Unconstrained all-cap strategy focused on companies with a sustainable competitive edge and pricing power, which are able to perform throughout economic cycles
Fundamental bottom-up approach to seek well-run entrepreneurial companies with sustainable organic growth and trustworthy managements
Bias toward businesses that cater to rising domestic consumer demand and to policy-independent sectors
Under normal circumstances, the Matthews India Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in publicly traded common stocks, preferred stocks and convertible securities of companies located in India. 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 markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.
These and other risks associated with investing in the Fund can be found in the
prospectus.
S&P Bombay Stock Exchange 100 Index
MSCI India Index
Geographic Focus
India
Fees & Expenses
Gross Expense Ratio
1.15%
Objective
Long-term capital appreciation
Strategy
Under normal circumstances, the Matthews India Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in publicly traded common stocks, preferred stocks and convertible securities of companies located in India. 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 markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.
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 India Fund - MINDX
10/31/2005
MINDX
-0.24%
7.25%
13.13%
9.53%
14.57%
4.95%
13.31%
9.96%
S&P Bombay Stock Exchange 100 Index
-2.23%
5.11%
8.51%
5.91%
16.72%
8.52%
12.84%
10.24%
MSCI India Index
-1.85%
5.92%
6.47%
1.82%
15.01%
7.71%
10.70%
9.15%
As of 06/30/2023
Average Annual Total Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews India Fund - MINDX
10/31/2005
MINDX
5.75%
13.13%
11.54%
17.99%
19.68%
5.31%
11.03%
9.97%
S&P Bombay Stock Exchange 100 Index
4.54%
11.94%
7.93%
19.23%
21.74%
9.69%
10.88%
10.31%
MSCI India Index
4.75%
12.36%
5.30%
14.72%
19.84%
9.04%
9.02%
9.17%
For the years ended December 31st
Name
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
Matthews India Fund - MINDX
MINDX
-9.92%
18.11%
16.45%
-0.88%
-10.09%
35.79%
-1.23%
0.90%
63.71%
-5.90%
S&P Bombay Stock Exchange 100 Index
-4.53%
24.08%
13.92%
8.53%
-6.00%
41.88%
2.32%
-6.41%
31.40%
-4.70%
Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.
MSCI and MICM are the sources of MSCI India Index performance data.
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.
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.
Sharat Shroff is a Portfolio Manager at Matthews and manages the firm’s Pacific Tiger and Asia ex Japan Total Return Equity Strategies and co-manages the India Strategy. Prior to joining Matthews in 2005, Sharat worked in the San Francisco and Hong Kong offices of Morgan Stanley as an Equity Research Associate. Sharat received a Bachelor of Technology from the Institute of Technology in Varanasi, India and an MBA from the Indian Institute of Management, in Calcutta, India. He is fluent in Hindi and Bengali.
Portfolio Characteristics
(as of 06/30/2023)
Fund
Benchmark
Number of Positions
50
101
Weighted Average Market Cap
$43.8 billion
$63.6 billion
Active Share
53.4
n.a.
P/E using FY1 estimates
22.6x
20.9x
P/E using FY2 estimates
19.2x
18.2x
Price/Cash Flow
n.a.
15.6
Price/Book
4.2
3.5
Return On Equity
20.8
19.1
EPS Growth (3 Yr)
19.1%
20.1%
Sources: Factset Research Systems, Inc.
Risk Metrics (3 Yr Return)
(as of 06/30/2023)
Category
3YR Return Metric
Alpha
0.71%
Beta
0.87
Upside Capture
81.02%
Downside Capture
79.32%
Sharpe Ratio
1.2
Information Ratio
-0.4
Tracking Error
5.22%
R²
90.55
0.71%
Alpha
0.87
Beta
81.02%
Upside Capture
79.32%
Downside Capture
1.20
Sharpe Ratio
-0.40
Information Ratio
5.22%
Tracking Error
90.55
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
Market Cap Exposure
Sector
Fund
Benchmark
Difference
Financials
37.6
34.9
2.7
Consumer Discretionary
12.9
8.5
4.4
Information Technology
11.9
11.7
0.2
Health Care
10.2
3.9
6.3
Consumer Staples
9.2
10.8
-1.6
Materials
7.0
7.8
-0.8
Industrials
6.5
6.2
0.3
Energy
4.5
10.6
-6.1
Communication Services
0.0
2.7
-2.7
Utilities
0.0
2.6
-2.6
Real Estate
0.0
0.3
-0.3
Cash and Other Assets, Less Liabilities
0.2
0.0
0.2
Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.
Equity market cap of issuer
Fund
Benchmark
Difference
Mega Cap (over $25B)
47.9
69.5
-21.6
Large Cap ($10B-$25B)
13.0
19.1
-6.1
Mid Cap ($3B-$10B)
26.6
11.1
15.5
Small Cap (under $3B)
12.4
0.3
12.1
Cash and Other Assets, Less Liabilities
0.2
0.0
0.2
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 India Fund returned 11.54% (Investor Class) and 11.67% (Institutional Class), while its benchmark, the S&P Bombay Stock Exchange 100 Index, returned 7.93% over the same period. For the quarter ending June 30, 2023, the Fund returned 13.13% (Investor Class) and 13.17% (Institutional Class), while the benchmark returned 11.94%.
Market Environment:
Indian markets performed well in the first half of 2023 on the back of strong net equity flows from domestic and foreign portfolio investments (FPI). Foreign inflows are approaching US15 billion this year which isn’t far short of the total negative FPI outflow of 2022.
The turnaround in FPI has occurred amid the general consensus that global monetary tightening has either peaked or will be peaking soon. The Reserve Bank of India has held interest rates unchanged since April likely indicating an end to its rate hikes. The moderation in inflation data in the U.S. and India supports this view. In India, wholesale producer price inflation has turned negative and consumer price inflation (CPI) has trended within the RBI’s target zone of 2%-6% in last three months.
Despite what are elevated interest rates, India’s economy has continued to perform well. The 6.1% gross domestic product (GDP) growth reported for the first quarter exceeded consensus expectations of 5%. Expansion was largely led by government and private capital spending as consumption growth continued to be muted. Gross fixed capital formation delivered growth of 8.9% in the period while infrastructure development, along with revival in commercial and residential real estate, is driving a surge in construction activity in the country.
Performance Contributors and Detractors:
At the sector level, strong stock selection in financials was the biggest contributor to relative performance in the first half. Our overweight and stock selection in health care and stock selection in materials and industrials were also positive contributors, as was our underweight to energy. On the flip side, stock selection in consumer staples was the biggest detractor. Selection in consumer discretionary also hurt relative performance, mitigated by our overweight position. Lack of exposure to utilities also detracted.
At the holdings level, the two biggest contributors to relative and absolute performance were Shriram Finance and Neuland Laboratories. Shriram Finance, an auto and consumer finance services provider, gained as the outlook for margins for non-banking financial companies continued to improve with the bulk of interest rate-hikes likely behind us. In the second quarter, long-standing issues related to stock ownership were also addressed which also helped drive stock performance. Neuland Laboratories continues to shift focus away from generic active pharmaceutical ingredients (API) manufacturing to working more closely with innovator pharma companies. This is not only helping the company grow predictably but also expand margins, in our view.
In contrast, Restaurant Brands Asia (RBA), a fast-food chain, was among the biggest detractors. RBA has continued to grow well on back of footprint expansion by opening more locations across the country, however its per-store-unit economics remain muted compared to peers as the company seems to be struggling to drive higher traffic through the same outlets.
Notable Portfolio Changes:
We continued to shift the portfolio toward fast-growing business segments and away from end markets where we think competition seems to be ramping up. We exited Pidilite Industries, an adhesives manufacturing company, as growth has slowed down over the years and incremental return on capital is consistently going down. In our view, increasing competitive intensity will likely continue to negatively impact financial performance while the stock has continued to trade at a very lofty valuation.
Similarly we exited engineering company Greaves Cotton. While Greaves Cotton is operating in the electric vehicle (EV) space, an industry that will grow leaps and bounds in India, from its recent capital allocations, we believe the company is not taking the strategic steps it needs to make in order to be successful.
We initiated a new investment in Mahindra & Mahindra Financial Services. Following the turnaround of its flagship auto business, Mahindra & Mahindra seems to be taking the right steps to rejuvenate performance of its non-banking financial business. It has injected new talent and is addressing segments of the market where credit quality issues are less adverse and more predictable. We think the company will not just grow fast but also trade at a better valuation in the future compared to where it has been historically.
Outlook:
Given the strong run in Indian equities in last few months it is time to be cautious and allow markets to consolidate for some time to come. Valuations have again gotten stretched and equity risk premium has dropped, indicating risk-reward is turning adverse from a near-term perspective. Indian equity markets at current valuations are also not discounting the risks that the economy faces in coming quarters. Among those is the risk to political stability. India is going to have general elections early next year and to assume that Prime Minister Narendra Modi will retain power would be foolhardy. We have seen how opposition parties are planning to present a united front against Modi and hence, we believe, the outcome of the election isn’t a forgone conclusion. India’s economy also depends on export-oriented growth and the slowdown in the developed world we think is going to have a negative impact. We also believe a steep commodity price-correction is likely and this, together with the elections, may inject caution and delays into decision-making as it relates to gross capital formation in the private sector.
Top 10 holdings as of June 30, 2023. Current and future holdings are subject to change and risk.
Equity risk premium: the excess return that investing in the stock market provides over a risk-free rate.
Average Annual Total Returns - MINDX as of 06/30/2023
1YR
3YR
5YR
10YR
Since Inception
Inception Date
17.99%
19.68%
5.31%
11.03%
9.97%
10/31/2005
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
1.15%
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 markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.
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 Benchmark used for comparison under "Portfolio Breakdown" and "Portfolio Characteristics" is the S&P Bombay Stock Exchange 100 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 India Fund returned 11.54% (Investor Class) and 11.67% (Institutional Class), while its benchmark, the S&P Bombay Stock Exchange 100 Index, returned 7.93% over the same period. For the quarter ending June 30, 2023, the Fund returned 13.13% (Investor Class) and 13.17% (Institutional Class), while the benchmark returned 11.94%.
Market Environment:
Indian markets performed well in the first half of 2023 on the back of strong net equity flows from domestic and foreign portfolio investments (FPI). Foreign inflows are approaching US15 billion this year which isn’t far short of the total negative FPI outflow of 2022.
The turnaround in FPI has occurred amid the general consensus that global monetary tightening has either peaked or will be peaking soon. The Reserve Bank of India has held interest rates unchanged since April likely indicating an end to its rate hikes. The moderation in inflation data in the U.S. and India supports this view. In India, wholesale producer price inflation has turned negative and consumer price inflation (CPI) has trended within the RBI’s target zone of 2%-6% in last three months.
Despite what are elevated interest rates, India’s economy has continued to perform well. The 6.1% gross domestic product (GDP) growth reported for the first quarter exceeded consensus expectations of 5%. Expansion was largely led by government and private capital spending as consumption growth continued to be muted. Gross fixed capital formation delivered growth of 8.9% in the period while infrastructure development, along with revival in commercial and residential real estate, is driving a surge in construction activity in the country.
Performance Contributors and Detractors:
At the sector level, strong stock selection in financials was the biggest contributor to relative performance in the first half. Our overweight and stock selection in health care and stock selection in materials and industrials were also positive contributors, as was our underweight to energy. On the flip side, stock selection in consumer staples was the biggest detractor. Selection in consumer discretionary also hurt relative performance, mitigated by our overweight position. Lack of exposure to utilities also detracted.
At the holdings level, the two biggest contributors to relative and absolute performance were Shriram Finance and Neuland Laboratories. Shriram Finance, an auto and consumer finance services provider, gained as the outlook for margins for non-banking financial companies continued to improve with the bulk of interest rate-hikes likely behind us. In the second quarter, long-standing issues related to stock ownership were also addressed which also helped drive stock performance. Neuland Laboratories continues to shift focus away from generic active pharmaceutical ingredients (API) manufacturing to working more closely with innovator pharma companies. This is not only helping the company grow predictably but also expand margins, in our view.
In contrast, Restaurant Brands Asia (RBA), a fast-food chain, was among the biggest detractors. RBA has continued to grow well on back of footprint expansion by opening more locations across the country, however its per-store-unit economics remain muted compared to peers as the company seems to be struggling to drive higher traffic through the same outlets.
Notable Portfolio Changes:
We continued to shift the portfolio toward fast-growing business segments and away from end markets where we think competition seems to be ramping up. We exited Pidilite Industries, an adhesives manufacturing company, as growth has slowed down over the years and incremental return on capital is consistently going down. In our view, increasing competitive intensity will likely continue to negatively impact financial performance while the stock has continued to trade at a very lofty valuation.
Similarly we exited engineering company Greaves Cotton. While Greaves Cotton is operating in the electric vehicle (EV) space, an industry that will grow leaps and bounds in India, from its recent capital allocations, we believe the company is not taking the strategic steps it needs to make in order to be successful.
We initiated a new investment in Mahindra & Mahindra Financial Services. Following the turnaround of its flagship auto business, Mahindra & Mahindra seems to be taking the right steps to rejuvenate performance of its non-banking financial business. It has injected new talent and is addressing segments of the market where credit quality issues are less adverse and more predictable. We think the company will not just grow fast but also trade at a better valuation in the future compared to where it has been historically.
Outlook:
Given the strong run in Indian equities in last few months it is time to be cautious and allow markets to consolidate for some time to come. Valuations have again gotten stretched and equity risk premium has dropped, indicating risk-reward is turning adverse from a near-term perspective. Indian equity markets at current valuations are also not discounting the risks that the economy faces in coming quarters. Among those is the risk to political stability. India is going to have general elections early next year and to assume that Prime Minister Narendra Modi will retain power would be foolhardy. We have seen how opposition parties are planning to present a united front against Modi and hence, we believe, the outcome of the election isn’t a forgone conclusion. India’s economy also depends on export-oriented growth and the slowdown in the developed world we think is going to have a negative impact. We also believe a steep commodity price-correction is likely and this, together with the elections, may inject caution and delays into decision-making as it relates to gross capital formation in the private sector.
Top 10 holdings as of June 30, 2023. Current and future holdings are subject to change and risk.
Equity risk premium: the excess return that investing in the stock market provides over a risk-free rate.
Average Annual Total Returns - MINDX 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 markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.