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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

4.30%

YTD Return

(as of 03/21/2023)

$15.54

NAV

(as of 03/21/2023)

+0.02

1 Day NAV Change

(as of 03/21/2023)

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 $635.73 million (02/28/2023)
Currency USD
Ticker MJFOX
Cusip 577-130-800
Portfolio Turnover 83.4%
Benchmark MSCI Japan Index
Geographic Focus Japan
Fees & Expenses
Gross Expense Ratio 0.95%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 02/28/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund - MJFOX
12/31/1998
MJFOX
-4.72% -1.84% 1.68% -15.90% 2.20% -2.11% 6.52% 5.09%
MSCI Japan Index
-3.83% 2.44% 2.14% -8.93% 3.80% 0.42% 5.46% 3.31%
As of 12/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund - MJFOX
12/31/1998
MJFOX
-3.46% 10.76% -27.85% -27.85% -2.79% -1.56% 6.90% 5.05%
MSCI Japan Index
0.29% 13.26% -16.31% -16.31% -0.63% 0.60% 5.90% 3.24%
For the years ended December 31st
Name 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
Matthews Japan Fund - MJFOX
MJFOX
-27.85% -1.92% 29.82% 26.08% -20.18% 33.14% 0.40% 20.83% -2.60% 34.03%
MSCI Japan Index
-16.31% 2.04% 14.91% 20.07% -12.58% 24.39% 2.73% 9.90% -3.72% 27.35%

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 12/31/2022)

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 32 funds
  • 3 YEAR
  • out of 32 funds
  • 5 YEAR
  • out of 28 funds
  • 10 YEAR
  • out of 21 funds
  • 1 YEAR
  • 4th
  • 30 out of 32 funds
  • 3 YEAR
  • 3rd
  • 20 out of 31 funds
  • 5 YEAR
  • 4th
  • 23 out of 28 funds
  • 10 YEAR
  • 2nd
  • 8 out of 20 funds
  • SINCE INCEPTION
  • 2nd
  • 3 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 12/31/2022)
Fund Benchmark
Number of Positions 48 237
Weighted Average Market Cap $34.7 billion $43.4 billion
Active Share 68.5 n.a.
P/E using FY1 estimates 15.9x 11.6x
P/E using FY2 estimates 15.4x 11.6x
Price/Cash Flow 11.6 7.9
Price/Book 1.8 1.2
Return On Equity 12.7 12.5
EPS Growth (3 Yr) 5.7% 3.3%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 12/31/2022)
-1.90%
Alpha
0.98
Beta
94.78%
Upside Capture
104.24%
Downside Capture
-0.18
Sharpe Ratio
-0.26
Information Ratio
8.36%
Tracking Error
80.88

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 02/28/2023)
Name Sector % Net Assets
Sony Group Corp. Consumer Discretionary 4.5
Keyence Corp. Information Technology 4.2
Shin-Etsu Chemical Co., Ltd. Materials 4.1
Tokio Marine Holdings, Inc. Financials 3.8
Hitachi, Ltd. Industrials 3.5
Hoya Corp. Health Care 3.4
Daiichi Sankyo Co., Ltd. Health Care 3.2
Daikin Industries, Ltd. Industrials 3.2
Nippon Telegraph & Telephone Corp. Communication Services 3.1
Sumitomo Mitsui Financial Group, Inc. Financials 3.0
TOTAL 36.0

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 12/31/2022)
  • Sector Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Industrials 21.3 22.2 -0.9
Consumer Discretionary 13.6 17.7 -4.1
Financials 13.0 12.1 0.9
Health Care 13.0 9.9 3.1
Information Technology 12.4 13.1 -0.7
Communication Services 11.2 8.5 2.7
Consumer Staples 6.6 6.9 -0.3
Materials 6.1 4.5 1.6
Real Estate 1.0 3.3 -2.3
Utilities 0.0 1.0 -1.0
Energy 0.0 0.8 -0.8
Cash and Other Assets, Less Liabilities 1.8 0.0 1.8

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) 48.6 53.6 -5.0
Large Cap ($10B-$25B) 22.0 27.8 -5.8
Mid Cap ($3B-$10B) 16.6 18.6 -2.0
Small Cap (under $3B) 11.1 0.0 11.1
Cash and Other Assets, Less Liabilities 1.8 0.0 1.8

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)
12/13/2022 12/14/2022 $0.00000 $0.00000 $1.07119 $1.07119 6.5% 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, 2022

For the year ending December 31, 2022, the Matthews Japan Fund returned -27.85% (Investor Class) and -27.84% (Institutional Class), while its benchmark, the MSCI Japan Index, returned -16.31% over the same period. For the fourth quarter, the Fund returned 10.76% (Investor Class) and 10.74% (Institutional Class), while the benchmark returned 13.26%.

Market Environment:

Japan equity markets in 2022 delivered very different performances depending on the currency and style of investment used. Taking currency first, the Japanese yen weakened to 150 to the U.S. dollar in October, a level last seen in 1998. Multiple rate hikes by the U.S. Federal Reserve in tandem with the accommodative stance of the Bank of Japan resulted in the widening of the U.S.-Japan bond-yield spread. For investors, the yen’s decline meant that in local currency terms Japanese equities outperformed developed markets while in U.S. dollar terms they traded more in line. The other trend to have impacted Japanese equity markets was the continued significant spread between performance of value stocks and growth stocks. The one-year performance gap between value stocks and growth stocks in 2022 ended at 2,260 basis points (22.26%), the largest in international equity markets. The Matthews Japan Fund is a quality core growth portfolio and the widening of the growth-value spread has been a challenge.  

Performance Contributors and Detractors:

From a sector perspective, our stock selection in consumer staples was the largest contributor to relative performance in 2022. Stock selection in real estate was also a contributor though its impact was mitigated by our underweight in the sector. On the other hand, stock selection in industrials was the biggest detractor while our selections in financials, materials and information technology (IT) were also detractors.

At the holdings level, Daiichi Sankyo, a pharmaceutical company, was the largest contributor to the investment results. We view the company as evolving into specialty pharma company focused on oncology and based on their proprietary antibody-drug conjugate (ADC) platform. The success of Daiichi Sankyo's first ADC—Enhertu, an anticancer agent for breast cancer—coupled with a favorable court ruling in a dispute with a competitor regarding ADC technology in August drove the strong performance in the year.

P&C insurance company Tokio Marine Holdings was the second-largest contributor to performance. We regard the company as a prudent allocator of capital with a mid-teens dividend compound annual growth rate (CAGR) coupled with earnings-per-share (EPS) growth that is driven by both earnings and buybacks.

Game developer Capcom was also a positive contributor. Owner of key intellectual property (IP), such as “Monster Hunter” and “Resident Evil”, the company pledges to deliver stable and continuous double-digit growth. Given the uncertainty in macro situations, Capcom’s stable growth has resulted in equity outperformance.

Technology conglomerate Sony Group was the largest detractor last year. After approaching an all-time high in January, performance has struggled due to weakness in the mainstay PlayStation game business. While we remain constructive on Sony's management capability and its competitive position in games, music and image sensors, the weakness in their highest return-on-invested-capital (ROIC) business segment makes it difficult for the share price to perform.

Recruit, a leading HR and media marketing solution provider was the second-largest detractor. The company benefited from the reopening of economic activity in 2021 with their crown jewel HR Tech segment but growth slowed due to the peaking out of global economic activity.

JSR, an electronic material manufacturer, was also a detractor. The company’s recent earnings were below expectations due to the slower-than-expected commercial production ramp of its highly-anticipated Contract Development and Manufacturing (CDMO) for bio-pharma products, as well as the weaker topline in display materials segment. Despite the near-term weakness, our conversation with the management suggests that the issues in the health-care businesses are transitory and the display business topline will bottom out. We still calculate that JSR trades below its intrinsic value and believe that a re-rating would accelerate as JSR’s health-care profit contribution increases in the later part of this fiscal year.  

Notable Portfolio Changes:

During the fourth quarter, we re-initiated furniture and household goods retailer Nitori Holdings. We exited the name in 2021 due to the negative impact from a weaker yen and tough year-on-year after COVID lockdowns had pushed up their home fashion goods demand in 2020. After a year, both consensus earnings and valuation levels came down enough to warrant a review, especially as cost pressures and the weakness of the Japanese yen have started to peak out, in our view. The long-term thesis remains unchanged. Nitori is the last man standing in the furniture retail space in Japan and has achieved 35 consecutive years of earnings growth. The company’s track record in cost adjustment is also impressive.

We also initiated a position in Sumitomo Mitsui Financial Group in anticipation of potential changes in Japan’s monetary policy. The Bank of Japan revised its yield curve control (YCC) targets at its December 20 monetary policy meeting. While the move came as a surprise to the market including us, we had discussed  the possibility of this happening. As current BoJ Governor Haruhiko Kuroda's term expires in the Spring, increasing news flow around the upcoming change in leadership will drive expectations for a change in the bank’s negative interest rate policy and steps toward monetary policy normalization.

To fund these positions, we have exited Toyota Motor, Suntory Beverage and Food, SMC, Septeni Holdings, Roland, Ono Pharmaceutical, Mazda Motor, Kyoritsu Maintenance, Japan Steel Works, GMO Payment Gateway and Direct Marketing Mix.

Outlook:

While the market seems ready for the Fed to pivot with its interest-rate policy and for inflation to peak out, we believe the Fed is hesitant to prematurely remove its hawkish policies to contain inflation. With this backdrop, we don’t see a reversal of growth underperformance in Japan anytime soon and are taking a more balanced approach towards multiple stages of growth and valuation levels. For the year of 2023, earnings growth and cash flow-generation ability will be ever more important as financial estimates for Japanese corporates have started to be revised down.

Looking long term, we continue to believe the earnings capability of Japanese companies has improved meaningfully over the past economic cycle. Last year, the Japanese equity market outperformed both developed markets (MSCI World) and emerging markets (MSCI Emerging Market) in U.S. dollar terms. With the yen at a near quarter-century-low to the dollar, Japanese companies are in good health and, importantly, the country is firmly open for tourism. We believe this is the time for investors to add a long-term exposure to the market.

Top 10 holdings as of December 31, 2022. Current and future holdings are subject to change and risk.

Yield curve control (YCC) involves targeting a longer-term interest rate by a central bank, then buying or selling as many bonds as necessary to hit that rate target.

 

Average Annual Total Returns - MJFOX as of 12/31/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-27.85% -2.79% -1.56% 6.90% 5.05% 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.