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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

-22.11%

YTD Return

(as of 12/01/2022)

$4.44

NAV

(as of 12/01/2022)

0.00

1 Day NAV Change

(as of 12/01/2022)

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 $79.57 million (10/31/2022)
Currency USD
Ticker MAKOX
Cusip 577-130-305
Portfolio Turnover 40.2%
Benchmark Korea Composite Stock Price Index
Geographic Focus South Korea
Fees & Expenses
Gross Expense Ratio 1.13%

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 Korea Fund - MAKOX
01/03/1995
MAKOX
7.80% -13.42% -32.11% -31.09% 0.81% -4.06% 3.33% 4.84%
Korea Composite Stock Price Index
7.06% -14.27% -35.34% -35.17% -1.35% -4.59% 0.91% 2.38%
As of 09/30/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Korea Fund - MAKOX
01/03/1995
MAKOX
-15.73% -15.93% -37.02% -36.29% -0.70% -4.23% 2.50% 4.58%
Korea Composite Stock Price Index
-18.56% -17.18% -39.72% -41.01% -2.52% -4.48% -0.02% 2.13%
For the years ended December 31st
Name 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
Matthews Korea Fund - MAKOX
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 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

  • 1 YEAR
  • 4th
  • 34 out of 36 funds
  • 3 YEAR
  • 2nd
  • 10 out of 35 funds
  • 5 YEAR
  • 4th
  • 29 out of 31 funds
  • 10 YEAR
  • 3rd
  • 14 out of 21 funds
  • SINCE INCEPTION
  • 4th
  • 7 out of 7 funds

Ratings agency calculation methodology

Portfolio Managers

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

Lead Manager

Elli  Lee photo
Elli Lee

Lead Manager

Sojung  Park photo
Sojung Park

Co-Manager

Portfolio Characteristics

(as of 09/30/2022)
Fund Benchmark
Number of Positions 32 816
Weighted Average Market Cap $69.5 billion $61.0 billion
Active Share 67.6 n.a.
P/E using FY1 estimates 7.8x n.a.
P/E using FY2 estimates 8.4x n.a.
Price/Cash Flow 4.4 3.5
Price/Book 1.1 0.8
Return On Equity 12.3 11.2
EPS Growth (3 Yr) 9.5% 15.9%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 09/30/2022)
1.25%
Alpha
0.87
Beta
92.84%
Upside Capture
93.29%
Downside Capture
-0.05
Sharpe Ratio
0.27
Information Ratio
6.79%
Tracking Error
94.03

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 10/31/2022)
Name Sector % Net Assets
Samsung Electronics Co., Ltd., Pfd. Information Technology 18.2
Samsung Electronics Co., Ltd. Information Technology 7.0
SK Hynix, Inc. Information Technology 4.7
Yuhan Corp. Health Care 4.2
KT&G Corp. Consumer Staples 3.9
Coupang, Inc. Consumer Discretionary 3.7
Samsung SDI Co., Ltd. Information Technology 3.5
Park Systems Corp. Information Technology 3.3
Samsung Biologics Co., Ltd. Health Care 3.3
BGF Retail Co., Ltd. Consumer Staples 3.2
TOTAL 55.0

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 09/30/2022)
  • Sector Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Information Technology 37.2 29.1 8.1
Consumer Discretionary 15.4 10.4 5.0
Health Care 9.8 7.6 2.2
Financials 7.8 8.8 -1.0
Communication Services 5.9 7.2 -1.3
Consumer Staples 5.6 4.5 1.1
Energy 5.5 1.8 3.7
Industrials 4.7 18.9 -14.2
Materials 2.6 9.9 -7.3
Real Estate 1.0 0.5 0.5
Utilities 0.0 1.3 -1.3
Cash and Other Assets, Less Liabilities 4.5 0.0 4.5

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) 43.2 39.5 3.7
Large Cap ($10B-$25B) 11.8 12.3 -0.5
Mid Cap ($3B-$10B) 15.6 23.8 -8.2
Small Cap (under $3B) 24.9 24.4 0.5
Cash and Other Assets, Less Liabilities 4.5 0.0 4.5

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.
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 quarter ending September 30, 2022, the Matthews Korea Fund returned -15.93% (Investor Class) and -15.78% (Institutional Class), while its benchmark, the Korea Composite Stock Price Index (KOSPI) returned -17.18%.

Market Environment:

The third quarter was a challenging period for emerging and Asian equity markets. Elevated inflation data continued and diminishing consumer spending in many regions dampened global sentiment and continued to spark recessionary fears. Amid this environment, South Korean equities were some of the weakest in the region. Foreign investors have been net sellers of Korean stocks, as global recessionary fears caused speculation that demand for Korean exports would fall further. Korean equities in aggregate are now some of the cheapest in the region.

Performance Contributors and Detractors:

The Fund’s allocation and stock selection within the consumer discretionary sector contributed the most to relative performance, followed by the consumer staples sector. Among the portfolio’s holdings, South Korea’s largest e-commerce player Coupang was the top contributor to the Fund’s absolute and relative performance. Coupang has been expanding its logistics and operation infrastructure in the last two years during the pandemic to cope with strong demand. The management team is focused on efficiency improvements thus we expect free cash flow to turn positive from 2023. Hyundai Mipo Dockyard (HMD), the leading shipbuilder for mid-size tankers globally, was another contributor. HMD benefited from supply-demand dynamics in tanker industry improvement, driven by replacement demand pick up and ton-mile increases. 

On the other hand, the portfolio’s overweight allocation and stock selection within energy and stock selection within information technology sectors detracted the most from relative performance. S-Oil, one of the major refiners globally and the largest in South Korea, was a top detractor to performance. S-Oil exports majority of refined products globally. As global recession concerns have been rising, markets began to reflect downside risk over refinery margins in key products such as gasoline. In addition, market concerns about China increasing its export quotas for refined products have also been rising. However, we think the global refinery supply-demand outlook appears favorable to existing low-cost refiners and continue to favor S-Oil at its current valuation.

SK Innovation was another detractor to the Fund's absolute and relative performance. SK Innovation has two major businesses—a refinery business and a battery cell business. Its battery cell business is currently going through a yield improvement stage in Europe and expects to turn profitable in 2023. We continue to see a favorable risk-return profile in SK Innovation as turnaround expectation is low for the battery cell business while the refinery business generates solid cash flow.

Notable Portfolio Changes:

During the quarter, we initiated a position in KT&G, one of the top tobacco companies globally and the largest in Korea. KT&G has been gaining market share in Heat-Not-Burn (HNB) tobacco in South Korea while maintaining solid market share in the combustible tobacco market. KT&G started a three-year contract with Philip Morris International to distribute its HNB products globally under the brand of Lil which has been gaining traction. We also think the company has room to improve its shareholder return policy.

We also exited our position in LG H&HC. We think LG has built solid brands in its cosmetics line, particularly its Whoo brand. However, competition in China, where LG H&H generates over 60% of its profit, is getting fiercer. We think it is important for LG H&HC to diversify its brand portfolio apart from Whoo. We will continue to monitor and engage with LG H&HC’s management on the company’s brand strategies and development. 

Outlook:

Looking ahead, several challenges remain. A big challenge in the markets is elevated inflation and the Fed’s aggressive monetary policy. That said, we believe that markets have priced in a substantial amount of uncertainty, especially within Asia. South Korea has yet to see a boom in consumption but looking ahead we anticipate it will gradually improve during the coming year. Valuations in South Korea are at levels reached during the global financial crisis and very attractive, in our view.

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 believe the pioneering companies we’ve invested in will continue to show improved cash flows and long-term growth potential.

View the Fund’s Top 10 holdings as of September 30, 2022. Current and future holdings are subject to change and risk.

Average Annual Total Returns - MAKOX as of 09/30/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-36.29% -0.70% -4.23% 2.50% 4.58% 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 1.13%

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.