TOP

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

14.16%

YTD Return

(as of 12/01/2023)

$17.01

NAV

(as of 12/01/2023)

+0.18

1 Day NAV Change

(as of 12/01/2023)

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 $590.72 million (10/31/2023)
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
  • data_graph_selected Created with Sketch.
  • bar_graph_selected Created with Sketch.
As of 10/31/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund - MJFOX
12/31/1998
MJFOX
-4.13% -9.84% 4.50% 12.00% -4.97% 2.13% 4.35% 5.06%
MSCI Japan Index
-4.50% -8.65% 6.57% 17.23% 2.16% 3.31% 4.27% 3.40%
As of 09/30/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund - MJFOX
12/31/1998
MJFOX
-3.79% -3.91% 8.99% 20.72% -3.68% 0.10% 4.74% 5.26%
MSCI Japan Index
-1.97% -1.45% 11.60% 26.40% 3.19% 2.44% 4.75% 3.60%
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 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.

Ratings

  • OVERALL
  • out of 33 funds
  • 3 YEAR
  • out of 33 funds
  • 5 YEAR
  • out of 30 funds
  • 10 YEAR
  • out of 22 funds
  • 1 YEAR
  • 3rd
  • 22 out of 35 funds
  • 3 YEAR
  • 4th
  • 28 out of 32 funds
  • 5 YEAR
  • 3rd
  • 19 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 09/30/2023)
Fund Benchmark
Number of Positions 56 235
Weighted Average Market Cap $38.7 billion $52.4 billion
Active Share 69.8 n.a.
P/E using FY1 estimates 15.7x 14.4x
P/E using FY2 estimates 14.3x 13.6x
Price/Cash Flow 10.2 9.2
Price/Book 1.7 1.4
Return On Equity 13.4 11.9
EPS Growth (3 Yr) 15.5% 12.1%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 09/30/2023)
-6.49%
Alpha
1.06
Beta
85.00%
Upside Capture
116.61%
Downside Capture
-0.30
Sharpe Ratio
-1.08
Information Ratio
6.36%
Tracking Error
88.00

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 10/31/2023)
Name Sector % Net Assets
Toyota Motor Corp. Consumer Discretionary 3.9
Keyence Corp. Information Technology 3.8
Mitsubishi UFJ Financial Group, Inc. Financials 3.7
Shin-Etsu Chemical Co., Ltd. Materials 3.6
Hitachi, Ltd. Industrials 3.6
Sony Group Corp. Consumer Discretionary 3.6
Tokio Marine Holdings, Inc. Financials 3.3
Suzuki Motor Corp. Consumer Discretionary 3.3
Ajinomoto Co., Inc. Consumer Staples 3.0
FUJIFILM Holdings Corp. Information Technology 2.9
TOTAL 34.7

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
  • Market Cap Exposure
Sector Fund Benchmark Difference
Consumer Discretionary 22.2 19.4 2.8
Industrials 19.9 22.5 -2.6
Financials 15.5 12.8 2.7
Information Technology 15.3 13.6 1.7
Consumer Staples 6.7 6.1 0.6
Materials 6.5 4.6 1.9
Communication Services 5.0 7.2 -2.2
Health Care 3.5 8.5 -5.0
Real Estate 0.2 3.1 -2.9
Utilities 0.0 1.2 -1.2
Energy 0.0 0.9 -0.9
Cash and Other Assets, Less Liabilities 5.1 0.0 5.1

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) 37.9 57.2 -19.3
Large Cap ($10B-$25B) 26.3 24.6 1.7
Mid Cap ($3B-$10B) 22.2 18.2 4.0
Small Cap (under $3B) 8.5 0.1 8.4
Cash and Other Assets, Less Liabilities 5.1 0.0 5.1

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 September 30, 2023

For the quarter ending September 30, 2023, the Matthews Japan Fund returned -3.91% (Investor Class) and -3.90% (Institutional Class), while its benchmark, the MSCI Japan Index, returned -1.45%.

Market Environment:

Japan equity markets continued to post healthy total returns in the last quarter. One key tailwind was government policy and activist pressure that pushed undervalued companies to increase their payout and buyback ratios. In the period, hopes waned over the Federal Reserve’s interest rate strategy amid inflation rates starting to peak out as the central bank increasingly telegraphed a ‘higher for longer’ approach which spurred a risk-off move across global markets. As the strategy gained traction, so the U.S. dollar strengthened and Japan’s currency weakened, dropping to 150 yen to the dollar. Overall, however, Japan equities continue to enjoy several areas of support, primarily from a positive earnings cycle driven by moderate inflation, meaningful wage gains and policy-driven corporate reforms. In addition, a recovery in inbound tourism and absence of the geopolitical headwinds China is facing is creating positive inflows into the country.  

Performance Contributors and Detractors:

The third quarter saw a marked shift toward value investing from growth investing–the MSCI Japan Value Index outperformed the MSCI Japan Growth Index by 14.49% in the period. This shift hurt sentiment toward many of the sectors and stocks we hold in the portfolio which is in the main growth orientated. Consequently, from a sector perspective, stock selection in industrials and consumer staples were the two largest contributors to relative performance during the quarter. On the other hand, the portfolio’s stock selection in financials and health care were the two single biggest detractors from relative performance. An overweight and stock selection  in information technology (IT) combined to make the sector the biggest drag on the portfolio.

At the holdings level, Toyota Tsusho, the trading arm of Toyota Motor, was the top contributor to total and relative returns. The company delivered strong quarter results and we think it will be sustained in the quarters ahead, helped by production momentum within its business units and continued growth of the auto industry in emerging markets, especially in Africa. The company is also part of ongoing discussions at Toyota Motor over the group’s stance toward improvement shareholder returns. The company's dividend payout ratio of 25% lags other peers as well as that of its parent company.

Athletic apparel and shoe company Asics was another top performer. Its June quarter results were a clean beat and the company raised full-year guidance above consensus. We like Asics' execution capability. They are making progress in improving profitability by reducing low gross-profit margin (GPM) products and in improving sales channel mix.

On the other hand, semiconductor company Renesas Electronics was one of the bottom performers and the biggest detractor to relative returns. The stock faced profit taking after a strong year-to-date performance as the company delivered positive results with progress being made in inventory adjustments, which showed the management’s solid execution during downturns. We continue to see Renesas constructively as its valuation remains compelling.

Factory automation business Keyence was also a detractor. While the company continues to outpace peers in terms of underlying results and execution capability, the company trades at a premium valuation and has one of the highest price-to-earnings (P/E) ratios among Japan mega cap names. It experienced huge growth factor underperformance in September.  

Notable Portfolio Changes:

During the third quarter we initiated a position in ZOZO, an online fashion and accessories platform. The company has shown solid execution capability with gross merchandise value (GMV) growth still a respectable high-single digits and with higher profit growth. Valuation was at a 10-year low at the timing of our investment and looks attractive for a company that in our view has cashflow generation capable of supporting an above-benchmark average dividend yield with mid-high teens dividend growth while continuing to invest for its own growth.

Department store operator Isetan Mitsukoshi is another new holding. We see multiple areas of growth both from cyclical and structural changes, such as monthly sales momentum driven by inbound tourists and the rise of the dual-income young ‘power couple’ in the metropolitan Tokyo area. Management is also starting to take bolder actions in its capital policy plans.

To fund these new positions, we exited Takeda Pharmaceutical, Taisei, Simplex, Shift, Olympus, NTN, JGC, HOYA and Fast Retailing.

Outlook:

Strong underlying U.S. employment data suggests that the Fed’s ‘higher for longer’ rate strategy will remain in place at least for the near term. While there are downsides to this, higher rates and a strong U.S. dollar  do offer a tailwind for Japanese exports. And while a value investing bias across large areas of the Japan equity market is a headwind for quality growth strategies, we also believe our investment philosophy of investing in positive margin slopes generates incremental returns over the long term. 

As for the long term, we believe the earnings capability of Japanese companies has improved meaningfully. Last year, the Japanese equity market outperformed both developed markets (MSCI World) and emerging markets (MSCI Emerging Markets) in U.S. dollar terms. With the yen at a near quarter-century-low to the dollar, inflationary growth seemingly bedding in and corporate reforms gaining traction, we think the case for Japan is becoming easier to make.


Definitions:
MSCI Japan Value Index: captures large and mid cap Japanese securities exhibiting overall value style characteristics. The value investment style characteristics for index construction are defined using three variables: book value to price, 12-month forward earnings to price and dividend yield.

MSCI Japan Growth Index: captures large and mid cap securities exhibiting overall growth style characteristics in Japan. The growth investment style characteristics for index construction are defined using five variables: long-term forward EPS growth rate, short-term forward EPS growth rate, current internal growth rate and long-term historical EPS growth trend and long-term historical sales per share growth trend.

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 - MJFOX as of 09/30/2023
1YR 3YR 5YR 10YR Since Inception Inception Date
20.72% -3.68% 0.10% 4.74% 5.26% 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.