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Matthews Japan Fund
MJFOX

Snapshot
  • High-conviction growth strategy seeks alpha in Japan
  • Unconstrained all-cap approach seeking Japanese companies positioned to benefit from Asia's growth
  • Invests in companies leveraged to the fast growing consumer demand across Asia, global industry leaders and entrepreneurial companies providing innovative domestic solutions

12/31/1998

Inception Date

7.72%

YTD Return

(as of 10/02/2023)

$16.05

NAV

(as of 10/02/2023)

-0.19

1 Day NAV Change

(as of 10/02/2023)

Objective

Long-term capital appreciation

Strategy

Under normal circumstances, the Matthews Japan 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 Japan. 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. 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.

Fund Facts
Inception Date 12/31/1998
Fund Assets $683.77 million (08/31/2023)
Currency USD
Ticker MJFOX
Cusip 577-130-800
Portfolio Turnover 83.4%
Benchmark MSCI Japan Index
Geographic Focus Japan
Fees & Expenses
Gross Expense Ratio 1.05%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 08/31/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund - MJFOX
12/31/1998
MJFOX
-2.26% 4.39% 13.29% 13.85% -0.81% 0.98% 6.26% 5.44%
MSCI Japan Index
-2.42% 4.67% 13.84% 15.77% 4.26% 3.49% 5.81% 3.70%
As of 06/30/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund - MJFOX
12/31/1998
MJFOX
4.52% 4.90% 13.42% 15.51% 1.36% 0.94% 6.20% 5.49%
MSCI Japan Index
4.11% 6.45% 13.24% 18.62% 6.09% 3.51% 5.59% 3.70%
For the years ended December 31st
Name 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
Matthews Japan Fund - MJFOX
MJFOX
-27.85% -1.92% 29.82% 26.08% -20.18% 33.14% 0.40% 20.83% -2.60% 34.03%
MSCI Japan Index
-16.31% 2.04% 14.91% 20.07% -12.58% 24.39% 2.73% 9.90% -3.72% 27.35%

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.

Ratings

  • OVERALL
  • out of 32 funds
  • 3 YEAR
  • out of 32 funds
  • 5 YEAR
  • out of 30 funds
  • 10 YEAR
  • out of 22 funds
  • 1 YEAR
  • 3rd
  • 27 out of 35 funds
  • 3 YEAR
  • 4th
  • 26 out of 31 funds
  • 5 YEAR
  • 3rd
  • 20 out of 29 funds
  • 10 YEAR
  • 2nd
  • 8 out of 21 funds
  • SINCE INCEPTION
  • 2nd
  • 3 out of 7 funds

Ratings agency calculation methodology

Portfolio Managers

Taizo  Ishida photo
Taizo Ishida

Lead Manager

Shuntaro  Takeuchi photo
Shuntaro Takeuchi

Lead Manager

Donghoon  Han photo
Donghoon Han

Co-Manager

Portfolio Characteristics

(as of 06/30/2023)
Fund Benchmark
Number of Positions 56 237
Weighted Average Market Cap $42.5 billion $50.7 billion
Active Share 67.4 n.a.
P/E using FY1 estimates 16.7x 14.5x
P/E using FY2 estimates 15.5x 13.8x
Price/Cash Flow 10.8 9.2
Price/Book 2.0 1.4
Return On Equity 13.2 12.0
EPS Growth (3 Yr) 17.3% 12.1%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 06/30/2023)
-4.25%
Alpha
1.02
Beta
87.57%
Upside Capture
108.99%
Downside Capture
0.00
Sharpe Ratio
-0.62
Information Ratio
7.64%
Tracking Error
82.67

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 08/31/2023)
Name Sector % Net Assets
Keyence Corp. Information Technology 4.0
Ajinomoto Co., Inc. Consumer Staples 3.7
Hitachi, Ltd. Industrials 3.3
ITOCHU Corp. Industrials 3.2
ORIX Corp. Financials 3.1
Renesas Electronics Corp. Information Technology 3.1
Shin-Etsu Chemical Co., Ltd. Materials 3.0
Tokio Marine Holdings, Inc. Financials 2.9
Sumitomo Mitsui Financial Group, Inc. Financials 2.8
Suzuki Motor Corp. Consumer Discretionary 2.8
TOTAL 31.9

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
Consumer Discretionary 22.3 18.7 3.6
Information Technology 18.2 14.4 3.8
Industrials 18.1 23.5 -5.4
Financials 10.9 11.3 -0.4
Health Care 8.0 9.1 -1.1
Communication Services 6.6 7.3 -0.7
Consumer Staples 6.3 6.3 0.0
Materials 4.7 4.7 0.0
Real Estate 0.7 2.9 -2.2
Utilities 0.0 1.0 -1.0
Energy 0.0 0.7 -0.7
Cash and Other Assets, Less Liabilities 4.1 0.0 4.1

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) 44.4 58.8 -14.4
Large Cap ($10B-$25B) 26.4 24.1 2.3
Mid Cap ($3B-$10B) 17.8 17.0 0.8
Small Cap (under $3B) 7.2 0.1 7.1
Cash and Other Assets, Less Liabilities 4.1 0.0 4.1

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.

Distributions

Record Date Ex, Pay and
Reinvest Date
Ordinary
Income
Short Term
Capital Gains
Long Term
Capital Gains
Total Distributions
Per Share
% of NAV Nondividend Distribution (Return of Capital)
12/13/2022 12/14/2022 $0.00000 $0.00000 $1.07119 $1.07119 6.5% N.A.
View History

 

There is no guarantee that the Fund will pay or continue to pay distributions. 

Past performance is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that shares, when redeemed, may be worth more or less than their original cost.

Commentary

Period ended June 30, 2023

For the first half of 2023, the Matthews Japan Fund returned 13.42% (Investor Class) and 13.46% (Institutional Class), while its benchmark, the MSCI Japan Index, returned 13.24% over the same period. For the quarter ending June 30, 2023, the Fund returned 4.90% (Investor Class) and 4.89% (Institutional Class), while the benchmark returned 6.45%.

Market Environment:

Japan equity markets posted double digit returns for the first half of 2023, along with other developed markets, outpacing emerging markets. Japanese stocks continued their march higher during the second quarter as government policy and activist pressure pushed undervalued companies to increase their payout and buy-back ratios. Hopes for China reopening waned quickly but the U.S. Federal Reserve’s pace of rate hike slowing down amid inflation rates starting to peak out spurred a general risk-on environment. The Japanese yen traded in a range bound for the first three months of the year but in second quarter, as U.S. 10-year bond yield rose towards 4%, and the Japanese yen weakened towards 145 yen.

Japan enjoys several tailwinds for the first time in years including a positive earnings cycle driven by moderate inflation, meaningful wage gains and policy driven reforms which are pushing companies to increase their corporate value via capital efficiencies and shareholder payouts. In addition, the recovery in inbound tourism plus the fact that Japan lacks the geopolitical headwinds of China is creating positive foreign inflows into Japan.

Performance Contributors and Detractors:

In the first half, strong stock selections were able to overcome the detraction from allocation effect versus the benchmark index. From a sector perspective, our stock selection in information technology and consumer staples were the two largest contributors to relative performance year to date. On the other hand, the portfolio’s underweight and stock selection in industrials was the biggest detractor.

At the holdings level, semiconductor company Renesas Electronics, was the largest contributor to investment results. Shares reacted positively after earnings results in February, with progress being made in inventory adjustments showed the company’s solid execution during downturns. We continue to see Renesas constructively as its valuation level still remains compelling even after the strong performance year to date, and potential for the company to improve shareholder returns. Electronic materials and chemical product company Shin-Etsu Chemical was another top contributor. The company continued to impress the market with solid execution capability during economic downturns and inventory adjustment period in both semiconductor wafers and polyvinyl chllloride (PVC) demand. Over the long term, we remain bullish on the semiconductor market as well as the wafer market where Shin-Etsu is a solid global leader with pricing power.

On the other hand, debt guarantor eGuarantee was the largest detractor year to date. The company’s shares weakened as small-cap growth companies faced unfavorable style movements in markets, but eGuarantee is poised to benefit from rise in bankruptcies as COVID-related relief funds have started to expire. eGuarantee is in the business of guaranteeing various types of credit that arise between companies doing business with each other. The credit guarantee business is a niche market, but it is a growing market in which eGuarantee is the leader. Furniture retailer Nitori was also a major detractor to investment results. The company has high exposure to currency rates, as they manufacture furnitures overseas while the majority of their retail operations are in Japan. Yen weakness resumed especially in the second quarter, which pushed down the company’s own efforts to raise price and introduce new products that can adapt to current currency environment.

Notable Portfolio Changes:

During the second quarter, we initiated a position in credit card company Credit Saison. The company, in our view, could offer double digit profit growth coupled with increased shareholder return potential. While total card membership number are not growing, revolving loan total has turned positive year over year (YoY) post COVID and cashing loan has started to bottom out. Credit Saison’s India subsidiary (Kisetsu Saison Finance India) is growing above expectations, and starting to contribute to earnings.

We have also re-initiated Toyota Motor after a year of hiatus. The stock has underperformed the overall market over the past year due to production constraints stemming from semiconductor shortage, but the shortage has been largely resolved while the company has been quietly increasing its market share in Europe and Chinese markets with its hybrid vehicles.

To fund these positions, weexited Daikin Industries, IHI, Lasertec, Mitsubishi UFJ Financial Group, Nippon Telegraph & Telephone, and SMS Company.

Outlook:

While the market seems ready for the Fed to pivot its interest-rate policy and for inflation to peak out, we believe the Fed is hesitant to prematurely remove its hawkish policies to contain inflation. With this backdrop, we don’t see a sudden reversal of growth underperformance in Japan anytime soon, although we also think that we have seen the worst in terms of style shift. We continue to prefer taking a more balanced approach towards multiple stages of growth and valuation levels. For the year of 2023, companies’ earnings growth and cash flow-generation ability will be ever more important as financial estimates for Japanese corporates have started to be revised down.

Over the long term, we continue to believe the earnings capability of Japanese companies has improved meaningfully over the past economic cycle. Last year, the Japanese equity market outperformed both developed markets (MSCI World) and emerging markets (MSCI Emerging Market) in U.S. dollar terms. With the yen at a near quarter-century-low to the dollar, Japanese companies are in good health and, importantly, the country is firmly open for tourism. We continue to believe this is the time for investors to add a long-term exposure to the market.

 

View the Fund’s Top 10 holdings as of June 30, 2023. Current and future holdings are subject to change and risk.

The MSCI World Index captures large and mid-cap representation across 23 Developed Markets (DM) countries. With 1,512 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.




Average Annual Total Returns - MJFOX as of 06/30/2023
1YR 3YR 5YR 10YR Since Inception Inception Date
15.51% 1.36% 0.94% 6.20% 5.49% 12/31/1998

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 1.05%

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. 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.

 

Visit our Glossary of Terms page for definitions and additional information.

Index Definitions

The information contained herein has been derived from sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Neither the funds nor the Investment Advisor accept any liability for losses either direct or consequential caused by the use of this information.

The views and opinions in the commentary were as of the report date, subject to change and may not reflect current views. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the Fund's future investment intent. It should not be assumed that any investment will be profitable or will equal the performance of any securities or any sectors mentioned herein. The information does not constitute a recommendation to buy or sell any securities mentioned.