TOP

Matthews Japan Fund MJFOX

Snapshot
  • High-conviction growth strategy seeks alpha in Japan
  • Unconstrained all-cap approach seeking Japanese companies positioned to benefit from Asia's growth
  • Invests in companies leveraged to the fast growing consumer demand across Asia, global industry leaders and entrepreneurial companies providing innovative domestic solutions

12/31/1998

Inception Date

-11.27%

YTD Return

(as of 01/26/2022)

$19.60

Price

(as of 01/26/2022)

$1.54 billion

Fund Assets

(as of 12/31/2021)

Objective

Long-term capital appreciation

Strategy

Under normal circumstances, the Matthews Japan 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 located in Japan. The Fund seeks to invest in companies capable of sustainable growth based on the fundamental characteristics of those companies, including balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health.

Risks

Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.

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

Fund Facts
Inception Date 12/31/1998
Fund Assets $1.54 billion (12/31/2021)
Currency USD
Ticker MJFOX
Cusip 577-130-800
Portfolio Turnover 62.0%
Benchmark MSCI Japan Index
Geographic Focus Japan
Fees & Expenses
Gross Expense Ratio 0.95%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
  • data_graph_selected Created with Sketch.
  • bar_graph_selected Created with Sketch.
As of 12/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund
MJFOX
-0.07% -1.30% -1.92% -1.92% 17.09% 11.27% 11.34% 6.78% 12/31/1998
MSCI Japan Index
1.91% -3.94% 2.04% 2.04% 12.08% 8.89% 8.67% 4.19%
As of 12/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund
MJFOX
-0.07% -1.30% -1.92% -1.92% 17.09% 11.27% 11.34% 6.78% 12/31/1998
MSCI Japan Index
1.91% -3.94% 2.04% 2.04% 12.08% 8.89% 8.67% 4.19%
For the years ended December 31st
Name 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
Matthews Japan Fund
MJFOX
-1.92% 29.82% 26.08% -20.18% 33.14% 0.40% 20.83% -2.60% 34.03% 8.32%
MSCI Japan Index
2.04% 14.91% 20.07% -12.58% 24.39% 2.73% 9.90% -3.72% 27.35% 8.36%

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 12/31/2021)

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 33 funds
  • 3 YEAR
  • out of 33 funds
  • 5 YEAR
  • out of 27 funds
  • 10 YEAR
  • out of 21 funds
  • 1 YEAR
  • 3rd
  • 25 out of 34 funds
  • 3 YEAR
  • 1st
  • 6 out of 32 funds
  • 5 YEAR
  • 2nd
  • 11 out of 26 funds
  • 10 YEAR
  • 2nd
  • 7 out of 20 funds
  • SINCE INCEPTION
  • 1st
  • 2 out of 7 funds

Ratings agency calculation methodology

Portfolio Managers

Taizo  Ishida photo
Taizo Ishida

Lead Manager

Shuntaro  Takeuchi photo
Shuntaro Takeuchi

Lead Manager

Portfolio Characteristics

(as of 12/31/2021)
Fund Benchmark
Number of Positions 52 259
Weighted Average Market Cap $48.0 billion $57.3 billion
Active Share 69.7 n.a.
P/E using FY1 estimates 21.0x 14.6x
P/E using FY2 estimates 19.0x 13.7x
Price/Cash Flow 15.1 11.3
Price/Book 2.3 1.4
Return On Equity 11.8 11.0
EPS Growth (3 Yr) 10.2% -5.1%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 12/31/2021)
6.50%
Alpha
0.83
Beta
100.01%
Upside Capture
67.56%
Downside Capture
1.20
Sharpe Ratio
0.69
Information Ratio
7.26%
Tracking Error
73.84

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 12/31/2021)
Name Sector % Net Assets
Sony Group Corp. Consumer Discretionary 5.6
Toyota Motor Corp. Consumer Discretionary 4.3
Shin-Etsu Chemical Co., Ltd. Materials 4.3
ORIX Corp. Financials 3.9
Olympus Corp. Health Care 3.4
Recruit Holdings Co., Ltd. Industrials 3.2
JSR Corp. Materials 3.2
Toyota Industries Corp. Industrials 3.0
Keyence Corp. Information Technology 2.8
Terumo Corp. Health Care 2.7
TOTAL 36.4

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 12/31/2021)
  • Sector Allocation
  • Market Cap Exposure

Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.

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)
12/14/2021 12/15/2021 $0.23596 $0.32236 $2.18705 $2.74537 11.1% N.A.
12/15/2020 12/16/2020 $0.13240 $0.00000 $2.43277 $2.56517 10.5% 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, 2021

For the year ending December 31, 2021, the Matthews Japan Fund returned -1.92% (Investor Class) and -1.83% (Institutional Class), while its benchmark, the MSCI Japan Index, returned 2.04% over the same period. For the fourth quarter of the year, the Fund returned -1.30% (Investor Class) and -1.28% (Institutional Class), while the benchmark returned -3.94%.

Market Environment:

Japan’s equity markets lagged their global developed-market peers in 2021. While the U.S. and Europe enjoyed rising economic activity as their vaccination ratio increased, Japan initially lagged in the start of its vaccination efforts, and continued its state of emergency status even after its vaccination ratio surpassed most developed market countries. As a result, Japan’s domestic GDP growth remained at recessionary levels throughout 2021. During the year, Japan growth stocks were not able to reverse the performance gap created by the growth-to-value reversal rally which happened in early 2021.

Performance Contributors and Detractors:

From a sector perspective, stock selection in the information technology sector was the largest drag on relative performance. On the other hand, our holdings in the materials and consumer staples sectors were the top contributors to relative performance.

Turning to individual securities, the largest detractor from absolute performance was Softbank Group, a telecom and venture capital firm. Softbank’s share price struggled amid stagnant performance of its IPOs. Additionally, global investors’ general risk-off stance with respect to China in 2021 weighed on sentiment as the Group has investments in key Chinese growth companies.

Electronic component maker TDK was also a detractor. While the company continues to be a dominant supplier of small- to mid-sized batteries via its core lithium polymer battery manufacturer subsidiary Amperex Technology, TDK’s near-term earnings were slowing down due to weaker-than-expected demand for personal computers and smartphones. TDK’s increased investment in its mid-size battery expansion was also viewed likely to weigh on margins.

On the other hand, leading HR and media marketing solutions provider Recruit Holdings was the largest contributor to absolute return during the year. The company has been a beneficiary of the reopening of economic activity, and its crown jewel HR Technology companies (Indeed, Inc. and Glassdoor, Inc.) guided for 40%-50% topline growth for the current fiscal year, buoying the company’s stock price during the period.

Technology conglomerate Sony Group was another major contributor to performance. In the current era where many key media types such as motion pictures, music and games are consumed via digital downloads, Sony’s value as a key Intellectual Property (IP) holder has significantly increased in our view. Sony's current management is being proactive in securing IP assets via mergers and acquisitions as well, which we view as a prudent allocation decision in incremental capital investment.

Notable Portfolio Changes:

Our portfolio actions during the year were a continuation of efforts to increase our exposure to cyclical growth companies as economic activity started to bottom out and improve. We initiated a position in Toyota Motor Corp. early in 2021, our first allocation since early 2017. The company is viewed as a laggard in the shift to electric vehicles (EVs), and has underperformed global original equipment manufacturer (OEM) peers over the past year. However, we believe Toyota is ahead of peers in terms of vehicle electrification technology, and we anticipate the company will launch key EV models going forward. In May, the company announced it expects to sell approximately 8 million EVs on a global basis by 2030, of which 2 million will be battery-powered EVs and fuel cell EVs, which was later increased to 3.5 million units.

While our significant underweight to the consumer staples sector was a contributor to relative performance in 2021, we have started to increase our weight in this area given that current valuations have become attractive as a result of the stagnant consumption environment in Japan over the past year. In the fourth quarter of 2021, we initiated a position in Seven & i Holdings Co., which owns 7-Eleven convenience stores in both the U.S. and Japan, as well as Japanese supermarket chain Ito-Yokado. We believe its acquisition of U.S. gas station chain Speedway has ample room for synergies and can be a future growth driver of the company’s overall profits.

To fund these positions and other new names, we exited NIDEC Corp., Pan Pacific International Holdings, Nitori Holdings Co., PeptiDream Inc., TDK Corp., Tokyo Century Corp., freee KK, and Hikari Tsushin Inc. during the fourth quarter.

Outlook:

After a very favorable environment for growth stocks in 2019 and 2020, during 2021 Japanese equities experienced a strong growth-to-value reversal, with global central banks starting to tighten their loose monetary policies. The Bank of Japan, which has financed large ETF purchases over the past four to five years, has significantly pulled back the pace of purchases. Matthews Japan Fund is a quality core growth portfolio with focus on high return on assets and invested capital, cash flow generation and medium term (36months) earnings momentum. As a result, our portfolio companies naturally tend to trade at a premium valuation to overall market average, and is vulnerable to a sudden change in equity risk, which tends to happen during a rapid rise in bond yields. Nearly all of our underperformance versus the benchmark during the year happened in a matter of six weeks, when the U.S. 10-year bond yield moved from 1.0% to 1.6% during the period. Since then, the Fund has outperformed the benchmark for the remaining nine months, amid the ongoing performance gap between growth and value.

Looking ahead to 2022, our base-case scenario remains that the global economy will continue its path to recovery towards pre-COVID levels and bond yields to normalize. Therefore, we have continued to shift our portfolio towards a cyclical earnings recovery.

From a structural point of view, we continue to believe the earnings capability of Japanese companies has improved meaningfully over the past economic cycle, driven by better corporate governance and a higher focus on capital efficiency. Multiyear trends such as productivity growth, health care, technology and materials science innovation—where Japanese corporations have historically excelled versus global peers—not only remains intact, but we think the pace of change will accelerate as the COVID-19 situation became the stress test on the health care system and costs, as well as labor productivity issues in white collar jobs as more people work remotely. In our opinion, this creates opportunities for attractive alpha generation through bottom-up, active stock selection.

As of December 31, 2021, the securities mentioned comprised the Matthews Japan Fund in the following percentages: SoftBank Group Corp., 1.4%; Recruit Holdings, 3.2%; Sony Group Corp., 5.6%; Toyota Motor Corp., 4.3%; and Seven and i Holdings Co., 1.5%. The Fund held no positions in: Amperex Technology, Indeed, Inc., Glassdoor, Inc., 7-Eleven, Inc., Ito-Yokado Co., Speedway, NIDEC Corp., Pan Pacific International Holdings, Nitori Holdings Co., PeptiDream, Inc., TDK Corp., Tokyo Century, freee KK, and Hikari Tsushin.

Current and future holdings are subject to change and risk.

 

Average Annual Total Returns - MJFOX as of 12/31/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
-1.92% 17.09% 11.27% 11.34% 6.78% 12/31/1998

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 0.95%

Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.

 

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.