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Matthews Emerging Markets Equity Fund
MEGMX

Snapshot
  • Seeks Alpha in Global Emerging Markets—capitalizes on consumption and innovation trends
  • Quality Growth Portfolio—based on deep, holistic analysis
  • All-Cap, Company-First Approach—emphasizes fundamental research over top-down country or sector allocation

04/30/2020

Inception Date

1.80%

YTD Return

(as of 09/21/2023)

$11.34

NAV

(as of 09/21/2023)

-0.21

1 Day NAV Change

(as of 09/21/2023)

Objective

Long-term capital appreciation

Strategy

Under normal circumstances, the Matthews Emerging Markets Equity 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 emerging market countries. Emerging market countries generally include every country in the world except the United States, Australia, Canada, Hong Kong, Israel, Japan, New Zealand, Singapore and most of the countries in Western Europe. Certain emerging market countries may also be classified as “frontier” market countries, which are a subset of emerging market countries with newer or even less developed economies and markets, such as Sri Lanka and Vietnam. The list of emerging market countries and frontier market countries may change from time to time. The Fund may also invest in companies located in developed countries; however, the Fund may not invest in any company located in a developed country if, at the time of purchase, more than 20% of the Fund’s assets are invested in developed market companies.

Risks

Investments in emerging and frontier securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Additionally, investing in emerging and frontier markets 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.

Fund Facts
Inception Date 04/30/2020
Fund Assets $23.28 million (08/31/2023)
Currency USD
Ticker MEGMX
Cusip 577-130-651
Portfolio Turnover 63.3%
Benchmark MSCI Emerging Markets Index
Geographic Focus Emerging Markets - Countries generally include every country in the world except the United States, Australia, Canada, Hong Kong, Israel, Japan, New Zealand, Singapore and most of the countries in Western Europe
Fees & Expenses
Gross Expense Ratio 1.58%
Net Expense Ratio 1.08%

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 Emerging Markets Equity Fund - MEGMX
04/30/2020
MEGMX
-5.03% 3.63% 5.03% 6.88% -0.16% n.a. n.a. 8.94%
MSCI Emerging Markets Index
-6.13% 3.66% 4.86% 1.69% -1.01% n.a. n.a. 4.83%
As of 06/30/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Equity Fund - MEGMX
04/30/2020
MEGMX
4.61% 2.52% 6.02% 11.29% 4.80% n.a. n.a. 9.76%
MSCI Emerging Markets Index
3.89% 1.04% 5.10% 2.22% 2.72% n.a. n.a. 5.17%
For the years ended December 31st
Name 2022 2021
Matthews Emerging Markets Equity Fund - MEGMX
MEGMX
-20.94% -0.60%
MSCI Emerging Markets Index
-19.74% -2.22%

Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.

Year to Date and Since Inception performance with less than one year of history represents actual performance, not annualized.

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 723 funds
  • 3 YEAR
  • out of 723 funds
  • 1 YEAR
  • 1st
  • 126 out of 788 funds
  • 3 YEAR
  • 2nd
  • 182 out of 698 funds
  • SINCE INCEPTION
  • 1st
  • 101 out of 696 funds

Ratings agency calculation methodology

Portfolio Managers

John Paul Lech photo
John Paul Lech

Lead Manager

Alex  Zarechnak photo
Alex Zarechnak

Lead Manager

Andrew  Mattock, CFA photo
Andrew Mattock, CFA

Co-Manager

Peeyush  Mittal, CFA photo
Peeyush Mittal, CFA

Co-Manager

Portfolio Characteristics

(as of 06/30/2023)
Fund Benchmark
Number of Positions 59 1,423
Weighted Average Market Cap $109.9 billion $109.9 billion
Active Share 85.2 n.a.
P/E using FY1 estimates 16.2x 12.5x
P/E using FY2 estimates 13.5x 11.0x
Price/Cash Flow 10.1 6.4
Price/Book 2.5 1.6
Return On Equity 19.4 17.7
EPS Growth (3 Yr) 23.3% 22.8%

Sources: Factset Research Systems, Inc.

Top 10 Holdings

(as of 08/31/2023)
Name Sector Country % Net Assets
Taiwan Semiconductor Manufacturing Co., Ltd. Information Technology Taiwan 6.2
FPT Corp. Information Technology Vietnam 5.5
Samsung Electronics Co., Ltd., Pfd. Information Technology South Korea 5.2
Tencent Holdings, Ltd. Communication Services China/Hong Kong 4.2
Prologis Property Mexico SA de CV REIT Real Estate Mexico 3.3
HDFC Bank, Ltd. Financials India 3.3
Woodside Energy Group, Ltd. Energy Australia 2.8
ICICI Bank, Ltd. Financials India 2.5
TotalEnergies SE Energy France 2.4
Infosys, Ltd. Information Technology India 2.3
TOTAL 37.7

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 06/30/2023)
  • Sector Allocation
  • Country Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Financials 23.7 21.9 1.8
Information Technology 22.1 21.2 0.9
Consumer Discretionary 13.2 13.2 0.0
Materials 10.5 8.1 2.4
Industrials 6.3 6.3 0.0
Consumer Staples 4.8 6.4 -1.6
Energy 4.8 5.0 -0.2
Real Estate 4.8 1.7 3.1
Health Care 4.6 3.8 0.8
Communication Services 4.1 9.8 -5.7
Utilities 0.0 2.6 -2.6
Cash and Other Assets, Less Liabilities 1.1 0.0 1.1

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

Country Fund Benchmark Difference
India 16.7 14.6 2.1
China/Hong Kong 16.4 29.7 -13.3
Mexico 9.5 2.8 6.7
Brazil 9.0 5.5 3.5
South Korea 7.3 12.3 -5.0
Taiwan 6.6 15.5 -8.9
Vietnam 6.3 0.0 6.3
United States 4.5 0.0 4.5
France 3.6 0.0 3.6
United Kingdom 2.7 0.0 2.7
Australia 2.6 0.0 2.6
Indonesia 2.2 2.0 0.2
Philippines 2.2 0.6 1.6
Poland 1.9 0.8 1.1
Singapore 1.5 0.0 1.5
Switzerland 1.4 0.0 1.4
Zambia 1.3 0.0 1.3
Kazakhstan 1.2 0.0 1.2
United Arab Emirates 1.0 1.3 -0.3
Thailand 0.9 1.9 -1.0
Saudi Arabia 0.0 4.2 -4.2
South Africa 0.0 3.2 -3.2
Malaysia 0.0 1.3 -1.3
Qatar 0.0 0.9 -0.9
Kuwait 0.0 0.8 -0.8
Turkey 0.0 0.6 -0.6
Chile 0.0 0.5 -0.5
Greece 0.0 0.5 -0.5
Peru 0.0 0.3 -0.3
Czech Republic 0.0 0.2 -0.2
Hungary 0.0 0.2 -0.2
Colombia 0.0 0.1 -0.1
Egypt 0.0 0.1 -0.1
Cash and Other Assets, Less Liabilities 1.1 0.0 1.1

Not all countries are included in the benchmark index(es).

Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 55.7 53.7 2.0
Large Cap ($10B-$25B) 15.4 22.5 -7.1
Mid Cap ($3B-$10B) 20.0 21.8 -1.8
Small Cap (under $3B) 7.8 2.1 5.7
Cash and Other Assets, Less Liabilities 1.1 0.0 1.1

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.

Risk Metrics (3 Yr Return)

(as of 06/30/2023)
1.49%
Alpha
0.97
Beta
106.47%
Upside Capture
97.15%
Downside Capture
0.19
Sharpe Ratio
0.32
Information Ratio
6.52%
Tracking Error
87.72

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

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 $0.20142 $0.00000 $0.00000 $0.20142 1.7% N.A.

 

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 Emerging Markets Equity Fund returned 6.02% (Investor Class) and 6.11% (Institutional Class), while its benchmark, the MSCI Emerging Markets Index, returned 5.10% over the same period. For the quarter ending June 30, 2023, the Fund returned 2.52% (Investor Class) and 2.61% (Institutional Class), while the benchmark returned 1.04%.

Market Environment:

The first six months of the year saw a large divergence in equity markets. A strong recovery in China did not materialize while the tech-centric Nasdaq stock exchange posted large gains driven by a small subset of companies. Several emerging markets posted double-digit gains in dollar terms, notably Mexico and Brazil where the popular narrative of nearshoring and potential changes in monetary policy have resonated. At the sector level, IT led emerging markets, posting over 20% gains.

Performance Contributors and Detractors:

At the country level, our cautious approach and underweight to China/Hong Kong was the biggest contributor to relative performance in the first half. Our overweight to Mexico was also a strong contributor. On the other hand, our underweight to Taiwan was the biggest detractor. We believe Taiwan’s equity market is overly concentrated in hardware which has historically been more cyclical and with lower barriers to entry.

From a sector perspective, stock selections in financials, real estate, consumer staples and materials were the top contributors to relative performance. In contrast, selections in energy and IT were the biggest detractors, the latter mitigated by our slightly overweight position.

At the holdings level, four of the top 10 performers—TSMC (Taiwan), Samsung Electronics (South Korea), Applied Materials (U.S.) and FPT (Vietnam)—are categorized in the IT sector yet are located in four different countries. It demonstrates the broader approach we take, focusing on structurally advantaged business models regardless of geography. On the flip side, JD.com and Innovent Biologics in China, and Excelerate Energy in the U.S. were among the biggest detractors. Ecommerce platform JD.com has generated concerns over its growth prospects and has been weighed down by China’s muted recovery.

Notable Portfolio Changes:

The portfolio made several changes in the period. Among them, we exited three positions in Hong Kong in Techtronic Industries, Hong Kong Exchanges and ESR Group, finding better opportunities in their respective sectors of industrials, financials and real estate. Our energy holdings also became more concentrated in TotalEnergies and Woodside Energy as we exited Excelerate and Petrobras. We added Richemont, a watches and jewelry company that owns iconic brands like Cartier. The company, whose roots are in South Africa and largest market is in China, continues to demonstrate pricing in a consumer environment that is not strong. We also purchased a position in BYD, which is the market leader in electronic vehicles in China with a nearly 40% market share. Our allocation to China/Hong Kong remains selective. Other notable additions were Indian Hotels and Divis Laboratories, a pharmaceutical company also in India.

Outlook:

Our approach remains the same – we operate a framework that leads us to be biased towards high quality, profitable businesses that tend to exhibit some form of market leadership.

The backdrop for equity markets overall remains mixed. Higher interest rates both provide a return on cash and challenge consumers looking to make major purchases like homes or cars. The U.S. equity market had a strong start to 2023 but there are some clouds on the horizon. One example is the pending restart of student loan repayments which could impact consumer sentiment. In emerging markets, the news coming out of China is mostly negative both in terms of geopolitical tensions as well as the evolution of the domestic economy. We don’t expect any major pressure to the currency but do note the weakness in the renminbi year-to-date. Our approach in China remains highly selective and focused on individual businesses that in our assessment have strong go-forward fundamentals. India appears to have several structural tailwinds but remains a market that is expensive in aggregate.

Overall, we’re quite optimistic longer term. Near term, we see the high real interest rates in places like Brazil as portending an end to monetary tightening which may be beneficial for markets. Our process is company-by-company. Approaching the portfolio on fundamentals we think offers an attractive balance of growth and resiliency.

 

Top 10 holdings as of June 30, 2023. Current and future holdings are subject to change and risk.

 

Average Annual Total Returns - MEGMX as of 06/30/2023
1YR 3YR 5YR 10YR Since Inception Inception Date
11.29% 4.80% N.A. N.A. 9.76% 04/30/2020

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 1.58%
Net Expense Ratio 1.08%

Matthews has contractually agreed to waive fees and reimburse expenses to limit the Total Annual Fund Operating Expenses until April 30, 2024. Please see the Fund’s prospectus for additional details.

Investments in emerging and frontier securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Additionally, investing in emerging and frontier markets countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets.

 

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.