance.
At the sector level, relative weakness was concentrated in our health care exposure—which detracted from performance due to our overweight position and stock selections. Our selections in consumer discretionary and industrials, and our underweight in IT also detracted. Conversely, our stock selections in financials were a source of relative strength, as were our materials holdings.
At the individual holdings level, JD.com and InnoCare Pharma were among our bottom contributors in the first half. Chinese e-commerce giant JD.com suffered as Chinese consumers were slow to increase consumption in the wake of zero-COVID’s lifting. Though many investors have seemingly soured on the outlook, we maintain our conviction in the company’s quality and are attracted to its solid balance sheet with ample cash. Shares of China-based InnoCare Pharma declined sharply following the company’s announcement that its exclusive global licensing (ex-China) agreement with the U.S.’s Biogen to develop and market a BTK inhibitor for multiple sclerosis had been discontinued. As a result, we exited our position.
Among our top individual contributors were Legend Biotech and Shin-Etsu Chemical. China-based biopharmaceutical Legend Biotech has developed arguably a best-in-class CAR T-cell therapy for cancer—an area with few competitors. Given the company’s solid fundamentals, we like the outlook from here and its positioning in the space. Shares of Shin-Etsu Chemical, a premier Japanese semiconductor wafer company with large global market share, rose on the back of strength in semiconductor stocks. We favor the company’s solid fundamentals despite its exposure to the U.S. housing market as a dominant PVC maker.
Notable Portfolio Changes:
During the last quarter, we initiated positions in Toyota and Mahindra & Mahindra. Japanese automaker Toyota has solid fundamentals, a long history as one of Japan’s premier companies and is exposed to the ongoing transition to electric vehicles (EVs). Similarly, Mahindra & Mahindra is an India-based automaker specializing in SUVs—a growing vehicle category in India which we expect to boost the company’s sales in the period ahead.
In addition to exiting InnoCare Pharma, we sold our positions in Taiwanese power management chip company Silergy and long-time holding Vietnam Dairy Products following conversations with both companies’ management teams which weakened our confidence in their outlooks. We opted to redeploy our capital into more compelling opportunities.
Outlook:
We don’t have a crystal ball that can tell us what will happen in China, which continues to be the primary concern. Many have called a bottom several times in China’s market only to see it decline further. It’s hard to see much of a reason for sentiment in China to shift meaningfully in the near term. The likelihood the government can effect a quick turnaround seems low. We think, however, that an uptick in IPOs in the Hong Kong market should encourage global investors to participate in the market in the next three to six months.
Elsewhere, we are encouraged by the progress we’re seeing in Japan and expect it to continue along its current structural change path. Compounding our enthusiasm are valuations which, though certainly higher in the wake of the recent market rally, remain relatively cheap, in our view. By way of contrast, India, which also remains a relative bright spot, has much higher, and consequently less attractive, valuations. As we’ve gained confidence in Japan and its companies’ fundamentals, we’ve decreased our exposure to China while increasing our Japan holdings.
Over the next six months, we would like to think sentiment will gradually improve—and that perhaps the rate-hike cycle will conclude in the West and markets will find more reasons to continue climbing the proverbial wall of worry. We will certainly watch with interest and are prepared to position the portfolio accordingly as events unfold.
View the Fund’s Top 10 holdings as of June 30, 2023. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MPACX as of 06/30/2023
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
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 and frontier markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets.