Overall Morningstar RatingTM (As of 03/31/2023)
Based on risk-adjusted return among 22 funds in the India Equity Category
MutualFund
Snapshot
Unconstrained all-cap strategy focused on companies with a sustainable competitive edge and pricing power, which are able to perform throughout economic cycles
Fundamental bottom-up approach to seek well-run entrepreneurial companies with sustainable organic growth and trustworthy managements
Bias toward businesses that cater to rising domestic consumer demand and to policy-independent sectors
Under normal circumstances, the Matthews India Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in publicly traded common stocks, preferred stocks and convertible securities of companies located in India. 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.
S&P Bombay Stock Exchange 100 Index
MSCI India Index
Geographic Focus
India
Fees & Expenses
Gross Expense Ratio
1.15%
Objective
Long-term capital appreciation
Strategy
Under normal circumstances, the Matthews India Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in publicly traded common stocks, preferred stocks and convertible securities of companies located in India. 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.
The risks associated with investing in the Fund can be found in the prospectus
Performance
Monthly
Quarterly
Calendar Year
As of 05/31/2023
Average Annual Total Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews India Fund - MINDX
10/31/2005
MINDX
3.19%
8.17%
5.48%
5.96%
20.11%
3.31%
9.21%
9.67%
S&P Bombay Stock Exchange 100 Index
2.30%
8.15%
3.24%
6.49%
22.86%
8.32%
9.50%
10.08%
MSCI India Index
2.96%
8.52%
0.52%
2.19%
20.62%
7.83%
7.77%
8.93%
As of 03/31/2023
Average Annual Total Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews India Fund - MINDX
10/31/2005
MINDX
1.11%
-1.40%
-1.40%
-6.40%
21.85%
2.26%
8.79%
9.34%
S&P Bombay Stock Exchange 100 Index
1.00%
-3.59%
-3.59%
-6.93%
24.59%
7.22%
8.96%
9.75%
MSCI India Index
1.17%
-6.29%
-6.29%
-11.71%
22.73%
6.40%
7.13%
8.58%
For the years ended December 31st
Name
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
Matthews India Fund - MINDX
MINDX
-9.92%
18.11%
16.45%
-0.88%
-10.09%
35.79%
-1.23%
0.90%
63.71%
-5.90%
S&P Bombay Stock Exchange 100 Index
-4.53%
24.08%
13.92%
8.53%
-6.00%
41.88%
2.32%
-6.41%
31.40%
-4.70%
Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.
MSCI and MICM are the sources of MSCI India Index performance data.
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 $10,000 Investment Since Inception
(as of 03/31/2023)
Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.
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.
Past performance is no guarantee of future results. High ratings and rankings does not assure favorable performance.
The Overall Morningstar® Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and (if applicable) ten-year ratings.
Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.
Lipper Analytical Services, Inc., rankings are based on total return, including reinvestment of dividends and capital gains for the stated periods. Funds are assigned a rank within a universe of funds similar in investment objective as determined by Lipper. For the absolute rankings shown the lower the number rank, the better the Fund performed compared to other funds in the classification group. Lipper also calculates a quartile ranking which divides the peer group into quartiles to identify funds of similar quality. Funds in the 1st or 2nd quartile had outperformed the average fund in the peer group while funds in the 3rd or 4th quartile had underperformed.
Peeyush Mittal is a Portfolio Manager at Matthews and manages the firm’s India Strategy and co-manages the Emerging Markets Equity, Emerging Markets ex China and Asia Growth Strategies. Prior to joining the Matthews in 2015, he spent over three years at Franklin Templeton Asset Management India, most recently as a Senior Research Analyst. Previously, he was with Deutsche Asset & Wealth Management New York, from 2009 to 2011, researching U.S. and European stocks in the industrials and materials sectors. Peeyush began his career in 2003 with Scot Forge as an Industrial Engineer, and was responsible for implementing Lean Manufacturing systems on the production shop floor. Peeyush earned his M.B.A from The University of Chicago Booth School of Business. He received a Master of Science in Industrial Engineering from The Ohio State University and received a Bachelor of Technology in Metallurgical Engineering from The Indian Institute of Technology Madras. He is fluent in Hindi.
Sharat Shroff is a Portfolio Manager at Matthews and manages the firm’s Pacific Tiger and Asia ex Japan Total Return Equity Strategies and co-manages the India Strategy. Prior to joining Matthews in 2005, Sharat worked in the San Francisco and Hong Kong offices of Morgan Stanley as an Equity Research Associate. Sharat received a Bachelor of Technology from the Institute of Technology in Varanasi, India and an MBA from the Indian Institute of Management, in Calcutta, India. He is fluent in Hindi and Bengali.
Portfolio Characteristics
(as of 03/31/2023)
Fund
Benchmark
Number of Positions
48
101
Weighted Average Market Cap
$42.7 billion
$60.4 billion
Active Share
51.9
n.a.
P/E using FY1 estimates
23.5x
21.8x
P/E using FY2 estimates
19.5x
18.4x
Price/Cash Flow
n.a.
14.2
Price/Book
3.8
3.2
Return On Equity
17.8
18.2
EPS Growth (3 Yr)
15.2%
22.7%
Sources: Factset Research Systems, Inc.
Risk Metrics (3 Yr Return)
(as of 03/31/2023)
Category
3YR Return Metric
Alpha
0.85%
Beta
0.85
Upside Capture
77.74%
Downside Capture
76.08%
Sharpe Ratio
1.26
Information Ratio
-0.5
Tracking Error
5.49%
R²
92.12
0.85%
Alpha
0.85
Beta
77.74%
Upside Capture
76.08%
Downside Capture
1.26
Sharpe Ratio
-0.50
Information Ratio
5.49%
Tracking Error
92.12
R²
Fund Risk Metrics are reflective of Investor share class.
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
Market Cap Exposure
Sector
Fund
Benchmark
Difference
Financials
35.0
35.3
-0.3
Information Technology
14.4
13.0
1.4
Consumer Discretionary
11.4
7.5
3.9
Consumer Staples
10.7
10.0
0.7
Materials
7.7
8.0
-0.3
Health Care
7.4
3.6
3.8
Industrials
6.9
5.9
1.0
Energy
2.7
10.9
-8.2
Communication Services
0.0
2.7
-2.7
Utilities
0.0
2.6
-2.6
Real Estate
0.0
0.4
-0.4
Cash and Other Assets, Less Liabilities
3.9
0.0
3.9
Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.
Equity market cap of issuer
Fund
Benchmark
Difference
Mega Cap (over $25B)
48.8
67.2
-18.4
Large Cap ($10B-$25B)
12.4
18.9
-6.5
Mid Cap ($3B-$10B)
21.8
13.3
8.5
Small Cap (under $3B)
13.2
0.6
12.6
Cash and Other Assets, Less Liabilities
3.9
0.0
3.9
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.
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.
For the quarter ending March 31, 2023, the Matthews India Fund returned -1.40% (Investor Class) and -1.33% (Institutional Class), while its benchmark, the S&P Bombay Stock Exchange 100 Index returned -3.59%.
Market Environment:
After 15 months of continuous monetary policy hikes, it seems the central banks are finally beginning to see the intended impact on inflationary headwinds globally. Consumer price inflation reported in the U.S. and in India for the month of March were better than expectations, and it came as no surprise that the Reserve Bank of India decided against further raising rates in its most recent monetary policy meeting. Despite the pause from the central bank, it would be foolhardy to arrive at a conclusion that there might not be further rate hikes.
March’s unseasonal rain along with prediction of El Nino during monsoon months suggest that India’s agricultural output will likely be challenging for the next 12 months which potentially can lead to higher food inflation in coming months. To complicate matters, OPEC (Organization of the Petroleum Exporting Countries) seems determined to see higher oil prices which again implies higher food inflation—which have historically been correlated in India. We are also beginning to gradually see the impact of global slowdown on Indian economy with year-on-year exports declining in the last few months. This coupled with slowdown in consumption in rural India and slowing auto sales has meant that Gross Domestic Product (GDP) growth has been coming down.
India’s government unveiled its budget for fiscal year 2023-2024, with a dramatic increase in infrastructure spending. This bodes well for GDP growth as the spending will likely create more jobs at the bottom of the pyramid.
On the bright side, Indian financial system continues to be resilient. Regional bank failures in the U.S highlighted the prudency that banking regulators in India have demonstrated over the year with respect to uniform guidelines for liquidity regardless of the size of bank. The saga of Adani Group over last three months also highlighted the good work India’s regulators have done with respect to limiting individual group exposure on a particular bank.
Performance Contributors and Detractors:
At the sectoral level, our underweight in energy was the biggest contributor to the Fund’s relative performance. Additionally, our stock selection within industrials, health care and material sectors contributed to the Fund’s relative performance. However, our underweight in utilities and our stock selection within consumer staples detracted from performance.
At individual holdings level, APL Apollo Tubes and Poly Medicure were among the top contributors to Fund performance. APL Apollo Tubes is the largest manufacturer of steel tubes used for construction in India. Its scale, distribution, and spread of stock keeping units (SKUs) are its biggest competitive advantage. APL Apollo recently launched new, innovative products for the first time which aim to bring down the construction time of any building and, in turn, create economic benefit for project owners. Poly Medicure is a medical products company with a predominant portion of its revenues coming from consumables used in health care. Poly Medicure is benefiting from a structural trend in India away from imported medical products in favor of domestically manufactured products.
Conversely, our holdings in Restaurant Brands Asia and in IndusInd Bank negatively impacted our performance. Restaurant Brands is a franchisee of Burger King in India. While there is tremendous opportunity for growth both in terms of same store sales and network expansion, its growth in the last quarter lagged investor expectations. Further, there is a fear that the private equity owner of Restaurant Brands is looking to exit which didn’t bode well for its price performance. IndusInd Bank didn’t perform well on the back of news flow around regional bank failures in the U.S. IndusInd Bank has a relatively weaker deposit franchise compared to its peers so in times of liquidity concerns, it does have a negative impact on IndusInd’s performance.
Notable Portfolio Changes:
We continued to reduce the number of holdings in the portfolio during the quarter and exited several positions, including Delhivery. Delhivery is a logistics services provider and is a new-age technology company with strong growth prospects. While logistics continues to be an exciting space, Delhivery seems to be struggling with internal execution issues. To further compound the problems our interaction with the company suggested that management was unwilling to acknowledge the issues it is facing and seemed to be haughty about its positioning in the market as provider of last resort. Given the lofty valuation, we decided to exit the stock. We also exited Laurus Labs which is one of the largest application programming interfaces (API) manufacturer in India. While Laurus Labs has done well in terms of growing the business, our decision to exit was predicated on the company expanding into too many adjacencies too fast. Given the highly regulated nature of pharma API manufacturing, we think such an approach has the potential to jeopardize their internal pharmacovigilance and compliance practices.
We initiated a position in Nestle India. Nestle global is focusing tremendously in growing its India business. The company has committed to bring new lines of product portfolio to India and committed to dramatically increase new investments in India. Further, Nestle India is also pushing its distribution deeper in smaller towns and villages in the country which is leading to faster than industry growth for the company.
Outlook:
We expect global growth to continue to slow through the course of this year on the back of higher interest rates globally. We also think that given the chatter around de-dollarization, the U.S. Federal Reserve will likely raise rates higher for longer to preserve the reserve currency status for the dollar as much as possible, which can potentially push the U.S into recession and also lead to further slowdown in India.
Amid this macro backdrop, we continue to remain excited about growth prospects in India from a longer-term standpoint. The government’s actions over the past few years and its most recent financial budget is resulting in improved infrastructure across the country and signs of the same are beginning to be visible and felt by common citizens of the country. On a recent visit to India, travel from Delhi to Jaipur which on a four-lane highway cut down the travel time from five hours to three hours between the two large cities. Such productivity gains on the back of infrastructure development should attract more global companies to the country and bodes well for India’s long-term export growth prospects.
While we remain cautious for India’s near-term outlook, we are a little less worried compared to three months ago. Indian markets have underperformed over last six months and we have seen some normalization in valuation. Equity risk premium which was signaling extreme ‘caution’ is also not as bad as it was.
Top 10 holdings as of March 31, 2023. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MINDX as of 03/31/2023
1YR
3YR
5YR
10YR
Since Inception
Inception Date
-6.40%
21.85%
2.26%
8.79%
9.34%
10/31/2005
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
1.15%
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.
The MSCI All Country Asia ex Japan Index is a free float–adjusted market capitalization–weighted index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI All Country Asia Pacific Index is a free float–adjusted market capitalization–weighted index of the stock markets of Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Index is a free float-adjusted market capitalization-weighted index of Chinese equities that includes H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges, Hong Kong-listed securities known as Red chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China) and foreign listings (e.g. ADRs).
The MSCI China All Shares Index captures large and mid-cap representation across China A shares, B shares, H shares, Red chips (issued by entities owned by national or local governments in China), P chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g. ADRs). The index aims to reflect the opportunity set of China share classes listed in Hong Kong,Shanghai, Shenzhen and outside of China.
The MSCI Emerging Markets (EM) Asia Index is a free float-adjusted market capitalization weighted index of the stock markets of China, India, Indonesia, Malaysia, Pakistan, Philippines, South Korea, Taiwan and Thailand. The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets ex China Index is a free float-adjusted market capitalization-weighted index that captures large and mid cap representation across 23 of the 24 Emerging Markets (EM) countries excluding China: Brazil, Chile, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets Small Cap Index is a free float-adjusted market capitalization weighted small cap index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungry, India, Indonesia, Kuwait, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan Thailand, Turkey and United Arab Emirates.
The S&P Bombay Stock Exchange 100 (S&P BSE 100) Index is a free float–adjusted market capitalization–weighted index of 100 stocks listed on the Bombay Stock Exchange.
The MSCI Japan Index is a free float–adjusted market capitalization–weighted index of Japanese equities listed in Japan.
The Korea Composite Stock Price Index (KOSPI) is a market capitalization–weighted index of all common stocks listed on the Korea Stock Exchange.
The MSCI All Country Asia ex Japan Small Cap Index is a free float–adjusted market capitalization–weighted small cap index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Small Cap Index is a free float-adjusted market capitalization-weighted small cap index of the Chinese equity securities markets, including H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges,Hong Kong-listed securities known as Red Chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g., ADRs).
The MSCI India Index is a free float-adjusted market capitalization-weighted index of Indian equities listed in India.
The MSCI Korea Index is a free float-adjusted market capitalization-weighted index of Korean equities listed in Korea.
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.
Commentary
Period ended March 31, 2023
For the quarter ending March 31, 2023, the Matthews India Fund returned -1.40% (Investor Class) and -1.33% (Institutional Class), while its benchmark, the S&P Bombay Stock Exchange 100 Index returned -3.59%.
Market Environment:
After 15 months of continuous monetary policy hikes, it seems the central banks are finally beginning to see the intended impact on inflationary headwinds globally. Consumer price inflation reported in the U.S. and in India for the month of March were better than expectations, and it came as no surprise that the Reserve Bank of India decided against further raising rates in its most recent monetary policy meeting. Despite the pause from the central bank, it would be foolhardy to arrive at a conclusion that there might not be further rate hikes.
March’s unseasonal rain along with prediction of El Nino during monsoon months suggest that India’s agricultural output will likely be challenging for the next 12 months which potentially can lead to higher food inflation in coming months. To complicate matters, OPEC (Organization of the Petroleum Exporting Countries) seems determined to see higher oil prices which again implies higher food inflation—which have historically been correlated in India. We are also beginning to gradually see the impact of global slowdown on Indian economy with year-on-year exports declining in the last few months. This coupled with slowdown in consumption in rural India and slowing auto sales has meant that Gross Domestic Product (GDP) growth has been coming down.
India’s government unveiled its budget for fiscal year 2023-2024, with a dramatic increase in infrastructure spending. This bodes well for GDP growth as the spending will likely create more jobs at the bottom of the pyramid.
On the bright side, Indian financial system continues to be resilient. Regional bank failures in the U.S highlighted the prudency that banking regulators in India have demonstrated over the year with respect to uniform guidelines for liquidity regardless of the size of bank. The saga of Adani Group over last three months also highlighted the good work India’s regulators have done with respect to limiting individual group exposure on a particular bank.
Performance Contributors and Detractors:
At the sectoral level, our underweight in energy was the biggest contributor to the Fund’s relative performance. Additionally, our stock selection within industrials, health care and material sectors contributed to the Fund’s relative performance. However, our underweight in utilities and our stock selection within consumer staples detracted from performance.
At individual holdings level, APL Apollo Tubes and Poly Medicure were among the top contributors to Fund performance. APL Apollo Tubes is the largest manufacturer of steel tubes used for construction in India. Its scale, distribution, and spread of stock keeping units (SKUs) are its biggest competitive advantage. APL Apollo recently launched new, innovative products for the first time which aim to bring down the construction time of any building and, in turn, create economic benefit for project owners. Poly Medicure is a medical products company with a predominant portion of its revenues coming from consumables used in health care. Poly Medicure is benefiting from a structural trend in India away from imported medical products in favor of domestically manufactured products.
Conversely, our holdings in Restaurant Brands Asia and in IndusInd Bank negatively impacted our performance. Restaurant Brands is a franchisee of Burger King in India. While there is tremendous opportunity for growth both in terms of same store sales and network expansion, its growth in the last quarter lagged investor expectations. Further, there is a fear that the private equity owner of Restaurant Brands is looking to exit which didn’t bode well for its price performance. IndusInd Bank didn’t perform well on the back of news flow around regional bank failures in the U.S. IndusInd Bank has a relatively weaker deposit franchise compared to its peers so in times of liquidity concerns, it does have a negative impact on IndusInd’s performance.
Notable Portfolio Changes:
We continued to reduce the number of holdings in the portfolio during the quarter and exited several positions, including Delhivery. Delhivery is a logistics services provider and is a new-age technology company with strong growth prospects. While logistics continues to be an exciting space, Delhivery seems to be struggling with internal execution issues. To further compound the problems our interaction with the company suggested that management was unwilling to acknowledge the issues it is facing and seemed to be haughty about its positioning in the market as provider of last resort. Given the lofty valuation, we decided to exit the stock. We also exited Laurus Labs which is one of the largest application programming interfaces (API) manufacturer in India. While Laurus Labs has done well in terms of growing the business, our decision to exit was predicated on the company expanding into too many adjacencies too fast. Given the highly regulated nature of pharma API manufacturing, we think such an approach has the potential to jeopardize their internal pharmacovigilance and compliance practices.
We initiated a position in Nestle India. Nestle global is focusing tremendously in growing its India business. The company has committed to bring new lines of product portfolio to India and committed to dramatically increase new investments in India. Further, Nestle India is also pushing its distribution deeper in smaller towns and villages in the country which is leading to faster than industry growth for the company.
Outlook:
We expect global growth to continue to slow through the course of this year on the back of higher interest rates globally. We also think that given the chatter around de-dollarization, the U.S. Federal Reserve will likely raise rates higher for longer to preserve the reserve currency status for the dollar as much as possible, which can potentially push the U.S into recession and also lead to further slowdown in India.
Amid this macro backdrop, we continue to remain excited about growth prospects in India from a longer-term standpoint. The government’s actions over the past few years and its most recent financial budget is resulting in improved infrastructure across the country and signs of the same are beginning to be visible and felt by common citizens of the country. On a recent visit to India, travel from Delhi to Jaipur which on a four-lane highway cut down the travel time from five hours to three hours between the two large cities. Such productivity gains on the back of infrastructure development should attract more global companies to the country and bodes well for India’s long-term export growth prospects.
While we remain cautious for India’s near-term outlook, we are a little less worried compared to three months ago. Indian markets have underperformed over last six months and we have seen some normalization in valuation. Equity risk premium which was signaling extreme ‘caution’ is also not as bad as it was.
Top 10 holdings as of March 31, 2023. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MINDX as of 03/31/2023
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
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.