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Matthews Emerging Markets Small Companies Fund
MSMLX

The Matthews Emerging Markets Small Companies Fund (Institutional) received the 2023 Refinitiv Lipper Fund Award for Best Emerging Markets Fund over three years. Methodology.

Snapshot
  • Seeks alpha in innovative, capital efficient entrepreneurial companies in emerging markets
  • Focus on firms that have a strong competitive advantage through pricing power, distribution capability, and/or differentiated technologies and services
  • Bias toward businesses that cater to rising domestic consumer demand

09/15/2008

Inception Date

17.25%

YTD Return

(as of 12/01/2023)

$27.06

NAV

(as of 12/01/2023)

+0.17

1 Day NAV Change

(as of 12/01/2023)

Objective

Long-term capital appreciation

Strategy

Under normal circumstances, the Matthews Emerging Markets Small Companies 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 Small 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 defines Small Companies as companies with market capitalization no higher than the greater of US $5 billion or the market capitalization of the largest company included in the Fund's primary benchmark, the MSCI Emerging Markets Small Cap Index.

Risks

Investing in international and emerging markets may involve additional 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 securities involves greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. The Fund is non-diversified as it concentrates its investments in small sized companies. Investing in small- and mid-size companies is more risky and volatile than investing in large companies as they may be more volatile and less liquid than larger companies.

These and other risks associated with investing in the Fund can be found in the prospectus.

Fund Facts
Inception Date 09/15/2008
Fund Assets $557.04 million (10/31/2023)
Currency USD
Ticker MSMLX
Cusip 577-125-206
Portfolio Turnover 27.9%
Benchmark MSCI Emerging Markets Small Cap Index
Geographic Focus 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.
Fees & Expenses
Gross Expense Ratio 1.49%
Net Expense Ratio 1.37%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 10/31/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Small Companies Fund - MSMLX
09/15/2008
MSMLX
-6.29% -13.47% 6.59% 16.99% 9.75% 13.18% 6.79% 10.43%
MSCI Emerging Markets Small Cap Index
-4.82% -7.98% 8.66% 17.78% 9.54% 8.26% 4.07% 6.35%
As of 09/30/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Small Companies Fund - MSMLX
09/15/2008
MSMLX
-2.31% -0.23% 13.74% 24.07% 12.40% 12.17% 8.04% 10.97%
MSCI Emerging Markets Small Cap Index
-2.04% 3.10% 14.16% 23.67% 11.16% 6.93% 4.96% 6.74%
For the years ended December 31st
Name 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
Matthews Emerging Markets Small Companies Fund - MSMLX
MSMLX
-16.84% 22.14% 43.68% 17.38% -18.05% 30.59% -1.44% -9.43% 11.39% 7.19%
MSCI Emerging Markets Small Cap Index
-17.54% 19.29% 19.72% 11.93% -18.30% 34.22% 2.56% -6.57% 1.34% 1.35%

Before April 30, 2021, the Fund was managed with a materially different investment strategy and may have achieved materially different performance results under its current investment strategy from the performance shown for periods before that date.

MSCI Emerging Markets Small Cap Index since inception value calculated from 9/15/08.

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)

MSCI AC Asia ex Japan Small Cap Index since inception value calculated from 9/15/08.

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 718 funds
  • 3 YEAR
  • out of 718 funds
  • 5 YEAR
  • out of 652 funds
  • 10 YEAR
  • out of 391 funds
  • 1 YEAR
  • 1st
  • 37 out of 801 funds
  • 3 YEAR
  • 1st
  • 16 out of 699 funds
  • 5 YEAR
  • 1st
  • 3 out of 632 funds
  • 10 YEAR
  • 1st
  • 2 out of 376 funds
  • SINCE INCEPTION
  • 1st
  • 1 out of 206 funds

Best Emerging Markets Fund Over 3 Years

MISMX honored with 2023 Refinitiv Lipper Fund Award.

Methodology

Ratings agency calculation methodology

Portfolio Managers

Vivek  Tanneeru photo
Vivek Tanneeru

Lead Manager

Jeremy  Sutch, CFA photo
Jeremy Sutch, CFA

Co-Manager

Alex  Zarechnak photo
Alex Zarechnak

Co-Manager

Portfolio Characteristics

(as of 09/30/2023)
Fund Benchmark
Number of Positions 77 1,978
Weighted Average Market Cap $4.1 billion $1.8 billion
Active Share 97.6 n.a.
P/E using FY1 estimates 15.5x 13.5x
P/E using FY2 estimates 12.3x 11.6x
Price/Cash Flow 9.1 7.0
Price/Book 2.2 1.5
Return On Equity 11.0 14.7
EPS Growth (3 Yr) 25.6% 23.9%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 09/30/2023)
2.89%
Alpha
0.86
Beta
91.04%
Upside Capture
84.17%
Downside Capture
0.57
Sharpe Ratio
0.10
Information Ratio
11.96%
Tracking Error
60.58

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 10/31/2023)
Name Sector Country % Net Assets
Shriram Finance, Ltd. Financials India 6.3
Bandhan Bank, Ltd. Financials India 5.9
Legend Biotech Corp. Health Care China/Hong Kong 4.7
Hugel, Inc. Health Care South Korea 3.9
Full Truck Alliance Co., Ltd. Industrials China/Hong Kong 3.8
Airtac International Group Industrials China/Hong Kong 3.1
YDUQS Participacoes SA Consumer Discretionary Brazil 3.0
Phoenix Mills, Ltd. Real Estate India 2.6
Vamos Locacao de Caminhoes Maquinas e Equipamentos SA Industrials Brazil 2.5
M31 Technology Corp. Information Technology Taiwan 2.2
TOTAL 38.0

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
  • Country Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Industrials 23.3 17.1 6.2
Financials 19.9 10.2 9.7
Information Technology 16.2 17.8 -1.6
Consumer Discretionary 15.2 11.4 3.8
Health Care 12.3 9.2 3.1
Real Estate 5.8 6.1 -0.3
Communication Services 1.9 3.7 -1.8
Consumer Staples 1.3 6.3 -5.0
Materials 0.8 13.1 -12.3
Utilities 0.7 3.1 -2.4
Energy 0.0 2.1 -2.1
Cash and Other Assets, Less Liabilities 2.5 0.0 2.5

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 28.9 7.6 21.3
India 22.9 26.2 -3.3
Taiwan 10.1 21.4 -11.3
Brazil 9.2 5.1 4.1
South Korea 6.6 13.9 -7.3
Vietnam 5.0 0.0 5.0
Chile 3.8 0.8 3.0
Philippines 2.5 0.8 1.7
Saudi Arabia 2.3 3.6 -1.3
Indonesia 1.8 2.2 -0.4
Poland 1.3 1.1 0.2
Thailand 1.0 3.4 -2.4
Turkey 0.7 2.5 -1.8
United Arab Emirates 0.6 1.2 -0.6
Bangladesh 0.5 0.0 0.5
Mexico 0.4 2.3 -1.9
South Africa 0.0 3.2 -3.2
Malaysia 0.0 2.4 -2.4
Kuwait 0.0 1.0 -1.0
Qatar 0.0 0.7 -0.7
Greece 0.0 0.5 -0.5
Egypt 0.0 0.3 -0.3
Czech Republic 0.0 0.1 -0.1
Cash and Other Assets, Less Liabilities 2.5 0.0 2.5

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

Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 0.0 0.0 0.0
Large Cap ($10B-$25B) 6.2 0.1 6.1
Mid Cap ($3B-$10B) 45.4 14.1 31.3
Small Cap (under $3B) 45.9 85.7 -39.8
Cash and Other Assets, Less Liabilities 2.5 0.0 2.5

The Portfolio’s market cap exposure breakdown presented is used for comparison purposes and the definition of the capitalization breakdown is from MSCI.

The Fund defines Small Companies as companies with market capitalization no higher than the greater of US$5 billion or the market capitalization of the largest company included in the Fund's primary benchmark, the MSCI Emerging Markets Small Cap Index.

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 $0.08965 $0.14027 $1.62616 $1.85608 7.3% 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 Emerging Markets Small Companies Fund returned -0.23% (Investor Class) and -0.19% (Institutional Class), while its benchmark, the MSCI Emerging Markets Small Cap Index, returned 3.10%.

Market Environment:

During the quarter, U.S. 10-year bond yields rose meaningfully on market concerns over interest rates staying higher for longer. With materially higher yields on offer, equity market relative valuations in relation to bonds deteriorated, leading to weak equity market performance toward the end of the quarter. Oil prices also firmed up on the back of concerted efforts by the Organization of the Petroleum Exporting Countries (OPEC) to cut supplies. Meanwhile, certain emerging market central banks, including Brazil and Chile, continued to cut interest rates as inflation in these countries remained under control. 

India was the best-performing major emerging market in the benchmark index during the quarter. Smaller markets like Turkey, Egypt and Hungary did even better. Chile, Brazil and China were the worst-performing major markets alongside smaller markets like Colombia and Greece. From a sector perspective, energy and materials were the best-performing sectors along with financials and information technology (IT), while consumer discretionary and real estate were the worst performers.

From a currency perspective, among emerging markets only the Colombian peso and the Hong Kong dollar appreciated against the U.S. dollar during the quarter. The South African rand, Chinese renminbi and Malaysian ringgit, which all depreciated slightly against the dollar, were the other best performing emerging market currencies on a relative basis. The Argentinian peso, Chilean peso and Russian ruble were the worst performers.

Performance Contributors and Detractors:

From a country perspective, our stock selection in South Korea, off-benchmark allocation to Vietnam and both stock selection and underweight in Saudi Arabia were the biggest contributors to relative performance in the period. On the other hand, our overweight and stock selection in China/Hong Kong was the biggest combined drag on relative performance, followed by stock selection in India and our underweight and stock selection in Turkey.

From a sector perspective, stock selections in health care and industrials were the top contributors to relative performance, while stock selection in information technology (IT) was the biggest detractor, followed by our underweight to materials and stock selection in financials.

From a stock perspective, Ecopro BM was the biggest contributor to total and relative returns in the period. The South Korean cathode maker gained on the back of strong contract backlog buildup on account of orders from U.S. original equipment manufacturers (OEM) to South Korean battery cell makers. We significantly trimmed our position during the quarter as the stock performed very well. Elite Materials, a Taiwanese maker of key raw materials that go into printed circuit boards used in AI servers, was also a top contributor. 

On the other hand, Vamos and Flat Glass were the biggest detractors to total returns. Vamos, a Brazilian truck leasing company, had weaker-than-expected second-quarter results on the back of inventory build-up as the Brazilian truck market and the company’s truck dealerships transition from Euro 5 to Euro 6 vehicle emissions standards. We remain positive on the long-term prospects of the business and have added to our position. China-based Flat Glass fell on the back of general weakness in the solar-supply chain amid market concerns over the 2024 demand outlook following better-than-expected 2023 demand out of China, and the pace of capacity addition in the industry. We remain positive on the long-term growth prospects for the industry and Flat Glass’s leadership position within it.

Notable Portfolio Changes: 

During the quarter, the Fund initiated positions including in Grupo SBF, a leading Brazilian sporting goods retailer. SBF operates under two key divisions Centauro and Fisia. Centauro is a leading sporting goods retailer in Brazil and Latin America. From late 2020, Grupo SBF has been exclusively distributing and retailing Nike brand goods in Brazil. Since taking over the brand in Brazil, the company has been de-emphasizing wholesale distribution and putting focus more on brick-and-mortar brand stores and ecommerce sales. Grupo SBF is currently working through its inventory cycle and is very attractively valued in relation to its long-term growth prospects, in our view. We exited a small position in Tam Jai, a Hong Kong restaurant operator, as we found better use of capital elsewhere.

Outlook:  

The Federal Reserve’s interest rate strategy and expectation of its evolution were the most important variables impacting the performance of emerging markets over the last few quarters. Notwithstanding the recent increase in 10-year bond yields, we believe the Fed is near or at the end of the interest rate hiking cycle so the focus will now shift to assessing the cumulate impact of all the rate hikes on economic growth prospects over the coming quarters.

Our focus on the end of 2023 and into 2024 will be on assessing how China’s economic recovery and growth prospects play out and how they might affect the dynamics of other emerging markets. In addition, OPEC’s efforts to keep oil prices high will require ongoing, careful monitoring.

Over the coming years, we expect the emerging markets gross domestic product (GDP) growth-differential with developed markets to improve from a 23-year low reached in 2022. This, alongside relatively attractive valuations, should potentially lend support to better equity performance against developed markets compared with the last decade.

We believe small companies in emerging markets offer long-term growth opportunities given their innovation and domestic consumption orientation while also being less exposed to regulatory and geo-political risks. We continue to find quality businesses at attractive valuations in this asset class.

 

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 - MSMLX as of 09/30/2023
1YR 3YR 5YR 10YR Since Inception Inception Date
24.07% 12.40% 12.17% 8.04% 10.97% 09/15/2008

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 1.49%
Net Expense Ratio 1.37%

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.

Investing in international and emerging markets may involve additional 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 securities involves greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. The Fund is non-diversified as it concentrates its investments in small sized companies. Investing in small- and mid-size companies is more risky and volatile than investing in large companies as they may be more volatile and less liquid than larger companies.

 

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.