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Matthews Emerging Markets Equity Fund
MEGMX

Snapshot
  • Seeks Alpha in Global Emerging Markets—capitalizes on consumption and innovation trends
  • Quality Growth Portfolio—based on deep, holistic analysis
  • All-Cap, Company-First Approach—emphasizes fundamental research over top-down country or sector allocation

04/30/2020

Inception Date

-18.27%

YTD Return

(as of 12/01/2022)

$11.72

NAV

(as of 12/01/2022)

-0.03

1 Day NAV Change

(as of 12/01/2022)

Objective

Long-term capital appreciation

Strategy

Under normal circumstances, the Matthews Emerging Markets Equity 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 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 may also invest in companies located in developed countries; however, the Fund may not invest in any company located in a developed country if, at the time of purchase, more than 20% of the Fund’s assets are invested in developed market companies.

Risks

Investments in emerging and frontier securities may involve 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 markets countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets.

These and other risks associated with investing in the Fund can be found in the prospectus.

Fund Facts
Inception Date 04/30/2020
Fund Assets $30.55 million (10/31/2022)
Currency USD
Ticker MEGMX
Cusip 577-130-651
Portfolio Turnover 88.5%
Benchmark MSCI Emerging Markets Index
Geographic Focus Emerging Markets - 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 1.52%
Net 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 Emerging Markets Equity Fund - MEGMX
04/30/2020
MEGMX
2.17% -6.91% -27.69% -29.98% n.a. n.a. n.a. 6.07%
MSCI Emerging Markets Index
-3.09% -14.02% -29.16% -30.73% n.a. n.a. n.a. -0.59%
As of 09/30/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Equity Fund - MEGMX
04/30/2020
MEGMX
-8.89% -6.02% -29.22% -29.73% n.a. n.a. n.a. 5.35%
MSCI Emerging Markets Index
-11.67% -11.42% -26.89% -27.80% n.a. n.a. n.a. 0.69%
For the years ended December 31st
Name 2021
Matthews Emerging Markets Equity Fund - MEGMX
MEGMX
-0.60%
MSCI Emerging Markets Index
-2.22%

Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.

Year to Date and Since Inception performance with less than one year of history represents actual performance, not annualized.

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.

Portfolio Managers

John Paul Lech photo
John Paul Lech

Lead Manager

Alex  Zarechnak photo
Alex Zarechnak

Co-Manager

Portfolio Characteristics

(as of 09/30/2022)
Fund Benchmark
Number of Positions 59 1,387
Weighted Average Market Cap $68.0 billion $86.5 billion
Active Share 87.3 n.a.
P/E using FY1 estimates 11.9x 9.9x
P/E using FY2 estimates 11.5x 9.7x
Price/Cash Flow 9.5 6.0
Price/Book 2.1 1.5
Return On Equity 19.3 16.9
EPS Growth (3 Yr) 9.0% 13.1%

Sources: Factset Research Systems, Inc.

Top 10 Holdings

(as of 10/31/2022)
Name Sector Country % Net Assets
Samsung Electronics Co., Ltd., Pfd. Information Technology South Korea 5.4
Taiwan Semiconductor Manufacturing Co., Ltd. Information Technology Taiwan 5.0
FPT Corp. Information Technology Vietnam 3.9
HDFC Bank, Ltd. Financials India 3.3
First Quantum Minerals, Ltd. Materials Zambia 3.0
Tencent Holdings, Ltd. Communication Services China/Hong Kong 3.0
Prologis Property Mexico SA de CV REIT Real Estate Mexico 2.9
Woodside Energy Group, Ltd. Energy Australia 2.9
Infosys, Ltd. Information Technology India 2.6
Capitaland Investment, Ltd. Real Estate Singapore 2.5
TOTAL 34.5

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
  • Country Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Financials 25.6 22.6 3.0
Information Technology 21.9 18.3 3.6
Materials 10.1 8.7 1.4
Consumer Discretionary 9.9 14.0 -4.1
Real Estate 7.9 2.0 5.9
Energy 6.9 5.3 1.6
Industrials 5.8 5.8 0.0
Consumer Staples 4.7 6.6 -1.9
Communication Services 3.6 9.7 -6.1
Health Care 2.6 3.9 -1.3
Utilities 0.0 3.2 -3.2
Cash and Other Assets, Less Liabilities 0.9 0.0 0.9

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

Country Fund Benchmark Difference
India 15.1 15.3 -0.2
China/Hong Kong 14.9 31.9 -17.0
Mexico 10.0 2.2 7.8
Brazil 9.9 5.8 4.1
Vietnam 7.0 0.0 7.0
South Korea 6.3 10.7 -4.4
Taiwan 5.0 13.7 -8.7
Singapore 4.8 0.0 4.8
Canada 3.5 0.0 3.5
Indonesia 3.2 2.2 1.0
Australia 2.7 0.0 2.7
Philippines 2.6 0.7 1.9
United States 2.6 0.0 2.6
United Kingdom 2.2 0.0 2.2
Qatar 2.1 1.3 0.8
France 2.0 0.0 2.0
Poland 1.2 0.5 0.7
Argentina 1.2 0.0 1.2
Israel 1.2 0.0 1.2
Turkey 0.8 0.4 0.4
Kazakhstan 0.8 0.0 0.8
Saudi Arabia 0.0 4.8 -4.8
South Africa 0.0 3.0 -3.0
Thailand 0.0 2.1 -2.1
Malaysia 0.0 1.5 -1.5
United Arab Emirates 0.0 1.4 -1.4
Kuwait 0.0 0.9 -0.9
Chile 0.0 0.6 -0.6
Greece 0.0 0.3 -0.3
Hungary 0.0 0.2 -0.2
Peru 0.0 0.2 -0.2
Colombia 0.0 0.1 -0.1
Czech Republic 0.0 0.1 -0.1
Egypt 0.0 0.1 -0.1
Cash and Other Assets, Less Liabilities 0.9 0.0 0.9

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

Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 44.7 52.3 -7.6
Large Cap ($10B-$25B) 20.7 21.4 -0.7
Mid Cap ($3B-$10B) 18.7 22.3 -3.6
Small Cap (under $3B) 15.0 4.0 11.0
Cash and Other Assets, Less Liabilities 0.9 0.0 0.9

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 $0.18047 $0.68627 $0.43302 $1.29976 8.5% N.A.

 

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 ended September 30, 2022, the Matthews Emerging Markets Equity Fund returned -6.02% (Investor Class) and -6.01% (Institutional Class), while its benchmark, the MSCI Emerging Markets Index, returned -11.42%.

Market Environment:

Asset markets including equities remained spooked with heightened volatility and uncertainty in the third quarter. As inflation stayed elevated, markets broadly priced in tighter monetary policy and the U.S. 10-year yield approached 4%. The U.S. dollar remains exceptionally strong; a phenomenon that is more pronounced in G10 currencies like the Japanese yen and British pound than in emerging markets. Meanwhile, China’s path out of its zero-COVID policy and the direction that the country’s economic reopening will take is uncertain. In addition, geopolitics continue to weigh on sentiment as Russia’s war with Ukraine appears to be intensifying. East Asia is also at the center of tensions in a way that it hasn’t been for a long time. Industrial policies like the U.S. CHIPS and Science Act, which encourages the domestic production of semiconductors, are indicative of the strain in the status quo economic system.

Performance Contributors and Detractors:

From a regional perspective, our underweight and stock selection in China was the biggest contributor to relative performance as Chinese equities generally were impacted by the country’s COVID lockdown policy and geopolitical tensions with the West. Our overweight and stock selections in Brazil and Mexico were also significant contributors to performance. Conversely, our stock selection in India was a big detractor to relative performance as certain financial holdings lagged other sectors. 

At the sector level, higher inflation and higher interest rates drove us to lighten our consumer discretionary exposure. Our underweight and stock selection in the sector was the biggest contributor to relative performance. Our stock selections in financials and in information technology (IT) were also top contributors. On the other hand, our lack of exposure to utilities was the biggest detractor.

At the holdings level, two of the top four contributors were Brazilian: Petroleo Brasileiro in the energy space and Hapvida Participacoes e Investimentos in health care. This is notable as energy is generally a globally oriented industry whereas health care tends to have a domestic skew. But Brazil’s markets have been among the most resilient of emerging markets this year. Petroleo Brasileiro, or Petrobras as it’s more commonly known, has benefited from surging oil prices. Hapvida has a large structural opportunity in entry-level private health insurance, which is underpenetrated in Brazil. Among the top 12 contributors to return, five were financials across India, Mexico, Brazil and Indonesia. The commonality being that higher rates tend to increase profits for financial companies and accessible valuations in this sector have held up well compared to more conceptual growth narratives in other areas. On the flip side, Tencent was the largest detractor. The company, which has been impacted  by China’s economic woes and challenging regulatory backdrop, continues to simplify its structure which we think will work to unlock value although sentiment remains quite weak around the name. Samsung and TMSC were also big detractors amid a softening of global demand for semiconductors and heightened geopolitical tensions encircling the industry.

Notable Portfolio Changes:

The Fund remained quite active in the quarter with much of our moves driven by new ideas. We continue to be positively disposed toward Vietnam and initiated a position in HD Bank to complement our other holdings in the country. We also started a small position in Kaspi.kz, a leading internet and fintech player in Central Asia. Weak markets provided some avenues to minimize capital gains which was the primary reason we sold Ayala Land, a real estate company in the Philippines, and bought Ayala Corp. These separate holdings are closely correlated as Ayala Land is the biggest portion of Ayala Corp. which is a larger company with additional holdings. During the quarter we also exited our position in Heineken as we moved to lighten our consumer exposure.

Outlook:

Global market sentiment is being driven in large part by macro and geo-political influences. Few regions and sectors are immune and these influences are creating conflicting signals and volatility that are muddying the waters for investors. What we advocate, and we are pursuing, is what we consider to be a cautious approach. Our focus remains resolutely on companies that have attributes that should allow them to weather tough times. We look for best of breed companies with solid balance sheets at understandable valuations. The portfolio trades at multiples similar to the index but with higher capital efficiency ratios, solid returns to shareholders in the form of buybacks and dividends, and generally less leverage.

While markets remain challenging, they also provide opportunities, often away from the benchmark. Quality companies with growth characteristics tend to exhibit the same attributes irrespective of where they are located or what industry they operate in. It’s these attributes that lead us to identify long-term opportunities even in difficult times.

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

 

Average Annual Total Returns - MEGMX as of 09/30/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-29.73% N.A. N.A. N.A. 5.35% 04/30/2020

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 1.52%
Net Expense Ratio 1.13%

Matthews has contractually agreed to waive fees and reimburse expenses to limit the Total Annual Fund Operating Expenses until April 30, 2023. Please see the Fund’s prospectus for additional details.

Investments in emerging and frontier securities may involve 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 markets countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets.

 

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.