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 10/31/2023
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
-2.86%
-10.25%
-7.15%
2.44%
-13.01%
-1.14%
1.55%
6.07%
MSCI All Country Asia Pacific Index
-4.22%
-11.10%
-0.84%
13.78%
-1.70%
2.88%
3.31%
5.67%
As of 09/30/2023
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
-4.09%
-3.44%
-4.41%
5.62%
-11.62%
-3.00%
2.08%
6.25%
MSCI All Country Asia Pacific Index
-2.44%
-2.65%
3.52%
16.48%
0.06%
1.71%
4.04%
5.93%
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 $10,000 Investment Since Inception
(as of 09/30/2023)
Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.
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 09/30/2023)
Fund
Benchmark
Number of Positions
57
1,544
Weighted Average Market Cap
$80.7 billion
$82.0 billion
Active Share
78.9
n.a.
P/E using FY1 estimates
21.2x
13.9x
P/E using FY2 estimates
17.7x
12.4x
Price/Cash Flow
13.7
7.6
Price/Book
2.8
1.5
Return On Equity
11.6
14.6
EPS Growth (3 Yr)
30.5%
15.9%
Sources: Factset Research Systems, Inc.
Risk Metrics (3 Yr Return)
(as of 09/30/2023)
Category
3YR Return Metric
Alpha
-10.93%
Beta
1.06
Upside Capture
76.06%
Downside Capture
129.81%
Sharpe Ratio
-0.63
Information Ratio
-1.05
Tracking Error
11.13%
R²
72.9
-10.93%
Alpha
1.06
Beta
76.06%
Upside Capture
129.81%
Downside Capture
-0.63
Sharpe Ratio
-1.05
Information Ratio
11.13%
Tracking Error
72.90
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 09/30/2023)
Sector Allocation
Country Allocation
Market Cap Exposure
Sector
Fund
Benchmark
Difference
Consumer Discretionary
22.8
15.4
7.4
Financials
19.6
19.6
0.0
Information Technology
17.0
17.6
-0.6
Health Care
17.0
6.1
10.9
Industrials
6.9
12.2
-5.3
Communication Services
6.3
8.2
-1.9
Materials
4.1
7.1
-3.0
Consumer Staples
3.8
5.4
-1.6
Energy
1.5
3.0
-1.5
Real Estate
0.0
3.4
-3.4
Utilities
0.0
2.0
-2.0
Cash and Other Assets, Less Liabilities
1.0
0.0
1.0
Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.
Country
Fund
Benchmark
Difference
Japan
45.0
33.3
11.7
China/Hong Kong
18.8
22.5
-3.7
India
17.6
10.1
7.5
Indonesia
4.9
1.3
3.6
Taiwan
4.7
9.4
-4.7
Australia
3.6
10.7
-7.1
South Korea
2.5
7.8
-5.3
Singapore
1.3
2.1
-0.8
Thailand
0.5
1.2
-0.7
Malaysia
0.0
0.9
-0.9
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
1.0
0.0
1.0
Not all countries are included in the benchmark index(es).
Equity market cap of issuer
Fund
Benchmark
Difference
Mega Cap (over $25B)
56.8
58.4
-1.6
Large Cap ($10B-$25B)
20.9
21.2
-0.3
Mid Cap ($3B-$10B)
10.9
19.3
-8.4
Small Cap (under $3B)
10.3
1.1
9.2
Cash and Other Assets, Less Liabilities
1.0
0.0
1.0
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 quarter ending September 30, 2023, the Matthews Asia Growth Fund returned -3.44% (Investor Class) and -3.35% (Institutional Class), while its benchmark, the MSCI All Country Asia Pacific Index, returned -2.65%.
Market Environment:
Value investing re-emerged in strong fashion in Asia last quarter after underperforming in relation to growth investing in the first two quarters of the year. Within the region, India and Japan were among the outperformers last quarter while South Korea and Taiwan were some of the biggest underperformers; China also underperformed but to a lesser extent. Debate over the trajectory of the Federal Reserve’s interest rate continued to grab the attention of global investors in the quarter. We also saw some correction in the semiconductor market, which was over-extended in our view, and this was partly due to concerns over a cyclical downturn. In China, fewer and smaller economic stimulus policies than expected added stress to the country’s equities. Staying with China, a new anti-corruption campaign against the health-care industry added additional headwinds to beaten-down pharmaceutical names. Another high-profile talking point was the future of the Bank of Japan’s yield curve control (YCC) policy given the long-awaited inflationary activity its economy is now experiencing.
Performance Contributors and Detractors:
Regionally, our stock selection in Japan was the biggest detractor to relative performance in the quarter. Value-orientated stocks and dividends continued to be the drivers in Japanese equities which hurt our growth posture toward the market. Stock selections in Singapore, Indonesia and Taiwan also detracted though the latter was mitigated by our underweight position. On the other hand, stock selection in China/Hong Kong was the biggest contributor to relative performance, particularly in the health-care segment. Our overweight in India and underweight in South Korea also contributed.
At the sector level, stock selection in communication services was the biggest detractor to relative performance, impacted by declines in some consumer platform and e-commerce stocks. Our overweight in health care and stock selection in financials and materials also detracted. In contrast, our overweight and stock selection in consumer discretionary was the largest contributor to relative performance, helped by gains in auto and hotel stocks. Our underweight and stock selection in industrials was also a top contributor.
At the holdings level, Keyence Corp., Daiichi Sankyo and HDFC Bank were the biggest detractors to relative performance and total returns. Daiichi Sankyo, a Japanese big pharma firm, has been weak since the mixed data readout from a Phase 3 clinical trial of its non-small cell cancer drug in early July. The company has been very successful with Antibody Drug Conjugate (ADC) drug suites and more data on the same trial should come out in late October. We are confident the stock will recover. Keyence, the Japanese factory automation company, fell after reporting results in July that missed expectations. The stock was also impacted by negative market sentiment regarding China’s economy. Our conviction in the stock remains strong. The stock of Indian lender HDFC Bank has corrected after having had a price-to-earnings ratio (P/E) at the high end of the historical range. While we think there may be slower growth ahead we like the company as a core holding.
On the flip side, Japan Elevator Service Holdings and Innovent Biologics were among the biggest contributors in the period. Japan Elevator Service’s stock had endured a challenging quarter until the company reported very strong first-quarter earnings in early August. Innovent Biologics, a Chinese biopharmaceutical company, had been impacted by negative sentiment over the launch of the anti- corruption campaign in China’s health-care sector but recovered in part due to its cheap valuation and the easing pressure on doctors as the government’s investigation in the sector has become more targeted.
Notable Portfolio Changes:
Among changes in holdings in the quarter, we sold some of our position in HDFC Bank and initiated positions in Axis Bank, also in India, and in ZOZO, a Japanese e-commerce company. In Axis Bank we recognize a passion and quality in the management team and believe that it can be one of the biggest beneficiaries of India's digital transformation which we think will see a shift in customer business from public bank accounts to private banks over time. ZOZO is a leading consumer fashion platform in which we have invested in the past. We believe the company is still one of the premier quality growth businesses in Japan with higher penetration of e-commerce. During the period we exited our holdings in Reliance Industries in India and in Shenzhen Inovance Technology in China.
Outlook:
Though it’s hard to pinpoint the exact timing of the Fed’s rate-hike peak we believe the U.S. economy will cool down eventually and when it does that should be positive for the growth stocks we own. While U.S.-China geopolitical tensions are squeezing fresh foreign investment in China, we believe ‘China Plus One’ strategies—whereby companies maintain operations in China while establishing units in other markets in the region—are working for countries like India, Vietnam, and Japan. Through in-person meetings we have been excited to discover more companies pursuing this strategy. In China we expect more top-down economic stimulus measures to be announced. While it’s a matter of debate whether confidence will return to Chinese consumers and small business owners as a result, we think valuations are cheap enough to make an investment case in China. Lastly, in Japan, we are cautious to some extent over the outlook as we believe a weak yen will be harder to sustain against the U.S. dollar once the American economy begins to cool down.
View the Fund’s Top 10 holdings as of September 30, 2023. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MPACX as of 09/30/2023
1YR
3YR
5YR
10YR
Since Inception
Inception Date
5.62%
-11.62%
-3.00%
2.08%
6.25%
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 September 30, 2023
For the quarter ending September 30, 2023, the Matthews Asia Growth Fund returned -3.44% (Investor Class) and -3.35% (Institutional Class), while its benchmark, the MSCI All Country Asia Pacific Index, returned -2.65%.
Market Environment:
Value investing re-emerged in strong fashion in Asia last quarter after underperforming in relation to growth investing in the first two quarters of the year. Within the region, India and Japan were among the outperformers last quarter while South Korea and Taiwan were some of the biggest underperformers; China also underperformed but to a lesser extent. Debate over the trajectory of the Federal Reserve’s interest rate continued to grab the attention of global investors in the quarter. We also saw some correction in the semiconductor market, which was over-extended in our view, and this was partly due to concerns over a cyclical downturn. In China, fewer and smaller economic stimulus policies than expected added stress to the country’s equities. Staying with China, a new anti-corruption campaign against the health-care industry added additional headwinds to beaten-down pharmaceutical names. Another high-profile talking point was the future of the Bank of Japan’s yield curve control (YCC) policy given the long-awaited inflationary activity its economy is now experiencing.
Performance Contributors and Detractors:
Regionally, our stock selection in Japan was the biggest detractor to relative performance in the quarter. Value-orientated stocks and dividends continued to be the drivers in Japanese equities which hurt our growth posture toward the market. Stock selections in Singapore, Indonesia and Taiwan also detracted though the latter was mitigated by our underweight position. On the other hand, stock selection in China/Hong Kong was the biggest contributor to relative performance, particularly in the health-care segment. Our overweight in India and underweight in South Korea also contributed.
At the sector level, stock selection in communication services was the biggest detractor to relative performance, impacted by declines in some consumer platform and e-commerce stocks. Our overweight in health care and stock selection in financials and materials also detracted. In contrast, our overweight and stock selection in consumer discretionary was the largest contributor to relative performance, helped by gains in auto and hotel stocks. Our underweight and stock selection in industrials was also a top contributor.
At the holdings level, Keyence Corp., Daiichi Sankyo and HDFC Bank were the biggest detractors to relative performance and total returns. Daiichi Sankyo, a Japanese big pharma firm, has been weak since the mixed data readout from a Phase 3 clinical trial of its non-small cell cancer drug in early July. The company has been very successful with Antibody Drug Conjugate (ADC) drug suites and more data on the same trial should come out in late October. We are confident the stock will recover. Keyence, the Japanese factory automation company, fell after reporting results in July that missed expectations. The stock was also impacted by negative market sentiment regarding China’s economy. Our conviction in the stock remains strong. The stock of Indian lender HDFC Bank has corrected after having had a price-to-earnings ratio (P/E) at the high end of the historical range. While we think there may be slower growth ahead we like the company as a core holding.
On the flip side, Japan Elevator Service Holdings and Innovent Biologics were among the biggest contributors in the period. Japan Elevator Service’s stock had endured a challenging quarter until the company reported very strong first-quarter earnings in early August. Innovent Biologics, a Chinese biopharmaceutical company, had been impacted by negative sentiment over the launch of the anti- corruption campaign in China’s health-care sector but recovered in part due to its cheap valuation and the easing pressure on doctors as the government’s investigation in the sector has become more targeted.
Notable Portfolio Changes:
Among changes in holdings in the quarter, we sold some of our position in HDFC Bank and initiated positions in Axis Bank, also in India, and in ZOZO, a Japanese e-commerce company. In Axis Bank we recognize a passion and quality in the management team and believe that it can be one of the biggest beneficiaries of India's digital transformation which we think will see a shift in customer business from public bank accounts to private banks over time. ZOZO is a leading consumer fashion platform in which we have invested in the past. We believe the company is still one of the premier quality growth businesses in Japan with higher penetration of e-commerce. During the period we exited our holdings in Reliance Industries in India and in Shenzhen Inovance Technology in China.
Outlook:
Though it’s hard to pinpoint the exact timing of the Fed’s rate-hike peak we believe the U.S. economy will cool down eventually and when it does that should be positive for the growth stocks we own. While U.S.-China geopolitical tensions are squeezing fresh foreign investment in China, we believe ‘China Plus One’ strategies—whereby companies maintain operations in China while establishing units in other markets in the region—are working for countries like India, Vietnam, and Japan. Through in-person meetings we have been excited to discover more companies pursuing this strategy. In China we expect more top-down economic stimulus measures to be announced. While it’s a matter of debate whether confidence will return to Chinese consumers and small business owners as a result, we think valuations are cheap enough to make an investment case in China. Lastly, in Japan, we are cautious to some extent over the outlook as we believe a weak yen will be harder to sustain against the U.S. dollar once the American economy begins to cool down.
View the Fund’s Top 10 holdings as of September 30, 2023. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MPACX as of 09/30/2023
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.