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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

13.74%

YTD Return

(as of 09/22/2023)

$26.25

NAV

(as of 09/22/2023)

+0.17

1 Day NAV Change

(as of 09/22/2023)

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 $574.08 million (08/31/2023)
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 08/31/2023
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
-5.49% 8.39% 16.42% 15.37% 13.29% 11.59% 8.92% 11.21%
MSCI Emerging Markets Small Cap Index
-1.31% 10.08% 16.53% 13.63% 11.32% 6.65% 5.84% 6.92%
As of 06/30/2023
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
6.13% 8.05% 14.00% 16.06% 14.75% 10.09% 7.97% 11.18%
MSCI Emerging Markets Small Cap Index
4.60% 6.53% 10.73% 13.93% 14.28% 5.40% 5.02% 6.64%
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 06/30/2023)

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 723 funds
  • 3 YEAR
  • out of 723 funds
  • 5 YEAR
  • out of 646 funds
  • 10 YEAR
  • out of 385 funds
  • 1 YEAR
  • 1st
  • 47 out of 788 funds
  • 3 YEAR
  • 1st
  • 10 out of 698 funds
  • 5 YEAR
  • 1st
  • 2 out of 622 funds
  • 10 YEAR
  • 1st
  • 2 out of 372 funds
  • SINCE INCEPTION
  • 1st
  • 1 out of 207 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 06/30/2023)
Fund Benchmark
Number of Positions 71 1,913
Weighted Average Market Cap $4.5 billion $1.9 billion
Active Share 97.8 n.a.
P/E using FY1 estimates 15.6x 12.4x
P/E using FY2 estimates 12.8x 11.0x
Price/Cash Flow 9.1 6.9
Price/Book 2.3 1.5
Return On Equity 12.3 14.0
EPS Growth (3 Yr) 28.4% 22.7%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 06/30/2023)
3.63%
Alpha
0.77
Beta
80.27%
Upside Capture
71.78%
Downside Capture
0.76
Sharpe Ratio
0.04
Information Ratio
12.32%
Tracking Error
56.75

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 08/31/2023)
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 4.8
YDUQS Participacoes SA Consumer Discretionary Brazil 3.4
Full Truck Alliance Co., Ltd. Industrials China/Hong Kong 3.3
Hugel, Inc. Health Care South Korea 3.1
Vamos Locacao de Caminhoes Maquinas e Equipamentos SA Industrials Brazil 2.6
Finolex Cables, Ltd. Industrials India 2.5
Phoenix Mills, Ltd. Real Estate India 2.5
Saudi Tadawul Group Holding Co. Financials Saudi Arabia 2.4
TOTAL 36.8

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
Industrials 23.9 16.8 7.1
Financials 20.3 10.9 9.4
Information Technology 17.5 17.1 0.4
Consumer Discretionary 13.7 11.1 2.6
Health Care 11.7 8.9 2.8
Real Estate 7.2 6.1 1.1
Communication Services 1.8 4.0 -2.2
Materials 1.0 13.9 -12.9
Consumer Staples 0.9 6.1 -5.2
Utilities 0.9 3.2 -2.3
Energy 0.0 1.8 -1.8
Cash and Other Assets, Less Liabilities 1.0 0.0 1.0

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 27.9 8.1 19.8
India 21.0 24.3 -3.3
Taiwan 10.6 21.7 -11.1
South Korea 10.0 15.0 -5.0
Brazil 8.6 5.8 2.8
Vietnam 5.3 0.0 5.3
Chile 4.8 0.9 3.9
Philippines 2.4 1.0 1.4
Indonesia 2.3 2.2 0.1
United Arab Emirates 1.7 1.0 0.7
Poland 1.4 1.1 0.3
Mexico 1.0 2.4 -1.4
Turkey 0.8 1.5 -0.7
Thailand 0.7 3.2 -2.5
Bangladesh 0.6 0.0 0.6
Saudi Arabia 0.0 3.8 -3.8
South Africa 0.0 2.8 -2.8
Malaysia 0.0 2.4 -2.4
Kuwait 0.0 1.0 -1.0
Qatar 0.0 0.8 -0.8
Greece 0.0 0.6 -0.6
Egypt 0.0 0.3 -0.3
Colombia 0.0 0.1 -0.1
Czech Republic 0.0 0.1 -0.1
Cash and Other Assets, Less Liabilities 1.0 0.0 1.0

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) 11.7 1.2 10.5
Mid Cap ($3B-$10B) 38.0 13.8 24.2
Small Cap (under $3B) 49.3 85.0 -35.7
Cash and Other Assets, Less Liabilities 1.0 0.0 1.0

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 June 30, 2023

For the first half of 2023, the Matthews Emerging Markets Small Companies Fund returned 14.00% (Investor Class) and 14.11% (Institutional Class), while its benchmark, the MSCI Emerging Markets Small Cap Index, returned 10.73% over the same period. For the quarter ending June 30, 2023, the Fund returned 8.05% (Investor Class) and 8.10% (Institutional Class), while the benchmark returned 6.53%.

Market Environment:   

There were two key developments during the first six months of the year. Firstly, the market has been surprised by the persistence of higher inflation and as a result peak interest rate expectations in the western world have been steadily revised up. Secondly, there was the market’s excitement about the potential of artificial intelligence (AI), with the release of very successful, large language and stable diffusion models and blowout quarterly results and guidance from NVIDIA, a key player in the space, which together triggered a reassessment of the growth prospects of large tech companies. This led to a very top-heavy performance of equity markets, in the U.S. in particular.

During the period, the attractiveness of large emerging markets also came into focus as they were relatively well positioned from an inflation perspective, with either low inflation or high real interest rates. Latin American currencies like the Columbian peso, Mexican peso, Brazilian real, Chilean peso and Peruvian sol performed well against the U.S. dollar while currencies in inflation-hit countries like Turkey and Argentina performed poorly.

Brazil, after aggressively raising interest rates to fight inflation starting in early 2021, has seemingly reached the top of the rate cycle. With the potential moderation in inflation in sight, the market has taken a positive view on the trajectory of rates from here and the potential boost lower rates could provide the economy.

In the first half, Greece, Saudi Arabia and Hungary, alongside Brazil, were among the best performing markets in the MSCI Emerging Markets Small Cap Index, while China, Turkey, Thailand and South Africa were the worst performers. From a sector perspective, IT and industrials were the best performers while energy and real estate were the weakest.

Performance Contributors and Detractors:

From a country perspective, our stock selections in South Korea, Brazil and India were the biggest contributors to relative performance in the first half of the year. Our underweight to Thailand and lack of exposure to South Africa also contributed. On the other hand, despite our positive stock selection, our overweight to China was the biggest detractor amid negative sentiment over the country’s uneven economy recovery and geopolitical tensions. Our underweight to Taiwan was also a detractor. At the sector level, stock selections in financials and consumer discretionary were the top contributors while our underweight to consumer staples also had a positive impact. On the flip side, selections in IT and an overweight and selections in health care were the biggest detractors.

At the holdings level, Brazilian company YDUQS was among the top contributors. YDUQS, a leading on-campus and distance-learning education company, navigated the COVID-19 related-slowdown successfully and has positioned itself to benefit from improvements in household finances on account of expected lower interest rates, which will enable more low-mid income families to enroll students in its programs. The company could also see reduced interest payment burdens and potentially benefit from any increase in government-sponsored tuition support programs. On the flip side, our Chinese or China-exposed holdings such as Silergy, a Taiwanese analog semiconductor company, Hugel, a South Korean botulin toxin maker, and Hainan Meilan International Airport, a Chinese airport operator, were among the biggest detractors as the market worried about the slow pace of the Chinese economic recovery. We remain positive about the long-term prospects of these companies and our base case remains a steady, not spectacular, recovery of the Chinese economy over the coming quarters.

Notable Portfolio Changes:

We initiated a position in Aguas Andinas, a leading water utilities company in Chile, which provides services for water collection, and the production, transportation and distribution of drinking water as well as sewage collection, treatment and disposal. It operates under a unique regulatory environment in Chile that uses a model greenfield company method to set tariffs. This has incentivized strong investments into the water and sewage infrastructure and has enabled Chile to achieve drinking and sewage water treatment standards that are among the highest in the world. The company also offers steady growth and an attractive dividend yield.In the period we exited Lemon Tree, an Indian mid-market hotel chain operator, to take profits, and sold our position in Bank Tabungan Negara in Indonesia to deploy capital elsewhere.

Outlook:

The U.S. Fed’s interest rate strategy and the market’s expectation of its evolution were the most important variables impacting the performance of emerging markets over the last few quarters. With the Fed seemingly coming close to the end of the interest rate hiking cycle, the focus will now shift to assessing the cumulate impact of all the rate hikes on economic growth prospects over the coming quarters.

Like during the first half, our focus in the second half of 2023 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. And Russia’s invasion of Ukraine and its effect on energy prices—alongside OPEC’s (Organization of the Petroleum Exporting Countries) persistent efforts to keep the prices high—will need ongoing, careful monitoring; although to a lesser extent than in 2022.

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 development, alongside relatively attractive valuations, should potentially lend support to better equity performance against developed markets compared with the last decade.

As the global economy wades through a tricky 2023, we believe small companies in emerging markets offer long-term growth opportunities given their innovation and domestic consumption orientation. We continue to find quality businesses at attractive valuations in this asset class.

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

 

Average Annual Total Returns - MSMLX as of 06/30/2023
1YR 3YR 5YR 10YR Since Inception Inception Date
16.06% 14.75% 10.09% 7.97% 11.18% 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.