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

-23.31%

YTD Return

(as of 08/12/2022)

$16.94

NAV

(as of 08/12/2022)

+0.25

1 Day NAV Change

(as of 08/12/2022)

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 $990.83 million (07/31/2022)
Currency USD
Ticker MJFOX
Cusip 577-130-800
Portfolio Turnover 70.3%
Benchmark MSCI Japan Index
Geographic Focus Japan
Fees & Expenses
Gross Expense Ratio 0.95%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
  • data_graph_selected Created with Sketch.
  • bar_graph_selected Created with Sketch.
As of 07/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund - MJFOX
12/31/1998
MJFOX
6.90% -0.89% -24.27% -20.36% 2.39% 1.95% 8.00% 5.36%
MSCI Japan Index
5.70% -1.01% -15.55% -13.97% 3.22% 2.85% 6.77% 3.34%
As of 06/30/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund - MJFOX
12/31/1998
MJFOX
-10.21% -15.50% -29.15% -26.32% -0.01% 1.07% 7.22% 5.08%
MSCI Japan Index
-7.87% -14.60% -20.10% -19.64% 1.38% 2.13% 5.92% 3.11%
For the years ended December 31st
Name 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
Matthews Japan Fund - MJFOX
MJFOX
-1.92% 29.82% 26.08% -20.18% 33.14% 0.40% 20.83% -2.60% 34.03% 8.32%
MSCI Japan Index
2.04% 14.91% 20.07% -12.58% 24.39% 2.73% 9.90% -3.72% 27.35% 8.36%

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 06/30/2022)

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 34 funds
  • 3 YEAR
  • out of 34 funds
  • 5 YEAR
  • out of 27 funds
  • 10 YEAR
  • out of 21 funds
  • 1 YEAR
  • 4th
  • 32 out of 36 funds
  • 3 YEAR
  • 3rd
  • 21 out of 33 funds
  • 5 YEAR
  • 3rd
  • 18 out of 26 funds
  • 10 YEAR
  • 2nd
  • 8 out of 20 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

Portfolio Characteristics

(as of 06/30/2022)
Fund Benchmark
Number of Positions 50 238
Weighted Average Market Cap $36.3 billion $44.3 billion
Active Share 67.4 n.a.
P/E using FY1 estimates 14.7x 12.0x
P/E using FY2 estimates 14.0x 11.6x
Price/Cash Flow 9.3 8.0
Price/Book 1.7 1.3
Return On Equity 13.9 12.5
EPS Growth (3 Yr) 20.8% 9.9%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 06/30/2022)
-1.07%
Alpha
0.94
Beta
96.34%
Upside Capture
103.25%
Downside Capture
-0.04
Sharpe Ratio
-0.17
Information Ratio
8.01%
Tracking Error
76.99

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 07/31/2022)
Name Sector % Net Assets
Sony Group Corp. Consumer Discretionary 4.8
Olympus Corp. Health Care 4.1
Daiichi Sankyo Co., Ltd. Health Care 3.7
ORIX Corp. Financials 3.7
Tokio Marine Holdings, Inc. Financials 3.6
Keyence Corp. Information Technology 3.1
Shin-Etsu Chemical Co., Ltd. Materials 3.1
Toyota Motor Corp. Consumer Discretionary 2.9
JSR Corp. Materials 2.9
SMC Corp. Industrials 2.8
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 06/30/2022)
  • Sector Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Industrials 24.2 22.1 2.1
Consumer Discretionary 15.1 19.0 -3.9
Health Care 11.6 9.6 2.0
Information Technology 11.1 13.2 -2.1
Financials 11.1 10.6 0.5
Communication Services 8.9 8.7 0.2
Consumer Staples 8.2 6.5 1.7
Materials 8.1 4.6 3.5
Real Estate 0.0 3.6 -3.6
Utilities 0.0 1.2 -1.2
Energy 0.0 0.9 -0.9
Cash and Other Assets, Less Liabilities 1.8 0.0 1.8

Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.

Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 46.3 53.2 -6.9
Large Cap ($10B-$25B) 24.0 27.0 -3.0
Mid Cap ($3B-$10B) 16.6 19.8 -3.2
Small Cap (under $3B) 11.3 0.0 11.3
Cash and Other Assets, Less Liabilities 1.8 0.0 1.8

Source: FactSet Research Systems.

Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Percentage values may be derived from different data sources and may not be consistent with other Fund literature.

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)
12/14/2021 12/15/2021 $0.23596 $0.32236 $2.18705 $2.74537 11.1% 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, 2022

For the first half of 2022, the Matthews Japan Fund returned -29.15% (Investor Class) and -29.10% (Institutional Class), while its benchmark, the MSCI Japan Index, returned -20.10% over the same period. For the quarter ending June 30, 2022, the Fund returned -15.50% (Investor Class) and -15.46% (Institutional Class), while the benchmark returned -14.60%. 

Market Environment:

Japanese equity markets for the first half of 2022 were dominated by two of the largest moves in decades. Japan’s currency hit 135 yen to the U.S. dollar toward the end of the second quarter, a level last seen in early 2002, and the biggest move between the currencies since the early nineties. Multiple rate hikes by the U.S. Federal Reserve and the accommodative stance of the Bank of Japan is resulting in a widening of the U.S.-Japan bond yield spread. Ongoing high energy prices are also adding pressure on the yen as Japan’s energy self-sufficiency ratio remains one of the lowest among Organisation for Economic Co-operation and Development (OECD) countries. As a result of the weakening yen, Japanese equity markets traded in-line with global developed market peers in U.S. dollar terms despite outperforming in local currency terms.

Secondly, the velocity of the widening of the spread between the performance of value stocks and growth stocks was the fastest in two decades. In the first quarter the spread was 1,556 basis points (15.56%), and in the second quarter it widened by another 730 basis points (7.30%). While this performance gap between value and growth can be seen across the world, it is especially large in Japan. In the first quarter it was more about rising rates resulting in equity multiple-compression of growth names while the second quarter was dominated by fears that multiple rate hikes to contain inflation will result in the world economy falling into a recession.

Performance Contributors and Detractors:

The first six months of the year were an amplified version of first three months of 2021 as our focus on high-quality growth continued to endure a surge in U.S. 10-year bond yields. From a sector perspective, stock selections in the key areas of information technology and industrials were the largest detractors to the relative performance of the portfolio in the first half. Industrials was notably impacted due to its inclusion of commodity price-sensitive trading companies and cyclical-transport enterprises—businesses that have been challenged by surging fuel costs and supply-chain disruption. On the other hand, our overweight and stock selection in consumer staples was the largest contributor to relative performance in the first six months.

From a market cap point of view, our overweight in small cap stocks—those under $3 billion—was also a detractor to performance in the first half. Our underweight and stock selection in mega cap, and overweight and stock selection in mid-cap stocks were also large detractors.

Turning to individual securities, Shin-Etsu Chemical and Tokyo Electron were among the biggest detractors in the first six months. Shin-Etsu Chemical is a top global provider of electronic materials (Silicon Wafers) and PVC (Polyvinyl Chloride) but its trading multiple has compressed sharply amid signs of a slowdown in U.S. housing starts. Tokyo Electron, the largest semiconductor production equipment provider in Japan, has been impacted over concerns over declining demand in consumer electronics and increasing semiconductor inventory.

On the positive side, pharmaceutical company Daiichi Sankyo was a top contributor, after posting a positive outcome of the DESTINY-Breast04 (DB04) trial for anticancer agent Enhertu, as announced by the American Society of Clinical Oncology (ASCO) in June. P&C insurance company Tokio Marine Holdings was also a top contributor in the period. March 2022 full-year results and March 2023 guidance delivered on our investment thesis. We view the stock as offering a mid-teens dividend compound annual growth rate (CAGR) coupled with earnings-per-share (EPS) growth driven by both earnings and buybacks.

Notable Portfolio Changes:

One significant adjustment within our portfolio is the increase in defensive sectors such as consumer staples. While we still see economic growth recovery as the world reopens from the pandemic, ongoing uncertainty over the war in Ukraine, coupled with inflation risks and a rising interest-rate environment, warrant a more balanced approach towards growth in our view. We have also taken down our portfolio weighting in cyclical growth areas as the Global Manufacturing PMI is starting to peak out and rate hikes to manage inflation pose risks for a recession.

In the second quarter, we re-initiated a position in Tokio Marine Holdings. We have always viewed the company as a prudent capital allocator, with its lucrative domestic P&C business among the three top players that control 90% of the car insurance market. The company is also expanding its footprint to overseas specialty M&A insurance.

We initiated a position in Mazda Motor as our research suggests that 2022 is a key launch year for firm’s new generation products and the company is at a turning point in profitability.

We also added Toho, a producer and distributor of motion pictures in Japan, as we remain optimistic about earnings recovery of its movie theater division and in the longer term, we highly rate Toho’s untapped potential in monetizing its key IP assets.

In order to make positions for new names we exited AGC, Kadokawa, Koito Manufacturing, Morinaga Milk Industry, NTT Data, Persol Holdings, Raksul and Sumitomo Bakelite.

Outlook:

The first half of 2022 turned out to be a much worse external environment for high-quality growth strategies even compared to first three months of 2021. The velocity of the widening of growth-value spreads has made it challenging to adapt our strategy quickly. While extremely loose monetary policy from all major central banks has come to an end and the Federal Reserve has officially started to tighten, the long-value/short-growth trade has now fully unwound back to pre-pandemic levels and some growth names valuations are well below pre-pandemic levels. That said, full-year earnings results in May showed Japanese growth stocks continued to improve their margins and strengthen cashflow generation abilities.

So while we are taking a more balanced approach towards stages of growth and valuation levels we believe the earnings capability of Japanese companies has improved meaningfully over the past economic cycle. This has been helped by productivity improvements, better corporate governance, innovation and a higher focus on capital efficiency.

Japan has yet to open up its borders like other developed countries have as they emerged from the pandemic but once it does that will provide a tailwind for the economy. As the Federal Reserve continues to tighten and tries to engineer a soft landing for the world’s biggest economy there will be challenging times ahead. But we believe Japan’s own loose domestic monetary environment, together with the strong fundamentals and profitability of its corporates, will provide healthy investment opportunities.


View the Fund’s Top 10 holdings as of June 30, 2022. Current and future holdings are subject to change and risk.

Average Annual Total Returns - MJFOX as of 06/30/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-26.32% -0.01% 1.07% 7.22% 5.08% 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 0.95%

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.