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Global Emerging Markets

Matthews Emerging Markets Small Companies Fund MSMLX

The Fund's name changed from the Matthews Asia Small Companies Fund to the Matthews Emerging Markets Small Companies Fund on April 30 2021.

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

-7.89%

YTD Return

(as of 01/26/2022)

$27.56

Price

(as of 01/26/2022)

$398.01 million

Fund Assets

(as of 12/31/2021)

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 $398.01 million (12/31/2021)
Currency USD
Ticker MSMLX
Cusip 577-125-206
Portfolio Turnover 111.9%
Benchmark MSCI Emerging Markets Small Cap Index MSCI All Country Asia ex Japan 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 1.67%
Net Expense Ratio 1.40%

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 Emerging Markets Small Companies Fund
MSMLX
-2.16% 1.74% 22.14% 22.14% 27.24% 17.13% 11.28% 12.97% 09/15/2008
MSCI Emerging Markets Small Cap Index
4.27% 1.48% 19.29% 19.29% 16.92% 11.88% 7.78% 8.15%
MSCI All Country Asia ex Japan Small Cap Index
3.65% 2.68% 21.23% 21.23% 18.20% 12.45% 8.68% 8.82%
As of 12/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Small Companies Fund
MSMLX
-2.16% 1.74% 22.14% 22.14% 27.24% 17.13% 11.28% 12.97% 09/15/2008
MSCI Emerging Markets Small Cap Index
4.27% 1.48% 19.29% 19.29% 16.92% 11.88% 7.78% 8.15%
MSCI All Country Asia ex Japan Small Cap Index
3.65% 2.68% 21.23% 21.23% 18.20% 12.45% 8.68% 8.82%
For the years ended December 31st
Name 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
Matthews Emerging Markets Small Companies Fund
MSMLX
22.14% 43.68% 17.38% -18.05% 30.59% -1.44% -9.43% 11.39% 7.19% 23.92%
MSCI Emerging Markets Small Cap Index
19.29% 19.72% 11.93% -18.30% 34.22% 2.56% -6.57% 1.34% 1.35% 22.60%
MSCI All Country Asia ex Japan Small Cap Index
21.23% 26.60% 7.58% -18.63% 33.84% -2.05% -3.28% 2.56% 7.16% 22.76%

Effective April 30, 2021, 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 Small Cap Index to the MSCI Emerging Markets Small Cap Index.

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 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$.

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)

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 52 funds
  • 3 YEAR
  • out of 52 funds
  • 5 YEAR
  • out of 45 funds
  • 10 YEAR
  • out of 32 funds
  • 1 YEAR
  • 1st
  • 16 out of 764 funds
  • 3 YEAR
  • 1st
  • 14 out of 694 funds
  • 5 YEAR
  • 1st
  • 22 out of 590 funds
  • 10 YEAR
  • 1st
  • 8 out of 330 funds
  • SINCE INCEPTION
  • 1st
  • 1 out of 206 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 12/31/2021)
Fund Benchmark
Number of Positions 64 1,793
Weighted Average Market Cap $5.3 billion $2.0 billion
Active Share 98.0 n.a.
P/E using FY1 estimates 24.4x 12.4x
P/E using FY2 estimates 18.4x 11.8x
Price/Cash Flow 19.8 5.6
Price/Book 3.3 1.7
Return On Equity 11.2 10.7
EPS Growth (3 Yr) -1.4% -4.2%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 12/31/2021)
13.22%
Alpha
0.74
Beta
94.97%
Upside Capture
56.37%
Downside Capture
1.33
Sharpe Ratio
0.83
Information Ratio
12.39%
Tracking Error
69.20

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 12/31/2021)
Name Sector Country % Net Assets
Silergy Corp. Information Technology China/Hong Kong 7.5
Shriram City Union Finance, Ltd. Financials India 5.5
Ecopro BM Co., Ltd. Industrials South Korea 5.0
Ginlong Technologies Co., Ltd. Industrials China/Hong Kong 4.9
Phoenix Mills, Ltd. Real Estate India 3.4
Mobile World Investment Corp. Consumer Discretionary Vietnam 3.0
Military Commercial Joint Stock Bank Financials Vietnam 3.0
Hugel, Inc. Health Care South Korea 2.9
Formosa Sumco Technology Corp. Information Technology Taiwan 2.6
Airtac International Group Industrials China/Hong Kong 2.6
TOTAL 40.4

 

Top 10 holdings may combine more than one security from the same issuer and related depositary receipts.
Source: BNY Mellon Investment Servicing (US) Inc.

Matthews Emerging Markets Small Companies Fund Composition as of April 30 2021 Matthews Emerging Markets Small Companies Fund Composition

Portfolio Breakdown (%)

(as of 12/31/2021)
  • Sector Allocation
  • Country Allocation
  • Market Cap Exposure

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

Not all countries are included in the benchmark index(es).

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.

Portfolio Breakdown benchmark reflects the MSCI Emerging Markets Small Cap Index as of 12/31/21.

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 $0.00000 $1.52123 $0.22299 $1.74422 5.5% N.A.
12/15/2020 12/16/2020 $0.05487 $0.00000 $0.01710 $0.07197 0.3% 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, 2021

As of April 30 2021, Matthews Asia Small Companies Fund name has been changed to the Matthews Emerging Markets Small Companies Fund

For the year ending December 31, 2021, the Matthews Emerging Markets Small Companies Fund returned 22.14% (Investor Class) and 22.39% (Institutional Class), while its benchmark, the MSCI Emerging Markets Small Cap Index, returned 19.29% over the same period. For the fourth quarter of the year, the Fund returned 3.10% (Investor Class) and 3.20% (Institutional Class), while the benchmark returned -0.55%.

Market Environment:

The emerging markets small cap equity rally took a breather during the second half of 2021, after a strong first half performance. The specter of inflation (driven by supply shortages, especially in semiconductors), shipping bottlenecks, higher energy prices and the emergence of political and regulatory risks in many parts of the emerging markets led to tepid performance during the second half of the year. We have also seen a spate of interest rate hikes across emerging markets, as the previously very accommodative post-COVID-19 monetary policy environment normalizes. Despite these headwinds, emerging market small-cap stocks continued their outperformance compared to large caps, which were disproportionately affected by the regulatory and political risks in countries such as China, Brazil, Chile, Peru and, more recently, in Russia.

During the year, India was by far the best performing equity market, followed by Taiwan, South Africa and United Arab Emirates. On the other hand, Latin American markets like Chile, Colombia, Brazil and Peru were among the worst performing, due to a rise in perceived political and regulatory risks. Among emerging markets, Turkey was the worst performing, weighed down by monetary policy flip-flops and a very weak currency. China was also weak, as the government’s targeted regulatory actions in sectors such as education, internet gaming, social media platforms and ride hailing services gave global investors pause. The Chinese renminbi and Taiwanese dollar were the best performing emerging markets currencies, and the only two emerging markets currencies that appreciated against the U.S dollar in 2021. The Turkish lira and Latin American currencies such as Argentine peso, Chilean peso and Colombian peso were the worst performers.

From a sector perspective, information technology and materials were among the best performers, while health care and real estate were the worst performers.

Performance Contributors and Detractors:

From a country perspective, stock selection in China/Hong Kong and South Korea was the biggest contributor to relative performance during 2021, while our underweight allocation to Brazil and overweight allocations to Vietnam and India also contributed positively. The Fund’s overweight allocation to China was the biggest detractor during the year, followed by stock selection in India and an underweight allocation to Taiwan.

From a sector standpoint, stock selection within industrials and real estate was the biggest positive contributor, while information technology stock selection and our overweight allocation to health care detracted from Fund performance.

Turning to individual securities, Chinese solar inverter manufacturer Ginlong Technologies was among the biggest contributors to relative performance during the year. Ginlong continued to benefit from strong growth in demand for solar power globally, and from distributed solar power in particular. The company’s stock price benefited from its strong performance in both the domestic and overseas markets, including market share gains. Looking ahead, we see strong demand prospects for solar power in 2022, assisted by reduced raw materials pricing pressures in the supply chain, benefiting Ginlong’s commercial, industrial and utility projects as well as its solar power storage inverter business line.

On the other hand, China-based heart and neurovascular device manufacturer Peijia Medical was the biggest detractor during the year, as investors worried about the potential negative effects from volume-based procurement tenders from the government that typically result in price reductions. The stock also suffered from the general sell-off in health care-related names in China during 2021. Peijia Medical continued to execute well on its product pipeline and has received approval for its second-generation TAVR (transcatheter aortic valve replacement) product. We take a favorable view of the company’s innovation capabilities, product pipeline and its ability to actively commercialize its recently approved products.

Notable Portfolio Changes:

During the quarter we initiated a new position in Banco de Credito e Inversiones, a Chilean bank. The bank is the third-largest bank in Chile in terms of loan market share and has been expanding its market share in Chile. The company has a fairly well advanced digital banking strategy through its affiliate digital bank, MACH, which presents another growth opportunity. The stock had sold-off during the overall Chilean market downturn that occurred in the run-up to the Chilean presidential election in December 2021, which presented an attractive entry point.

During the quarter we exited some small positions in the portfolio’s health care holdings such as Remegen, Innocare Pharma and Asymchem Laboratories, redeploying capital elsewhere.

Outlook:

Looking ahead, the U.S. Federal Reserve’s potential interest rate and quantitative tightening policy moves remain perhaps the most important variable to monitor in the near term, with its implications for regional, sector, size, currency and style performance. From a portfolio standpoint, we will look to maintain a balance between growth and value exposure in the portfolio, while staying broadly diversified across sectors and countries.

In our view, earnings growth will likely moderate in 2022 after a very strong 2021, but we still expect good economic momentum, potentially led by China as the year progresses, and also supported by a continued cyclical recovery. We believe current valuations also appear supportive of emerging markets small cap equities.

Across the region we see sufficient liquidity but we continue to be vigilant about the Fed’s policy actions and its potential implications for emerging markets and their currencies. While we have not seen as much uptake in credit, any pick up in credit issuance should further support economic growth. In many parts of emerging markets, COVID-19 vaccination programs are progressing well and provide hope for economic activity normalization in the coming quarters.

 

As of December 31, 2021, the securities mentioned comprised the Matthews Emerging Markets Small Companies Fund in the following percentages: Ginlong Technologies, 4.9%; Peijia Medical, 1.3%; and Banco de Credito e Inversiones, 0.4%. The Fund held no positions in MACH, Remegen, Innocare Pharma and Asymchem Laboratories.

Current and future holdings are subject to change and risk.

Investing in small- and mid-size companies is more risky than investing in large companies as they may be more volatile and less liquid than larger companies.

Earnings growth is not representative of the Fund’s future performance.

 

Average Annual Total Returns - MSMLX as of 12/31/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
22.14% 27.24% 17.13% 11.28% 12.97% 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 1.67%
Net Expense Ratio 1.40%

Matthews has contractually agreed to waive fees and reimburse expenses to limit the Total Annual Fund Operating Expenses until April 30, 2022. 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.