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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

-24.81%

YTD Return

(as of 12/01/2022)

$16.61

NAV

(as of 12/01/2022)

+0.10

1 Day NAV Change

(as of 12/01/2022)

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 $748.37 million (10/31/2022)
Currency USD
Ticker MJFOX
Cusip 577-130-800
Portfolio Turnover 70.3%
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 10/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund - MJFOX
12/31/1998
MJFOX
3.34% -11.12% -32.69% -33.61% -3.55% -2.16% 6.46% 4.78%
MSCI Japan Index
2.97% -9.91% -23.92% -24.37% -2.88% -0.58% 5.68% 2.85%
As of 09/30/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund - MJFOX
12/31/1998
MJFOX
-9.27% -8.05% -34.86% -35.70% -3.42% -2.01% 5.87% 4.65%
MSCI Japan Index
-10.22% -7.52% -26.11% -29.02% -2.29% -0.26% 5.18% 2.74%
For the years ended December 31st
Name 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
Matthews Japan Fund - MJFOX
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 09/30/2022)

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 26 funds
  • 10 YEAR
  • out of 21 funds
  • 1 YEAR
  • 4th
  • 30 out of 34 funds
  • 3 YEAR
  • 3rd
  • 21 out of 31 funds
  • 5 YEAR
  • 4th
  • 20 out of 25 funds
  • 10 YEAR
  • 2nd
  • 9 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 09/30/2022)
Fund Benchmark
Number of Positions 53 238
Weighted Average Market Cap $29.3 billion $38.3 billion
Active Share 70.3 n.a.
P/E using FY1 estimates 15.5x 11.4x
P/E using FY2 estimates 15.1x 11.2x
Price/Cash Flow 10.8 7.8
Price/Book 1.9 1.2
Return On Equity 13.7 12.4
EPS Growth (3 Yr) 12.6% 10.2%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 09/30/2022)
-1.02%
Alpha
0.95
Beta
100.52%
Upside Capture
104.24%
Downside Capture
-0.22
Sharpe Ratio
-0.14
Information Ratio
8.19%
Tracking Error
79.47

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 10/31/2022)
Name Sector % Net Assets
Daiichi Sankyo Co., Ltd. Health Care 4.4
Olympus Corp. Health Care 4.2
Hoya Corp. Health Care 3.7
Tokio Marine Holdings, Inc. Financials 3.6
Keyence Corp. Information Technology 3.5
Ajinomoto Co., Inc. Consumer Staples 3.3
Nippon Telegraph & Telephone Corp. Communication Services 3.2
Shin-Etsu Chemical Co., Ltd. Materials 3.2
Hitachi, Ltd. Industrials 3.0
Terumo Corp. Health Care 3.0
TOTAL 35.1

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 09/30/2022)
  • Sector Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Industrials 20.5 22.2 -1.7
Health Care 15.7 10.4 5.3
Consumer Discretionary 13.3 18.1 -4.8
Information Technology 12.7 13.2 -0.5
Communication Services 11.6 8.7 2.9
Consumer Staples 9.6 7.0 2.6
Financials 8.1 10.4 -2.3
Materials 6.1 4.5 1.6
Real Estate 0.5 3.6 -3.1
Utilities 0.0 1.0 -1.0
Energy 0.0 0.9 -0.9
Cash and Other Assets, Less Liabilities 1.9 0.0 1.9

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) 41.9 48.5 -6.6
Large Cap ($10B-$25B) 25.5 29.3 -3.8
Mid Cap ($3B-$10B) 16.4 22.0 -5.6
Small Cap (under $3B) 14.3 0.2 14.1
Cash and Other Assets, Less Liabilities 1.9 0.0 1.9

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.

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.
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 September 30, 2022

For the third quarter ending September 30, 2022, the Matthews Japan Fund returned -8.05% (Investor Class) and -8.09% (Institutional Class), while its benchmark, the MSCI Japan Index returned -7.52%.

Market Environment:

Japan equity markets year to date offer an extremely different picture depending on which currencies investments are based on. The yen hit 135 to the U.S. dollar toward the end of the second quarter in June, a level last seen in early 2002. This past quarter has seen further weakness. After Federal Reserve Chair Jerome Powell’s hawkish speech on monetary policy and price stability in late August, the yen slid to 145 to the dollar, the weakest since 1998.

Multiple rate hikes by the Fed in tandem with the accommodative stance of the Bank of Japan has resulted in the widening of the U.S.-Japan bond-yield spread. Additional pressure on the yen has come from ongoing high energy prices. Japan's energy self-sufficiency ratio ranks among the lowest of Organisation for Economic Co-operation and Development (OECD) countries and the country’s current electricity generation is heavily dependent on U.S.-dollar denominated imports of natural resources. In simple terms, the yen’s slide has meant that in local currency terms, Japan equities have outperformed peers while in U.S dollar terms they are trading in line.

The other trend to have impacted the Japanese equity markets has been the continued significant spread between the performance of value stocks and growth stocks. While the spread narrowed somewhat in the third quarter, the year-to-date performance gap stands at 1,960 basis points (19.6%), one of the largest in the world.

Performance Contributors and Detractors:

From a market capitalization perspective, the biggest detractor to relative performance in the third quarter was the Fund’s stock selection in mid-cap stocks. The biggest contributor was the Fund’s underweight and stock selection in mega cap, which like large caps tend to be in the export sector and have exposure to global manufacturing cycles which are currently experiencing a slowdown. From a sector perspective, allocations in the cyclical areas of industrials and materials were among the largest detractors. Our stock selections in consumer discretionary were also a drag on the portfolio. On the other hand, our overweight and stock selection in consumer staples and health care were the largest contributors to relative performance.

Turning to individual securities, entertainment conglomerate Sony Group was the largest detractor. While its first quarter earnings reported in August surpassed consensus estimates, its mainstay PlayStation game business was weak and led to a downward revision of fiscal-year guidance for the segment. While we remain constructive on Sony we believe challenges in the gaming business will make it difficult for the share price to perform in the near term. JSR, an electronic material manufacturer, was also a big detractor. It announced a downward revision to its earnings guidance as a result of slower than expected ramp-up of its highly anticipated health care business, as well as a weaker topline in display materials. Our conversation with management suggests issues in the health care businesses are transitory and display business revenue may bottom out next quarter. JSR still trades below its intrinsic value and we believe that a re-rating could accelerate as JSR’s health-care profit contribution increases in the later part of this fiscal year.

Conversely, seasoning producer and biopharmaceutical services company Ajinomoto was the largest contributor during the quarter. The company reported robust results in the June quarter, driven by price increases which negated the impact of higher raw material costs. We believe Ajinomoto is in the middle of a turnaround story, moving away from commodity businesses and allocating incremental capital into higher return segments, such as pharmaceutical services and electronic materials. Pharma company Daiichi Sankyo continued to be a top contributor after achieving a positive outcome in the DESTINY-Breast04 (DB04) trial for anticancer agent Enhertu that was announced in June. A favorable court ruling in a dispute with a competitor in August was also major positive news.

Notable Portfolio Changes:

During the quarter we continued to balance our portfolio to brace for the ongoing slowdown in the global economy. We increased exposure to defensive sectors such as consumer staples while taking down our portfolio weighting in cyclical growth areas. The bright spot is in the domestic sector where the Japanese government has finally started to move toward reopening of the economy. In this context, we re-initiated a position in Kyoritsu Maintenance. The company's hotel operation adapted during COVID and improved its revenue per available room (RevPar) metric without relying heavily on a recovery in inbound tourist demand. Going forward, we believe the company has a potential to achieve higher earnings level than pre-COVID levels.

We also initiated a position in JGC, a plant engineering company. We view its order outlook as remaining strong over the medium term given that the changes in natural gas procurement in Europe and other parts of the world will support plant demand for the company. Liquefied Natural Gas (LNG) has been an area starved of capital for a while which has resulted in the current market tightness. It has become more relevant as a transition fuel and we believe JGC is in a good position to capture this opportunity. In order to make positions for new names we exited CyberAgent, Dai-ichi Life, Food & Life Companies, TDK and Toyota Industries.

Outlook:

Extremely loose monetary policy from all major central banks has clearly reversed and the Fed is ever more hawkish to contain inflation. As we are still witnessing something of a mean reversion of growth underperformance in Japan and are taking a more balanced approach towards multiple stages of growth and valuation levels, we believe the earnings capability of Japanese companies has improved meaningfully over the past economic cycle. In addition, after more than two and a half years of various levels of border closures due to COVID, Japan will fully reopen for individual travel in October and in our view this will position the domestic economy for a boost.

For the past decade, Japan equities as an asset class has been one of the best performing international markets in U.S. dollar terms, despite lack of GDP growth, equity multiple expansion, and constant depreciation of the currency. With the yen at a 24-year low to the dollar, the earnings capabilities of Japanese companies in good shape and the country once again open for tourism, we believe a unique window has opened for investors looking to add long-term exposure to the market.

Top 10 holdings as of September 30, 2022. Current and future holdings are subject to change and risk.

Average Annual Total Returns - MJFOX as of 09/30/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-35.70% -3.42% -2.01% 5.87% 4.65% 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.