TOP

Matthews Emerging Markets Small Companies Fund
MSMLX

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

5.50%

YTD Return

(as of 03/31/2023)

$24.35

NAV

(as of 03/31/2023)

+0.01

1 Day NAV Change

(as of 03/31/2023)

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 $399.58 million (02/28/2023)
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 1.51%
Net Expense Ratio 1.35%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
  • data_graph_selected Created with Sketch.
  • bar_graph_selected Created with Sketch.
As of 02/28/2023
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
-4.52% 1.20% 3.55% -4.92% 15.66% 7.72% 6.87% 10.72%
MSCI Emerging Markets Small Cap Index
-2.84% 1.95% 2.94% -8.95% 10.75% 1.78% 3.49% 6.26%
As of 12/31/2022
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
-2.27% 9.08% -16.84% -16.84% 13.43% 7.02% 6.93% 10.57%
MSCI Emerging Markets Small Cap Index
-0.96% 8.33% -17.54% -17.54% 5.60% 1.49% 3.59% 6.12%
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 12/31/2022)

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 732 funds
  • 3 YEAR
  • out of 732 funds
  • 5 YEAR
  • out of 654 funds
  • 10 YEAR
  • out of 383 funds
  • 1 YEAR
  • 1st
  • 129 out of 777 funds
  • 3 YEAR
  • 1st
  • 3 out of 695 funds
  • 5 YEAR
  • 1st
  • 3 out of 612 funds
  • 10 YEAR
  • 1st
  • 2 out of 370 funds
  • SINCE INCEPTION
  • 1st
  • 1 out of 203 funds

Ratings agency calculation methodology

Portfolio Managers

Vivek  Tanneeru photo
Vivek Tanneeru

Lead Manager

Jeremy  Sutch, CFA photo
Jeremy Sutch, CFA

Co-Manager

Portfolio Characteristics

(as of 12/31/2022)
Fund Benchmark
Number of Positions 67 1,827
Weighted Average Market Cap $3.8 billion $1.6 billion
Active Share 98.6 n.a.
P/E using FY1 estimates 15.6x 10.5x
P/E using FY2 estimates 13.3x 10.4x
Price/Cash Flow 9.8 6.0
Price/Book 2.3 1.4
Return On Equity 10.4 14.7
EPS Growth (3 Yr) 0.7% 11.9%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 12/31/2022)
8.67%
Alpha
0.79
Beta
85.26%
Upside Capture
67.34%
Downside Capture
0.56
Sharpe Ratio
0.59
Information Ratio
13.20%
Tracking Error
71.44

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 02/28/2023)
Name Sector Country % Net Assets
Ecopro BM Co., Ltd. Industrials South Korea 6.1
Shriram Finance, Ltd. Financials India 5.4
Bandhan Bank, Ltd. Financials India 5.3
Silergy Corp. Information Technology China/Hong Kong 4.1
Legend Biotech Corp. Health Care United States 3.9
Ginlong Technologies Co., Ltd. Industrials China/Hong Kong 3.0
Phoenix Mills, Ltd. Real Estate India 3.0
Hugel, Inc. Health Care South Korea 2.9
Andes Technology Corp. Information Technology Taiwan 2.6
Vamos Locacao de Caminhoes Maquinas e Equipamentos SA Industrials Brazil 2.5
TOTAL 38.8

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 12/31/2022)
  • Sector Allocation
  • Country Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Industrials 27.2 15.6 11.6
Financials 19.1 10.8 8.3
Information Technology 15.9 16.0 -0.1
Health Care 12.9 9.4 3.5
Consumer Discretionary 12.1 11.3 0.8
Real Estate 10.0 7.0 3.0
Consumer Staples 1.2 6.6 -5.4
Communication Services 1.2 4.0 -2.8
Materials 1.0 13.3 -12.3
Utilities 0.0 3.5 -3.5
Energy 0.0 2.5 -2.5
Liabilities in Excess of Cash and Other Assets -0.5 0.0 -0.5

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 26.3 10.1 16.2
India 23.4 23.0 0.4
Taiwan 8.4 19.5 -11.1
South Korea 7.9 13.8 -5.9
Vietnam 6.1 0.0 6.1
Brazil 5.5 5.6 -0.1
Indonesia 4.9 2.6 2.3
United States 4.5 0.0 4.5
Chile 3.0 0.8 2.2
United Kingdom 2.3 0.0 2.3
Philippines 1.9 1.1 0.8
Netherlands 1.5 0.0 1.5
Mexico 1.4 2.1 -0.7
Canada 1.0 0.0 1.0
Thailand 0.9 4.3 -3.4
Turkey 0.8 2.1 -1.3
Bangladesh 0.8 0.0 0.8
South Africa 0.0 3.9 -3.9
Saudi Arabia 0.0 3.0 -3.0
Malaysia 0.0 2.9 -2.9
Kuwait 0.0 1.2 -1.2
Poland 0.0 1.1 -1.1
Qatar 0.0 1.0 -1.0
United Arab Emirates 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
Liabilities in Excess of Cash and Other Assets -0.5 0.0 -0.5

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) 0.0 0.2 -0.2
Mid Cap ($3B-$10B) 51.6 7.7 43.9
Small Cap (under $3B) 48.9 92.2 -43.3
Liabilities in Excess of Cash and Other Assets -0.5 0.0 -0.5

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 December 31, 2022

For the year ending December 31, 2022, the Matthews Emerging Markets Small Companies Fund returned -16.84% (Investor Class) and -16.66% (Institutional Class), while its benchmark, the MSCI Emerging Markets Small Cap Index, returned -17.54% over the same period. For the fourth quarter, the Fund returned 9.08% (Investor Class) and 9.13% (Institutional Class), while the benchmark returned 8.33%.

Market Environment:

In 2022, the U.S. and many other parts of the developed world saw high rates of inflation that they hadn’t experienced since the 1980s. The U.S. Federal Reserve increased the Fed funds rate seven times last year after guiding for a transitory inflation for much of 2021. This led to strong U.S. dollar performance that peaked around the end of the third quarter. Inflation was less of a challenge in key emerging markets like China, partly because of suppressed economic activity resulting from China’s zero COVID policy which was in place for much of 2022, and because where inflation was elevated, a number of central banks proactively addressed it by sharply increasing rates.

Nonetheless, emerging markets currencies were not completely immune to the impact of a very strong greenback. Among Latin American currencies, the Brazilian real, Mexican peso and Peruvian sol gained over 5% against the dollar in 2022 while the Argentine peso and Turkish lira were the worst performers as a result of runaway inflation. For perspective, some major developed market currencies, such as the Japanese yen, British pound and the euro, fared worse than some emerging-market currencies.

For the year, Turkey was the best performing small-cap emerging markets, followed by Chile and Mexico. Columbia was the worst performer, followed by South Korea and Hungary. In Asia, China and Taiwan also performed poorly. During 2022, MSCI Emerging Markets Small Cap Index comfortably outperformed the broader MSCI Emerging Markets Index.             

Performance Contributors and Detractors:

On a country basis, our stock selection in India was the biggest contributor to relative performance during the year, followed by stock selection in Indonesia and underweight allocation to Taiwan and South Korea. On the other hand, our overweight allocation to China as well as our stock selection in Russia detracted from performance. Our underweight to Turkey was also a detractor.

From a sector perspective, our stock selection and overweight in industrials was the biggest contributor to relative performance during the year. Stock selection in consumer discretionary, health care and real estate was also a top contributor. On the flip side, stock selection in information technology and financials were the biggest detractors from relative performance.

At the stock level, our Indian holdings benefited from the normalization of economic activity in the country. Lemon Tree Hotels and Phoenix Mills, a retail mall operator, were top contributors as they gained from higher sales and stronger pricing, respectively, compared with pre-pandemic levels. Shriram Finance, an Indian non-banking financial company, also benefited from economic normalization and loan growth resumption. In Indonesia, as the economy as well as mall foot traffic normalized, Mitra Adiperkasa, a retailer with a broad exposure to discretionary consumer spending, was also a top performer. On the other hand, Taiwan technology holding Silergy was the largest detractor. Concerns over a post-COVID global consumer softening in demand for consumer appliances and communications products, in addition to general weakness in Chinese economic activity, proved to be a drag on stock performance. The broader build up in semiconductor inventory globally also contributed to negative sentiment toward the technology sector in general. We continue to like the long-term prospects of Silergy and its positioning in the analog semiconductor industry.

Notable Portfolio Changes:

In the last quarter we initiated a new position in Tongcheng Travel Holdings, a Chinese online travel agency. We expect the company to benefit from a recovery in tourism as well as easing mobility restrictions in China. Higher savings and pent-up demand for travel after a long period of China’s zero-COVID policy should aid demand. The company has a strong lower-tier presence and China business. It has been making concerted efforts to increase its exposure to the international package travel area and while that is a relatively smaller proportion of its business, these efforts should aid further growth over the long term.

Outlook:

The Fed’s interest rate strategy and the market’s expectation of its evolution continue to be the most important variables impacting the near-term regional, sector and currency performance in emerging markets. We expect the impact of Fed’s actions in 2023 to be less than it was in 2022 as the tightening cycle enters late stages. In addition, we are also wary of the cumulative impact of the Fed’s interest rate hikes on U.S. and developed world economic activity.

Our other key focus in 2022 was the evolution of China’s zero-COVID policy and its impact on economic activity in the country. This has largely been resolved given the unexpected lifting of most COVID restrictions in China in late 2022. Elsewhere, Russia’s invasion of Ukraine and its effect on energy prices— alongside OPEC’s efforts to keep the prices high—needs careful watching, especially as Chinese economic activity is likely to pick up as 2023 progresses.

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 embarks on a likely tricky 2023, we believe small companies in emerging markets will continue to offer long-term growth opportunities given their innovation and domestic consumption orientation. There are also currently quality businesses at attractive valuations in this asset class.

 

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

Average Annual Total Returns - MSMLX as of 12/31/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-16.84% 13.43% 7.02% 6.93% 10.57% 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 1.51%
Net Expense Ratio 1.35%

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.

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.