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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

3.41%

YTD Return

(as of 03/31/2023)

$11.52

NAV

(as of 03/31/2023)

+0.02

1 Day NAV Change

(as of 03/31/2023)

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 $26.62 million (02/28/2023)
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 1.52%
Net Expense Ratio 1.13%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 02/28/2023
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
-5.23% -1.18% 2.42% -10.95% n.a. n.a. n.a. 9.64%
MSCI Emerging Markets Index
-6.48% -0.45% 0.92% -14.91% n.a. n.a. n.a. 4.29%
As of 12/31/2022
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
-3.52% 11.69% -20.94% -20.94% n.a. n.a. n.a. 9.26%
MSCI Emerging Markets Index
-1.35% 9.79% -19.74% -19.74% n.a. n.a. n.a. 4.20%
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 12/31/2022)

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.

Portfolio Managers

John Paul Lech photo
John Paul Lech

Lead Manager

Alex  Zarechnak photo
Alex Zarechnak

Co-Manager

Portfolio Characteristics

(as of 12/31/2022)
Fund Benchmark
Number of Positions 59 1,377
Weighted Average Market Cap $90.5 billion $95.0 billion
Active Share 85.7 n.a.
P/E using FY1 estimates 13.6x 10.6x
P/E using FY2 estimates 13.6x 10.9x
Price/Cash Flow 10.4 6.3
Price/Book 2.4 1.6
Return On Equity 20.3 17.0
EPS Growth (3 Yr) 15.3% 12.3%

Sources: Factset Research Systems, Inc.

Top 10 Holdings

(as of 02/28/2023)
Name Sector Country % Net Assets
Taiwan Semiconductor Manufacturing Co., Ltd. Information Technology Taiwan 6.2
Samsung Electronics Co., Ltd., Pfd. Information Technology South Korea 5.2
Tencent Holdings, Ltd. Communication Services China/Hong Kong 4.8
FPT Corp. Information Technology Vietnam 4.6
Prologis Property Mexico SA de CV REIT Real Estate Mexico 3.5
HDFC Bank, Ltd. Financials India 3.3
Prudential PLC Financials United Kingdom 3.0
Woodside Energy Group, Ltd. Energy Australia 2.8
AIA Group, Ltd. Financials China/Hong Kong 2.7
ICICI Bank, Ltd. Financials India 2.5
TOTAL 38.6

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 12/31/2022)
  • Sector Allocation
  • Country Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Financials 25.4 22.1 3.3
Information Technology 22.0 18.6 3.4
Consumer Discretionary 10.5 14.1 -3.6
Materials 9.8 8.9 0.9
Industrials 6.4 6.1 0.3
Energy 6.2 4.9 1.3
Real Estate 5.6 1.9 3.7
Consumer Staples 5.0 6.4 -1.4
Communication Services 4.8 9.9 -5.1
Health Care 2.9 4.1 -1.2
Utilities 0.0 3.0 -3.0
Cash and Other Assets, Less Liabilities 1.3 0.0 1.3

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

Country Fund Benchmark Difference
China/Hong Kong 19.6 32.4 -12.8
India 14.0 14.4 -0.4
Mexico 8.5 2.3 6.2
Brazil 8.4 5.3 3.1
South Korea 6.8 11.3 -4.5
Vietnam 6.7 0.0 6.7
Taiwan 5.7 13.7 -8.0
Singapore 3.3 0.0 3.3
Australia 2.8 0.0 2.8
United Kingdom 2.8 0.0 2.8
United States 2.8 0.0 2.8
Indonesia 2.7 1.9 0.8
Canada 2.6 0.0 2.6
Philippines 2.5 0.7 1.8
France 2.4 0.0 2.4
Poland 1.5 0.7 0.8
Qatar 1.4 1.0 0.4
Argentina 1.4 0.0 1.4
Kazakhstan 1.1 0.0 1.1
United Arab Emirates 1.0 1.3 -0.3
Turkey 0.7 0.7 0.0
Saudi Arabia 0.0 4.1 -4.1
South Africa 0.0 3.7 -3.7
Thailand 0.0 2.2 -2.2
Malaysia 0.0 1.6 -1.6
Kuwait 0.0 0.9 -0.9
Chile 0.0 0.6 -0.6
Greece 0.0 0.3 -0.3
Peru 0.0 0.3 -0.3
Hungary 0.0 0.2 -0.2
Colombia 0.0 0.1 -0.1
Czech Republic 0.0 0.1 -0.1
Egypt 0.0 0.1 -0.1
Cash and Other Assets, Less Liabilities 1.3 0.0 1.3

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

Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 50.4 52.1 -1.7
Large Cap ($10B-$25B) 16.9 22.8 -5.9
Mid Cap ($3B-$10B) 18.1 23.0 -4.9
Small Cap (under $3B) 13.3 2.0 11.3
Cash and Other Assets, Less Liabilities 1.3 0.0 1.3

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 $0.20142 $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 December 31, 2022

For the year ending December 31, 2022, the Matthews Emerging Markets Equity Fund returned -20.94% (Investor Class) and -20.81% (Institutional Class), while its benchmark, the MSCI Emerging Markets Index, returned -19.74% over the same period. For the fourth quarter, the Fund returned 11.69% (Investor Class) and 11.66% (Institutional Class), while the benchmark returned 9.79%.

Market Environment:

Markets around the world were weak in 2022. U.S. markets had their worst year since the global financial crisis of 2008 and their fourth-worst year since the 1930s. The MSCI Emerging Markets Index was also down more than in any year since 2008 and had its second-worst year since 2000. Many concerns contributed to the weakness in markets including: persistent inflation in many regions and rising interest rates; Russia’s invasion of Ukraine which contributed to both inflation and recession risks globally; rising tensions between China and the U.S.; and President Xi’s moves to consolidate political and economic power in China. In addition, high starting valuations and the post-pandemic normalization of consumer spending patterns contributed to dramatic declines in many high-growth stocks. Conversely, high raw material prices and strong company fundamentals helped many commodity stocks in 2022. Consequently, Latin American countries performed relatively well, with Brazil leading the pack.

In the fourth quarter, markets rebounded and emerging markets outperformed developed markets in December as investors worried about a hawkish U.S. Federal Reserve and inflation fell or stabilized in many emerging markets. By year end, the U.S. dollar had weakened from its peak in September. A weaker greenback often reflects optimism about global growth relative to the U.S. Markets also began to anticipate a re-opening of the Chinese economy after the abrupt abandonment of the zero-COVID policy.

Performance Contributors and Detractors:

At the regional level, Russia was by far the biggest detractor to relative performance in 2022 as we held four Russian stocks at the time of the Ukraine invasion. We draw to two lessons from the episode. One is to be wary of undemocratic regimes in which decision-makers aren’t constrained by civil society and the second is that a so-called “fortress balance sheet” at the country level can embolden aggressive leaders to make poor decisions. These conclusions inform our cautious approach to certain other markets, such as Saudi Arabia, even as we appreciate the social and market reforms being undertaken there. Our stock selection in India was another detractor from performance in 2022 as was our underweight in United Arab Emirates and our lack of exposure to Kuwait, Saudi Arabia and South Africa. On the other hand, our overweight in Mexico and Brazil were among the biggest contributors to performance. Our underweight and stock selection in South Korea, our underweight to Taiwan and our overweight to Vietnam were also top contributors.

At the sector level, real estate was the top contributor. Stock selection in information technology was the biggest contributor but was offset by our overweight position. Stock selection in materials and our underweight in communication services were also positive contributors. Conversely, stock selection in energy was the biggest detractor and financials and health care were also detractors.

At the holdings level, a number of Brazilian stocks were among the top contributors, including Petrobras, the oil and gas conglomerate, and Vale, the metals and mining group, which both benefited from high commodity prices. Banco BTG Pactual also performed well as the Brazilian economy strengthened. On the flip side, Russian stocks including energy companies Lukoil and Novatek, and banking financial group Sberbank, were among the worst performers as their values crashed after Russia’s invasion of Ukraine.

Notable Portfolio Changes:

In the fourth quarter, we added a handful of stocks and exited a handful of positions leaving the name count unchanged at 59. After visiting Brazil in November following the election, we started a position in Weg, an industrial motors producer which has translated its success in Brazil to China and other countries. We also added two China-related companies—Hong Kong Exchanges and Clearing and CSPC Pharmaceutical Group—and increased the number of China/HK stocks in the portfolio to 11. We also added United Arab Emirates-based Fertiglobe, a fertilizer company which is a leader in managing costs—a key attribute for maintaining annual crop yields. In the semiconductor space, our sale of LAM Research to buy Applied Materials was driven by a desire to reduce exposure to memory in favor of foundry while also realizing a tax loss to minimize shareholder distributions.

Outlook:

Looking to the year ahead we see two positive developments driving optimism about emerging markets. Firstly, inflation is falling in much of the world and secondly, China’s abandonment of its zero-COVID policy should quickly lead to a re-opening of its economy. Companies we speak to are aware of recession risks and are challenged by rising costs but few are noticing dramatic declines in demand for their products and services or facing meaningful financial or operating stresses.

Our focus remains on good companies—those which can succeed in a variety of macroeconomic and political environments. Many of our portfolio companies reacted rationally to the turbulent events of recent years by strengthening their balance sheets, reducing costs, and improving their competitive positions. Some commodity businesses, for example, have seen the disruption in energy and mining production, as well as the growing needs for certain materials in the energy transition, as reasons to move forward with important projects. Many companies we have exposure to have managed through a number of volatile cycles in the past and emerged stronger. As the world looks beyond the most disruptive consequences of the pandemic, we believe our holdings are positioned to emerge stronger still.

Top 10 holdings as of December 31, 2022. Current and future holdings are subject to change and risk.

Average Annual Total Returns - MEGMX as of 12/31/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-20.94% N.A. N.A. N.A. 9.26% 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 1.52%
Net Expense Ratio 1.13%

Matthews has contractually agreed to waive fees and reimburse expenses to limit the Total Annual Fund Operating Expenses until April 30, 2023. 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.