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Asia Growth

Matthews Korea Fund MAKOX

Snapshot
  • Unconstrained all cap strategy focused on secular growth opportunities in Korea
  • Fundamental bottom-up approach seeks companies with sustainable business models, strong governance and improving competitive advantages against global peers
  • Highly-differentiated portfolio offers exposure to new economy growth drivers overlooked by index

01/03/1995

Inception Date

-7.37%

YTD Return

(as of 01/26/2022)

$5.28

Price

(as of 01/26/2022)

$132.94 million

Fund Assets

(as of 12/31/2021)

Objective

Long-term capital appreciation

Strategy

Under normal circumstances, the Matthews Korea 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 South Korea. 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. Investing in emerging markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. 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 01/03/1995
Fund Assets $132.94 million (12/31/2021)
Currency USD
Ticker MAKOX
Cusip 577-130-305
Portfolio Turnover 39.6%
Benchmark Korea Composite Stock Price Index
Geographic Focus South Korea
Fees & Expenses
Gross Expense Ratio 1.19%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 12/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Korea Fund
MAKOX
6.64% 1.16% -0.33% -0.33% 13.35% 10.24% 9.06% 6.51% 01/03/1995
Korea Composite Stock Price Index
4.29% -3.44% -4.79% -4.79% 12.77% 10.22% 6.40% 4.07%
As of 12/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Korea Fund
MAKOX
6.64% 1.16% -0.33% -0.33% 13.35% 10.24% 9.06% 6.51% 01/03/1995
Korea Composite Stock Price Index
4.29% -3.44% -4.79% -4.79% 12.77% 10.22% 6.40% 4.07%
For the years ended December 31st
Name 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
Matthews Korea Fund
MAKOX
-0.33% 40.77% 3.80% -22.21% 43.70% -6.32% 15.16% -0.73% 10.11% 24.05%
Korea Composite Stock Price Index
-4.79% 39.76% 4.46% -20.07% 37.71% 0.98% -4.61% -8.30% 2.90% 18.54%

KOSPI performance data may be readjusted periodically by the Korea Exchange due to certain factors, including the declaration of dividends.

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.

Due to current market volatility associated with the COVID-19 pandemic, funds may experience significant negative short-term performance.

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

  • 1 YEAR
  • 1st
  • 6 out of 33 funds
  • 3 YEAR
  • 2nd
  • 15 out of 33 funds
  • 5 YEAR
  • 3rd
  • 17 out of 27 funds
  • 10 YEAR
  • 1st
  • 5 out of 19 funds
  • SINCE INCEPTION
  • 2nd
  • 3 out of 6 funds

Ratings agency calculation methodology

Portfolio Managers

Michael J. Oh, CFA photo
Michael J. Oh, CFA

Lead Manager

Elli  Lee photo
Elli Lee

Co-Manager

Portfolio Characteristics

(as of 12/31/2021)
Fund Benchmark
Number of Positions 33 818
Weighted Average Market Cap $126.2 billion $112.8 billion
Active Share 69.8 n.a.
P/E using FY1 estimates 9.1x n.a.
P/E using FY2 estimates 9.3x n.a.
Price/Cash Flow 6.1 5.7
Price/Book 1.2 1.1
Return On Equity 9.5 7.3
EPS Growth (3 Yr) -13.8% -25.4%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 12/31/2021)
1.87%
Alpha
0.86
Beta
90.22%
Upside Capture
90.16%
Downside Capture
0.61
Sharpe Ratio
0.10
Information Ratio
5.72%
Tracking Error
94.51

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 12/31/2021)
Name Sector % Net Assets
Samsung Electronics Co., Ltd., Pfd. Information Technology 17.4
Samsung Electronics Co., Ltd. Information Technology 6.7
SK Hynix, Inc. Information Technology 6.4
KB Financial Group, Inc. Financials 4.6
Hana Materials, Inc. Information Technology 4.0
Shinhan Financial Group Co., Ltd. Financials 4.0
Kia Corp. Consumer Discretionary 3.7
Hyundai Motor Co., Ltd., Pfd. Consumer Discretionary 3.5
Hana Financial Group, Inc. Financials 3.3
LG Household & Health Care, Ltd., Pfd. Consumer Staples 3.2
TOTAL 56.8

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 12/31/2021)
  • 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 $0.09958 $0.19449 $0.10513 $0.39920 6.6% N.A.
12/15/2020 12/16/2020 $0.04356 $0.00000 $0.00000 $0.04356 0.7% 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 Korea Fund returned -0.33% (Investor Class) and -0.16% (Institutional Class), while its benchmark, the Korea Composite Stock Price Index (KOSPI), returned -4.79% over the same period. For the fourth quarter of the year, the Fund returned 1.16% (Investor Class) and 1.15% (Institutional Class), while the benchmark returned -3.44%.

Market Environment:

Strong upside momentum from 2020 buoyed South Korean equities into the first half of the year, with the KOSPI peaking in July, but the market finally cooled during the second half of the year. The combination of low valuations, a rebound in earnings and a cyclical bounce that propelled the market higher were offset by rising interest rates, slowing global growth, and a clampdown on household borrowing.

The information technology sector, the largest sector in the economy, was hit by a global chip shortage, weighing the export heavy market. Concerns over expensive stock valuations also prompted large institutional investors such as the country’s national pension fund and foreign investors to take profits, pushing the market lower.

We believe that most major emerging economies, particularly Korea, are ahead-of-the-curve in terms of tightening liquidity and raising rates which should support equity valuations going forward.

Performance Contributors and Detractors:

The Fund’s allocation and stock selection within information technology and communications services sectors contributed the most to the Fund’s relative performance for the full year. Among individual stocks, Hana Materials, a manufacturer and supplier of silicon materials for semiconductor products was among the top contributors. Hana Materials quickly gained market share over the course of the year by enhancing customer service, innovating their product line and meeting the demand for localization while diversifying its customer base and revenue streams. KB Financial Group, one of South Korea’s largest banks, was another significant contributor to absolute performance. KB Financial has seen improving earnings accompanied by historically low valuations. With credit costs well controlled and interest rates stable, we believe there is room for net interest income to improve.

On the other hand, the Fund’s allocation and stock selection within materials and consumer staples sectors detracted the most from performance. LG Chem, the largest Korean chemical company, was a notable detractor to performance. Traditionally considered a petrochemical business, LG Chem has been aggressively investing in its electric vehicle (EV) battery business over the last several years. The stock suffered due to its lithium-ion storage battery recalls. LG Chem recognized the recall costs and spun off its battery business to a large Chinese player. However, we are comfortable with LG Chem’s remaining businesses and believe the company’s earnings will continue to be robust as its customer base gains momentum outside the Chinese market. Samsung Electronics, a multinational electronics manufacturer that is a world leader in smartphones and various components such as lithium-ion batteries, PC memory chips, image sensors and displays, was a detractor to absolute performance. Despite enjoying both solid PC memory prices and demand, investors’ concern about potential memory demand deterioration from the fourth quarter of 2021 into 2022 weighed on the stock. We believe Samsung Electronics is trading at an attractive valuation, and improving capital management practices such as improved shareholder policies along with sensible mergers and acquisitions may rerate the stock.

Notable Portfolio Changes:

During the quarter, we initiated a position in Mando Corporation, a fast-growing automobile parts manufacturer and supplier. Mando spent significant research and development (R&D) dollars developing cutting edge software for electronic vehicles, specifically targeting the growing Chinese market. While the sector was hit by chip shortages, we believe moving forward the market will normalize and Mando will be able to take advantage of a growing customer base and be the beneficiary of improved earnings.

We exited our position in K Car, an online used car retailer. After participating in the IPO, the stock price doubled, exceeding our expectations. We took a profit and sold our position as we believe the company’s valuation now looks expensive. We maintain a positive view of K Car and will be closely monitoring the company, tactically reinitiating a position if warranted.

Outlook:

South Korea has yet to see a boom in consumption, but looking ahead, we anticipate it will gradually improve during the coming year. Higher vaccination rates and potentially more fiscal stimulus after the presidential election in March should also boost growth. The ruling progressive party’s candidate leans left supporting more social spending and fiscal expansion while the main conservative party candidate favors lower interest rates and growth of the private sector. Both candidates seem to support structural reform, deregulation and the promotion of green industries.

We remain focused on active security selection, concentrating on groundbreaking companies we believe are positioned to benefit from strong cash flows and the global recovery. We continue to look for companies that can benefit from domestic consumption, as well as South Korean companies effectively competing and innovating in global markets. We are confident the pioneering companies we’ve invested in will continue to show improved cash flows and long-term growth potential.

 

As of Dec 31, 2021, the securities mentioned comprised the Matthews Korea Fund in the following percentages: Samsung Electronics 17.4%, KB Financial Group 4.6%, Hana Materials 4%, LG Chem 3.1%, Mando Corporation 1%.

Current and future holdings are subject to change and risk.

 

 

 

Average Annual Total Returns - MAKOX as of 12/31/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
-0.33% 13.35% 10.24% 9.06% 6.51% 01/03/1995

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 1.19%

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. Investing in emerging markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. 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.