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.
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
1.58%
Net Expense Ratio
1.08%
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.
The risks associated with investing in the Fund can be found in the prospectus
Performance
Monthly
Quarterly
Calendar Year
As of 08/31/2023
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
-5.03%
3.63%
5.03%
6.88%
-0.16%
n.a.
n.a.
8.94%
MSCI Emerging Markets Index
-6.13%
3.66%
4.86%
1.69%
-1.01%
n.a.
n.a.
4.83%
As of 06/30/2023
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
4.61%
2.52%
6.02%
11.29%
4.80%
n.a.
n.a.
9.76%
MSCI Emerging Markets Index
3.89%
1.04%
5.10%
2.22%
2.72%
n.a.
n.a.
5.17%
For the years ended December 31st
Name
2022
2021
Matthews Emerging Markets Equity Fund - MEGMX
MEGMX
-20.94%
-0.60%
MSCI Emerging Markets Index
-19.74%
-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 $10,000 Investment Since Inception
(as of 06/30/2023)
Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.
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.
John Paul Lech is a Portfolio Manager at Matthews and manages the firm’s Emerging Markets Equity and Emerging Markets ex China Strategies. Prior to joining Matthews in 2018, he spent most of his 10 years at OppenheimerFunds (subsequently acquired by Invesco) as an Analyst and Portfolio Manager on a diversified emerging market equity strategy. John Paul started his career as an Analyst and Associate at Citigroup Global Markets, Inc. John Paul earned both an M.A. and a B.S.F.S from the Walsh School of Foreign Service at Georgetown University. He is fluent in Spanish and conversational in French and Portuguese.
Alex Zarechnak is a Portfolio Manager at Mathews and manages the firm’s Emerging Markets Equity, Emerging Markets ex China Strategies and co-manages the Emerging Markets Small Companies Strategy. Prior to joining the firm in 2020, he spent a total of 15 years (1998 – 2006 and 2012 – 2019) at Wellington Management as an analyst for the firm’s flagship Emerging Markets Equity fund as a generalist first covering CEEMEA, then Latin America. From 2006-2012, he was a regional equity analyst at Capital Group, covering Emerging Markets with a focus on energy, telecoms and consumer sectors in Latin America and CEEMEA. Alex began his Emerging Markets career as a Russia equity analyst with Templeton Emerging Markets, based in Moscow. He earned a B.A. in Economics and Government from the College of William & Mary. Alex is fluent in Russian.
Andrew Mattock is a Portfolio Manager at Matthews and manages the firm’s China, China Small Companies and China A-Share Strategies and co-manages the Pacific Tiger, China Dividend and Emerging Markets Equity Strategies. Prior to joining Matthews in 2015, he was a Fund Manager at Henderson Global Investors for 15 years, first in London and then in Singapore, managing Asia Pacific equities. Andrew holds a Bachelor of Business majoring in Accounting from ACU. He began his career at PricewaterhouseCoopers and qualified as a Chartered Accountant.
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.
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 06/30/2023)
Sector Allocation
Country Allocation
Market Cap Exposure
Sector
Fund
Benchmark
Difference
Financials
23.7
21.9
1.8
Information Technology
22.1
21.2
0.9
Consumer Discretionary
13.2
13.2
0.0
Materials
10.5
8.1
2.4
Industrials
6.3
6.3
0.0
Consumer Staples
4.8
6.4
-1.6
Energy
4.8
5.0
-0.2
Real Estate
4.8
1.7
3.1
Health Care
4.6
3.8
0.8
Communication Services
4.1
9.8
-5.7
Utilities
0.0
2.6
-2.6
Cash and Other Assets, Less Liabilities
1.1
0.0
1.1
Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.
Country
Fund
Benchmark
Difference
India
16.7
14.6
2.1
China/Hong Kong
16.4
29.7
-13.3
Mexico
9.5
2.8
6.7
Brazil
9.0
5.5
3.5
South Korea
7.3
12.3
-5.0
Taiwan
6.6
15.5
-8.9
Vietnam
6.3
0.0
6.3
United States
4.5
0.0
4.5
France
3.6
0.0
3.6
United Kingdom
2.7
0.0
2.7
Australia
2.6
0.0
2.6
Indonesia
2.2
2.0
0.2
Philippines
2.2
0.6
1.6
Poland
1.9
0.8
1.1
Singapore
1.5
0.0
1.5
Switzerland
1.4
0.0
1.4
Zambia
1.3
0.0
1.3
Kazakhstan
1.2
0.0
1.2
United Arab Emirates
1.0
1.3
-0.3
Thailand
0.9
1.9
-1.0
Saudi Arabia
0.0
4.2
-4.2
South Africa
0.0
3.2
-3.2
Malaysia
0.0
1.3
-1.3
Qatar
0.0
0.9
-0.9
Kuwait
0.0
0.8
-0.8
Turkey
0.0
0.6
-0.6
Chile
0.0
0.5
-0.5
Greece
0.0
0.5
-0.5
Peru
0.0
0.3
-0.3
Czech Republic
0.0
0.2
-0.2
Hungary
0.0
0.2
-0.2
Colombia
0.0
0.1
-0.1
Egypt
0.0
0.1
-0.1
Cash and Other Assets, Less Liabilities
1.1
0.0
1.1
Not all countries are included in the benchmark index(es).
Equity market cap of issuer
Fund
Benchmark
Difference
Mega Cap (over $25B)
55.7
53.7
2.0
Large Cap ($10B-$25B)
15.4
22.5
-7.1
Mid Cap ($3B-$10B)
20.0
21.8
-1.8
Small Cap (under $3B)
7.8
2.1
5.7
Cash and Other Assets, Less Liabilities
1.1
0.0
1.1
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.
Risk Metrics (3 Yr Return)
(as of 06/30/2023)
Category
3YR Return Metric
Alpha
1.49%
Beta
0.97
Upside Capture
106.47%
Downside Capture
97.15%
Sharpe Ratio
0.19
Information Ratio
0.32
Tracking Error
6.52%
R²
87.72
1.49%
Alpha
0.97
Beta
106.47%
Upside Capture
97.15%
Downside Capture
0.19
Sharpe Ratio
0.32
Information Ratio
6.52%
Tracking Error
87.72
R²
Fund Risk Metrics are reflective of Investor share class.
Sources: Zephyr StyleADVISOR
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
$0.20142
$0.00000
$0.00000
$0.20142
1.7%
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.
For the first half of 2023, the Matthews Emerging Markets Equity Fund returned 6.02% (Investor Class) and 6.11% (Institutional Class), while its benchmark, the MSCI Emerging Markets Index, returned 5.10% over the same period. For the quarter ending June 30, 2023, the Fund returned 2.52% (Investor Class) and 2.61% (Institutional Class), while the benchmark returned 1.04%.
Market Environment:
The first six months of the year saw a large divergence in equity markets. A strong recovery in China did not materialize while the tech-centric Nasdaq stock exchange posted large gains driven by a small subset of companies. Several emerging markets posted double-digit gains in dollar terms, notably Mexico and Brazil where the popular narrative of nearshoring and potential changes in monetary policy have resonated. At the sector level, IT led emerging markets, posting over 20% gains.
Performance Contributors and Detractors:
At the country level, our cautious approach and underweight to China/Hong Kong was the biggest contributor to relative performance in the first half. Our overweight to Mexico was also a strong contributor. On the other hand, our underweight to Taiwan was the biggest detractor. We believe Taiwan’s equity market is overly concentrated in hardware which has historically been more cyclical and with lower barriers to entry.
From a sector perspective, stock selections in financials, real estate, consumer staples and materials were the top contributors to relative performance. In contrast, selections in energy and IT were the biggest detractors, the latter mitigated by our slightly overweight position.
At the holdings level, four of the top 10 performers—TSMC (Taiwan), Samsung Electronics (South Korea), Applied Materials (U.S.) and FPT (Vietnam)—are categorized in the IT sector yet are located in four different countries. It demonstrates the broader approach we take, focusing on structurally advantaged business models regardless of geography. On the flip side, JD.com and Innovent Biologics in China, and Excelerate Energy in the U.S. were among the biggest detractors. Ecommerce platform JD.com has generated concerns over its growth prospects and has been weighed down by China’s muted recovery.
Notable Portfolio Changes:
The portfolio made several changes in the period. Among them, we exited three positions in Hong Kong in Techtronic Industries, Hong Kong Exchanges and ESR Group, finding better opportunities in their respective sectors of industrials, financials and real estate. Our energy holdings also became more concentrated in TotalEnergies and Woodside Energy as we exited Excelerate and Petrobras. We added Richemont, a watches and jewelry company that owns iconic brands like Cartier. The company, whose roots are in South Africa and largest market is in China, continues to demonstrate pricing in a consumer environment that is not strong. We also purchased a position in BYD, which is the market leader in electronic vehicles in China with a nearly 40% market share. Our allocation to China/Hong Kong remains selective. Other notable additions were Indian Hotels and Divis Laboratories, a pharmaceutical company also in India.
Outlook:
Our approach remains the same – we operate a framework that leads us to be biased towards high quality, profitable businesses that tend to exhibit some form of market leadership.
The backdrop for equity markets overall remains mixed. Higher interest rates both provide a return on cash and challenge consumers looking to make major purchases like homes or cars. The U.S. equity market had a strong start to 2023 but there are some clouds on the horizon. One example is the pending restart of student loan repayments which could impact consumer sentiment. In emerging markets, the news coming out of China is mostly negative both in terms of geopolitical tensions as well as the evolution of the domestic economy. We don’t expect any major pressure to the currency but do note the weakness in the renminbi year-to-date. Our approach in China remains highly selective and focused on individual businesses that in our assessment have strong go-forward fundamentals. India appears to have several structural tailwinds but remains a market that is expensive in aggregate.
Overall, we’re quite optimistic longer term. Near term, we see the high real interest rates in places like Brazil as portending an end to monetary tightening which may be beneficial for markets. Our process is company-by-company. Approaching the portfolio on fundamentals we think offers an attractive balance of growth and resiliency.
Top 10 holdings as of June 30, 2023. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MEGMX as of 06/30/2023
1YR
3YR
5YR
10YR
Since Inception
Inception Date
11.29%
4.80%
N.A.
N.A.
9.76%
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
1.58%
Net Expense Ratio
1.08%
Matthews has contractually agreed to waive fees and reimburse expenses to limit the Total Annual Fund Operating Expenses until April 30, 2024. 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.
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.
Indexes are for comparative purposes only and it is not possible to invest directly in an index.
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 June 30, 2023
For the first half of 2023, the Matthews Emerging Markets Equity Fund returned 6.02% (Investor Class) and 6.11% (Institutional Class), while its benchmark, the MSCI Emerging Markets Index, returned 5.10% over the same period. For the quarter ending June 30, 2023, the Fund returned 2.52% (Investor Class) and 2.61% (Institutional Class), while the benchmark returned 1.04%.
Market Environment:
The first six months of the year saw a large divergence in equity markets. A strong recovery in China did not materialize while the tech-centric Nasdaq stock exchange posted large gains driven by a small subset of companies. Several emerging markets posted double-digit gains in dollar terms, notably Mexico and Brazil where the popular narrative of nearshoring and potential changes in monetary policy have resonated. At the sector level, IT led emerging markets, posting over 20% gains.
Performance Contributors and Detractors:
At the country level, our cautious approach and underweight to China/Hong Kong was the biggest contributor to relative performance in the first half. Our overweight to Mexico was also a strong contributor. On the other hand, our underweight to Taiwan was the biggest detractor. We believe Taiwan’s equity market is overly concentrated in hardware which has historically been more cyclical and with lower barriers to entry.
From a sector perspective, stock selections in financials, real estate, consumer staples and materials were the top contributors to relative performance. In contrast, selections in energy and IT were the biggest detractors, the latter mitigated by our slightly overweight position.
At the holdings level, four of the top 10 performers—TSMC (Taiwan), Samsung Electronics (South Korea), Applied Materials (U.S.) and FPT (Vietnam)—are categorized in the IT sector yet are located in four different countries. It demonstrates the broader approach we take, focusing on structurally advantaged business models regardless of geography. On the flip side, JD.com and Innovent Biologics in China, and Excelerate Energy in the U.S. were among the biggest detractors. Ecommerce platform JD.com has generated concerns over its growth prospects and has been weighed down by China’s muted recovery.
Notable Portfolio Changes:
The portfolio made several changes in the period. Among them, we exited three positions in Hong Kong in Techtronic Industries, Hong Kong Exchanges and ESR Group, finding better opportunities in their respective sectors of industrials, financials and real estate. Our energy holdings also became more concentrated in TotalEnergies and Woodside Energy as we exited Excelerate and Petrobras. We added Richemont, a watches and jewelry company that owns iconic brands like Cartier. The company, whose roots are in South Africa and largest market is in China, continues to demonstrate pricing in a consumer environment that is not strong. We also purchased a position in BYD, which is the market leader in electronic vehicles in China with a nearly 40% market share. Our allocation to China/Hong Kong remains selective. Other notable additions were Indian Hotels and Divis Laboratories, a pharmaceutical company also in India.
Outlook:
Our approach remains the same – we operate a framework that leads us to be biased towards high quality, profitable businesses that tend to exhibit some form of market leadership.
The backdrop for equity markets overall remains mixed. Higher interest rates both provide a return on cash and challenge consumers looking to make major purchases like homes or cars. The U.S. equity market had a strong start to 2023 but there are some clouds on the horizon. One example is the pending restart of student loan repayments which could impact consumer sentiment. In emerging markets, the news coming out of China is mostly negative both in terms of geopolitical tensions as well as the evolution of the domestic economy. We don’t expect any major pressure to the currency but do note the weakness in the renminbi year-to-date. Our approach in China remains highly selective and focused on individual businesses that in our assessment have strong go-forward fundamentals. India appears to have several structural tailwinds but remains a market that is expensive in aggregate.
Overall, we’re quite optimistic longer term. Near term, we see the high real interest rates in places like Brazil as portending an end to monetary tightening which may be beneficial for markets. Our process is company-by-company. Approaching the portfolio on fundamentals we think offers an attractive balance of growth and resiliency.
Top 10 holdings as of June 30, 2023. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MEGMX as of 06/30/2023
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
Matthews has contractually agreed to waive fees and reimburse expenses to limit the Total Annual Fund Operating Expenses until April 30, 2024. 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.