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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

7.41%

YTD Return

(as of 05/31/2023)

$24.79

NAV

(as of 05/31/2023)

-0.18

1 Day NAV Change

(as of 05/31/2023)

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 $440.08 million (04/30/2023)
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 04/30/2023
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
2.63% -0.16% 8.28% 7.42% 19.79% 8.76% 7.03% 10.93%
MSCI Emerging Markets Small Cap Index
0.70% -1.20% 4.67% -5.12% 16.35% 2.40% 3.42% 6.31%
As of 03/31/2023
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
1.88% 5.50% 5.50% -1.27% 24.28% 7.76% 6.95% 10.79%
MSCI Emerging Markets Small Cap Index
0.98% 3.94% 3.94% -10.47% 21.25% 2.24% 3.56% 6.29%
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 03/31/2023)

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 744 funds
  • 3 YEAR
  • out of 744 funds
  • 5 YEAR
  • out of 654 funds
  • 10 YEAR
  • out of 394 funds
  • 1 YEAR
  • 1st
  • 28 out of 794 funds
  • 3 YEAR
  • 1st
  • 3 out of 707 funds
  • 5 YEAR
  • 1st
  • 3 out of 620 funds
  • 10 YEAR
  • 1st
  • 2 out of 371 funds
  • SINCE INCEPTION
  • 1st
  • 1 out of 201 funds

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 03/31/2023)
Fund Benchmark
Number of Positions 69 1,866
Weighted Average Market Cap $4.4 billion $1.7 billion
Active Share 98.1 n.a.
P/E using FY1 estimates 15.2x 11.6x
P/E using FY2 estimates 11.7x 10.2x
Price/Cash Flow 8.1 6.3
Price/Book 2.2 1.4
Return On Equity 10.1 13.8
EPS Growth (3 Yr) 17.8% 20.3%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 03/31/2023)
5.92%
Alpha
0.85
Beta
90.09%
Upside Capture
71.78%
Downside Capture
1.14
Sharpe Ratio
0.24
Information Ratio
12.57%
Tracking Error
64.03

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 04/30/2023)
Name Sector Country % Net Assets
Bandhan Bank, Ltd. Financials India 6.6
Legend Biotech Corp. Health Care United States 6.0
Ecopro BM Co., Ltd. Industrials South Korea 6.0
Shriram Finance, Ltd. Financials India 5.7
Silergy Corp. Information Technology China/Hong Kong 3.3
Phoenix Mills, Ltd. Real Estate India 2.9
Hugel, Inc. Health Care South Korea 2.9
Finolex Cables, Ltd. Industrials India 2.8
Full Truck Alliance Co., Ltd. Industrials China/Hong Kong 2.7
Network International Holdings PLC Financials United Arab Emirates (U.A.E.) 2.6
TOTAL 41.5

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 03/31/2023)
  • Sector Allocation
  • Country Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Industrials 29.1 16.3 12.8
Financials 18.9 10.3 8.6
Information Technology 17.4 17.6 -0.2
Health Care 12.8 9.2 3.6
Consumer Discretionary 10.5 10.5 0.0
Real Estate 7.6 6.5 1.1
Communication Services 1.5 4.0 -2.5
Materials 0.9 13.9 -13.0
Consumer Staples 0.0 6.7 -6.7
Utilities 0.0 3.1 -3.1
Energy 0.0 2.0 -2.0
Cash and Other Assets, Less Liabilities 1.2 0.0 1.2

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 27.8 9.5 18.3
India 18.0 21.7 -3.7
South Korea 12.4 15.5 -3.1
Taiwan 9.6 21.7 -12.1
Brazil 5.5 5.0 0.5
Vietnam 5.5 0.0 5.5
United States 4.3 0.0 4.3
Chile 3.8 0.9 2.9
Indonesia 2.8 2.6 0.2
Philippines 2.7 1.1 1.6
United Arab Emirates 1.6 0.9 0.7
Mexico 1.4 2.5 -1.1
Poland 1.4 1.1 0.3
Thailand 0.7 3.6 -2.9
Turkey 0.7 1.6 -0.9
Bangladesh 0.7 0.0 0.7
Saudi Arabia 0.0 3.3 -3.3
South Africa 0.0 3.3 -3.3
Malaysia 0.0 2.8 -2.8
Kuwait 0.0 1.1 -1.1
Qatar 0.0 0.9 -0.9
Greece 0.0 0.5 -0.5
Egypt 0.0 0.2 -0.2
Colombia 0.0 0.1 -0.1
Czech Republic 0.0 0.1 -0.1
Cash and Other Assets, Less Liabilities 1.2 0.0 1.2

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) 7.3 0.1 7.2
Mid Cap ($3B-$10B) 43.3 11.2 32.1
Small Cap (under $3B) 48.3 88.7 -40.4
Cash and Other Assets, Less Liabilities 1.2 0.0 1.2

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 March 31, 2023

For the quarter ending March 31, 2023, the Matthews Emerging Markets Small Companies Fund returned 5.50% (Investor Class) and 5.56% (Institutional Class), while its benchmark, the MSCI Emerging Markets Small Cap Index, returned 3.94%.

Market Environment:

2023 started where 2022 ended with the market closely following inflation data releases and trying to assess U.S. Federal Reserve’s reaction function to them. After doing well in the first few weeks of 2023 on account of a belief that inflation might be softening, the markets had a reality check in February after a worse than expected inflation data print. Silicon Valley Bank’s collapse, followed by troubles at Signature Bank and First Republic Bank, led to a bout of risk-off sentiment and challenges for equity markets in addition to tightening financial conditions toward the end of the quarter.

Select Latin American currencies did well again against the U.S. dollar after a strong 2022 performance. The Mexican peso, Chilean peso, Colombian peso and Brazilian real appreciated the most among emerging markets currencies alongside the Hungarian forint during the quarter. The Argentine peso and Turkish lira, 2022’s worst performers, continued to depreciate against the U.S. dollar as did the Russian ruble and South African rand.

For the quarter, Hungary, Mexico, Taiwan and South Korea were the best-performing small-cap emerging markets. Turkey, Egypt and Colombia were the worst performing markets. A number of the poor performers in 2022 turned in strong performances during the quarter, including Taiwan and South Korea. From a sector perspective, information technology (IT) and materials were the best performers while energy and consumer discretionary were the worst performers.               

Performance Contributors and Detractors: 

On a country basis, our stock selection in South Korea was the biggest contributor to relative performance during the quarter, followed by our stock selection and underweight in Turkey and our lack of exposure to South Africa. Our holdings in Taiwan were the second-biggest contributor by stock selection. On the other hand, our overweight allocation to China and underweight allocation to Taiwan detracted from performance.

From a sector perspective, our stock selection and overweight in industrials was the biggest contributor to relative performance. Stock selection in IT also contributed positively. On the flip side, stock selection and overweight in financials, alongside stock selection in real estate detracted from relative performance.

At the stock level, South Korean battery supply names in the portfolio including Ecopro BM contributed positively to performance. After having underperformed toward the end of 2022 on worries over weak demand and oversupply concerns, many of these names rebounded strongly in the first quarter on the back of positive news flow over the potential impact on electric vehicle (EV) demand and customer eligibility for IRA subsidy payments of the U.S. Inflation Reduction Act. Strong new customer order wins, especially from U.S. automakers alongside capacity addition announcements, also contributed to strong performance by these stocks.

In contrast, Indian financials such as Bandhan Bank and Shriram Finance detracted from performance amid a general decline in Indian equities, after their strong performance in recent years left relative valuations very expensive, especially compared with China. Indian financials also got caught up in the global financials selloff in the aftermath of turbulence in the U.S. financial system following Silicon Valley Bank’s demise.

Notable Portfolio Changes:

In the last quarter we initiated a new position in Eugene Technology, a South Korean semiconductor fabrication-equipment maker that specializes in deposition gear. In addition to its core expertise in low pressure chemical vapor deposition equipment, Eugene is making strong inroads into atomic layer deposition equipment thereby increasing its addressable market. While the company’s products have largely been used in manufacturing memory products, it is also making progress in the semiconductor foundry manufacturing process as well which presents an attractive growth opportunity in the future.

During the quarter we exited India-based GMR Airports Infrastructure to take profit and we also exited Marico, a health and wellness products company also based in India, to redeploy capital elsewhere.

Outlook:

The Fed’s interest rate strategy and the market’s expectation of its evolution remain the most important variables impacting the near-term performance in emerging markets. That said, we expect the impact of the Fed’s actions this year to be less than it was in 2022 as the tightening cycle enters the late stages.

Our other key focus will be how China’s economic recovery and growth plays out and how it affects the dynamics of other emerging markets. And Russia’s invasion of Ukraine and its effect on energy prices— alongside OPEC’s efforts to keep the prices high—will need 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 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 March 31, 2023. Current and future holdings are subject to change and risk.

Average Annual Total Returns - MSMLX as of 03/31/2023
1YR 3YR 5YR 10YR Since Inception Inception Date
-1.27% 24.28% 7.76% 6.95% 10.79% 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.