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Matthews Emerging Markets Sustainable Future Fund
MASGX

The Matthews Asia ESG Fund won the inaugural 2021 UNCTAD Sustainable Emerging Market Fund Award. Press Release. Methodology.

Formerly known as the Matthews Asia ESG Fund.

Snapshot
  • Unconstrained strategy focused on companies that make a positive environmental, social and economic impact in emerging markets
  • All-cap portfolio with diversified emerging and frontier market exposures
  • Deep bottom-up fundamental approach that seeks to generate attractive long-term risk-adjusted returns by investing in well-governed companies

04/30/2015

Inception Date

2.95%

YTD Return

(as of 04/11/2024)

$12.91

NAV

(as of 04/11/2024)

+0.06

1 Day NAV Change

(as of 04/11/2024)

Objective

Long-term capital appreciation

Strategy

Under normal circumstances, the Matthews Emerging Markets Sustainable Future 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 of any market capitalization located in emerging market countries that satisfy one or more of the Fund’s environmental, social and governance (“ESG”) standards. 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.

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. Matthews Emerging Markets Sustainable Future Fund’s consideration of ESG factors in making its investment decisions may impact the Fund’s relative investment performance positively or negatively.

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

Fund Facts
Inception Date 04/30/2015
Fund Assets $228.05 million (03/31/2024)
Currency USD
Ticker MASGX
Cusip 577-130-727
Portfolio Turnover 49.2%
Benchmark MSCI Emerging Markets Index MSCI All Country Asia ex Japan 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 1.24%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 03/31/2024
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Sustainable Future Fund - MASGX
04/30/2015
MASGX
0.40% 0.88% 0.88% 7.40% -0.30% 8.36% n.a. 7.12%
MSCI Emerging Markets Index
2.52% 2.44% 2.44% 8.59% -4.68% 2.61% n.a. 2.79%
MSCI All Country Asia ex Japan Index
2.58% 2.44% 2.44% 4.36% -6.52% 2.27% n.a. 3.01%
As of 03/31/2024
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Sustainable Future Fund - MASGX
04/30/2015
MASGX
0.40% 0.88% 0.88% 7.40% -0.30% 8.36% n.a. 7.12%
MSCI Emerging Markets Index
2.52% 2.44% 2.44% 8.59% -4.68% 2.61% n.a. 2.79%
MSCI All Country Asia ex Japan Index
2.58% 2.44% 2.44% 4.36% -6.52% 2.27% n.a. 3.01%
For the years ended December 31st
Name 2023 2022 2021 2020 2019 2018 2017 2016
Matthews Emerging Markets Sustainable Future Fund - MASGX
MASGX
7.83% -14.38% 11.76% 42.87% 12.55% -9.73% 33.79% -1.40%
MSCI Emerging Markets Index
10.27% -19.74% -2.22% 18.69% 18.88% -14.24% 37.75% 11.60%
MSCI All Country Asia ex Japan Index
6.34% -19.36% -4.46% 25.36% 18.52% -14.12% 42.08% 5.76%

Before July 29, 2022, the Fund was managed with a slightly different investment strategy and may have achieved different performance results under its current investment strategy from the performance shown for periods before that date.

Effective July 29, 2022, in connection with changes to the Fund’s name and principal investment strategies, the primary benchmark changed from the MSCI All Country Asia ex Japan Index to the MSCI Emerging Markets Index.

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 03/31/2024)

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 721 funds
  • 3 YEAR
  • out of 721 funds
  • 5 YEAR
  • out of 657 funds
  • 1 YEAR
  • 3rd
  • 483 out of 779 funds
  • 3 YEAR
  • 1st
  • 120 out of 688 funds
  • 5 YEAR
  • 1st
  • 25 out of 625 funds
  • SINCE INCEPTION
  • 1st
  • 3 out of 448 funds

Ratings agency calculation methodology

Portfolio Managers

Vivek  Tanneeru photo
Vivek Tanneeru

Lead Manager

Inbok  Song photo
Inbok Song

Co-Manager

Portfolio Characteristics

(as of 03/31/2024)
Fund Benchmark
Number of Positions 54 1,376
Weighted Average Market Cap $24.6 billion $128.9 billion
Active Share 98.0 n.a.
P/E using FY1 estimates 17.8x 12.5x
P/E using FY2 estimates 14.2x 11.1x
Price/Cash Flow 12.4 7.7
Price/Book 2.5 1.7
Return On Equity 13.0 15.4
EPS Growth (3 Yr) 28.1% 17.9%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 03/31/2024)
4.65%
Alpha
0.96
Beta
103.44%
Upside Capture
88.13%
Downside Capture
-0.15
Sharpe Ratio
0.45
Information Ratio
9.67%
Tracking Error
75.69

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 03/31/2024)
Name Sector Country % Net Assets
Meituan Class B Consumer Discretionary China/Hong Kong 5.8
Shriram Finance, Ltd. Financials India 5.8
Full Truck Alliance Co., Ltd. Industrials China/Hong Kong 5.3
Bandhan Bank, Ltd. Financials India 5.2
JD Health International, Inc. Consumer Staples China/Hong Kong 4.7
Samsung SDI Co., Ltd., Pfd. Information Technology South Korea 4.4
Micron Technology, Inc. Information Technology United States 4.1
Hong Kong Exchanges & Clearing, Ltd. Financials China/Hong Kong 3.7
Saudi Tadawul Group Holding Co. Financials Saudi Arabia 3.2
Indus Towers, Ltd. Communication Services India 3.2
TOTAL 45.4

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 03/31/2024)
  • Sector Allocation
  • Country Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Information Technology 26.4 23.7 2.7
Financials 23.5 22.4 1.1
Industrials 16.0 7.0 9.0
Consumer Discretionary 12.2 12.4 -0.2
Consumer Staples 6.0 5.6 0.4
Health Care 5.8 3.5 2.3
Communication Services 4.9 8.6 -3.7
Real Estate 3.9 1.5 2.4
Materials 1.0 7.2 -6.2
Utilities 0.8 2.8 -2.0
Energy 0.0 5.3 -5.3
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 38.1 25.2 12.9
India 19.6 17.7 1.9
Taiwan 10.1 17.5 -7.4
South Korea 9.8 12.8 -3.0
Brazil 6.3 5.2 1.1
United States 4.1 0.0 4.1
Saudi Arabia 3.2 4.2 -1.0
Poland 3.0 1.0 2.0
Vietnam 1.5 0.0 1.5
Romania 1.3 0.0 1.3
Jordan 1.2 0.0 1.2
Turkey 1.0 0.7 0.3
Chile 0.5 0.5 0.0
Bangladesh 0.5 0.0 0.5
Estonia 0.2 0.0 0.2
South Africa 0.0 2.8 -2.8
Mexico 0.0 2.7 -2.7
Indonesia 0.0 1.9 -1.9
Thailand 0.0 1.5 -1.5
Malaysia 0.0 1.4 -1.4
United Arab Emirates 0.0 1.2 -1.2
Kuwait 0.0 0.8 -0.8
Qatar 0.0 0.8 -0.8
Philippines 0.0 0.6 -0.6
Greece 0.0 0.5 -0.5
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
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) 21.9 56.3 -34.4
Large Cap ($10B-$25B) 24.0 22.0 2.0
Mid Cap ($3B-$10B) 32.9 20.6 12.3
Small Cap (under $3B) 21.8 1.0 20.8
Liabilities in Excess of Cash and Other Assets -0.5 0.0 -0.5

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.

Portfolio Breakdown benchmark reflects the MSCI Emerging Markets Index as of 6/30/23.

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)
12/13/2023 12/14/2023 $0.25011 $0.17470 $0.51859 $0.94340 7.2% 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, 2023

For the year ending December 31, 2023, the Matthews Emerging Markets Sustainable Future Fund returned 7.83% (Investor Class) and 8.04% (Institutional Class), while its benchmark, the MSCI Emerging Markets Index, returned 10.27% over the same period. For the fourth quarter, the Fund returned 2.35% (Investor Class) and 2.40% (Institutional Class), while the benchmark returned 7.93%.

Market Environment 

2023 was a year of opportunities and challenges marked by two distinct narratives: the Federal Reserve’s ‘higher for longer’ interest rate strategy and China’s labored and ongoing struggle to recover from the pandemic. Elevated interest rates and a strong U.S. dollar posed headwinds while China’s travails impacted the economies of other markets like Thailand. But there were also strong performances by markets like India which benefited from national infrastructure programs and strong domestic investor inflows. Smaller companies in emerging markets also thrived in many cases in 2023. And toward the end of the year there was a general consensus that inflation had peaked in the global economy and that the Fed would pivot toward cutting rates in 2024. This provided some tailwinds across markets. 
 
Hungary was the best-performing emerging market during 2023, followed by Greece, Poland and Egypt, while larger markets like India, Brazil and Mexico delivered robust returns. China was the worst-performer followed by Thailand and Kuwait. From a sector perspective, information technology (IT) was the top performer, supported by market exuberance over advancements in  generative artificial intelligence (AI), while real estate and consumer discretionary were the worst performers, impacted in part by China’s challenges in these sectors.

From a currency perspective, Latin American currencies like the Colombian peso, Mexican peso and Brazilian real appreciated against the U.S. dollar alongside Eastern European currencies like the Polish zloty and Hungarian forint. The Argentinian peso, Turkish lira and South African rand were the worst performers.

Performance Contributors and Detractors 

From a country perspective, stock selection in South Korea was the top contributor to total and relative returns. Stock selection in Brazil and an overweight and stock selection in India also contributed. 

On the flip side, an overweight allocation and stock selection in China/Hong Kong were the biggest detractors to total and relative returns in the period. As the year progressed, markets grew more pessimistic about the prospects of China’s economic recovery, for a turnaround in its real estate sector and for an improvement in consumer sentiment. A lack of exposure to Mexico and Greece and an allocation to Estonia also detracted from relative returns. 

At the sector level, an overweight and stock selection in financials, stock selection in real estate, and an underweight and stock selection in consumer discretionary contributed to returns. In contrast, stock selection in consumer staples and IT and a lack of exposure to energy were the biggest detractors to relative performance.

From an individual holdings perspective, Ecopro BM, a South Korean cathode maker, Shriram Finance, an Indian financial services provider, and YDUQS, a Brazilian on-campus and distance-learning education company, were the top contributors to relative returns. Ecopro BM’s share price rallied on the expectations of a strong pickup in orders from U.S. battery manufacturing capex spend. Shriram continued to deliver strong results and, given its very attractive valuations, the stock performed well. YDUQS recovered well from pandemic-related weakness and as Brazilian interest rates started dropping the market took a more positive view on the company’s reduced debt-servicing burden. Very depressed valuations earlier in the year also helped the stock perform well.

On the other hand, our Chinese positions like Meituan, a leading food delivery company and super-app operator, JD Health International, an online pharmacy and medical services player, and Ginlong Technologies, a manufacturer of solar inverters, were the biggest detractors to relative returns in the year. As markets soured on recovery prospects in consumer sentiment and consumer spending in China, names like Meituan and JD Health were weak. In addition, the market worried about competition within the in-store segment of Meituan from the ecommerce offering of Douyin, ByteDance’s short video platform. We acknowledge the changes in the competitive environment but believe that Meituan will retain a strong market share over the mid-to-long term given its strong value proposition. Our research suggests that Douyin is being used as a medium to bring new customers to the segment and will aid the segment’s overall growth. Ginlong Technologies was weak on account of elevated inventory levels in Europe, a key market for Chinese exporters, as well as expectations of slower growth in Ginlong’s segment in China after a very strong 2023. We expect channel inventory to normalize this year and a meaningful drop in solar module prices in 2023 should spur additional demand.

Notable Portfolio Changes 

We initiated a number of new positions in the year, including 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 which presents an attractive growth opportunity in the future. Among our exits, we sold China Conch Venture Holdings, a company involved in the energy and construction sectors, as we found better use of capital elsewhere.  

Outlook

Today, emerging markets contain many companies with solid business models and quality management. In addition, U.S. interest rates are looking downward which should create some macro tailwinds for the coming year. As well as the macro landscape and global trade, our focus in 2024 will be on key emerging markets that are generating robust growth, like India, and those that are challenged, like China, and how they can affect the dynamics of other emerging markets.

Longer term, 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.

Finally, we view sustainable investing as a synonym for long-term investing. Our approach focuses on investing in companies that are well-positioned to embrace global, multidecadal trends, including addressing critical challenges like climate change and inclusive development. These companies also tend to be good at identifying and proactively addressing long-terms risk to their businesses. Emerging markets, we believe, are a key destination for sustainable investment themes that offer attractive opportunities for alpha generation.

View the Fund’s Top 10 holdings as of December 31, 2023. Current and future holdings are subject to change and risk.

Average Annual Total Returns - MASGX as of 03/31/2024
1YR 3YR 5YR 10YR Since Inception Inception Date
7.40% -0.30% 8.36% N.A. 7.12% 04/30/2015

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 1.24%

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. Matthews Emerging Markets Sustainable Future Fund’s consideration of ESG factors in making its investment decisions may impact the Fund’s relative investment performance positively or negatively.

 

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.