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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

1.18%

YTD Return

(as of 02/27/2024)

$12.00

NAV

(as of 02/27/2024)

-0.01

1 Day NAV Change

(as of 02/27/2024)

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 $19.31 million (01/31/2024)
Currency USD
Ticker MEGMX
Cusip 577-130-651
Portfolio Turnover 63.3%
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 1.58%
Net Expense Ratio 1.08%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 01/31/2024
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
-4.64% 7.55% -4.64% -4.33% -6.84% n.a. n.a. 7.46%
MSCI Emerging Markets Index
-4.63% 7.08% -4.63% -2.55% -7.15% n.a. n.a. 4.36%
As of 12/31/2023
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
4.49% 7.37% 8.43% 8.43% -5.20% n.a. n.a. 9.04%
MSCI Emerging Markets Index
3.95% 7.93% 10.27% 10.27% -4.71% n.a. n.a. 5.82%
For the years ended December 31st
Name 2023 2022 2021
Matthews Emerging Markets Equity Fund - MEGMX
MEGMX
8.43% -20.94% -0.60%
MSCI Emerging Markets Index
10.27% -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 12/31/2023)

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.

Ratings

  • OVERALL
  • out of 721 funds
  • 3 YEAR
  • out of 721 funds
  • 1 YEAR
  • 3rd
  • 558 out of 785 funds
  • 3 YEAR
  • 2nd
  • 309 out of 691 funds
  • SINCE INCEPTION
  • 1st
  • 150 out of 675 funds

Ratings agency calculation methodology

Portfolio Managers

Alex  Zarechnak photo
Alex Zarechnak

Lead Manager

Andrew  Mattock, CFA photo
Andrew Mattock, CFA

Co-Manager

Peeyush  Mittal, CFA photo
Peeyush Mittal, CFA

Co-Manager

Sean  Taylor photo
Sean Taylor

Co-Manager

Jeremy  Sutch, CFA photo
Jeremy Sutch, CFA

Co-Manager

Portfolio Characteristics

(as of 12/31/2023)
Fund Benchmark
Number of Positions 57 1,441
Weighted Average Market Cap $116.1 billion $111.0 billion
Active Share 85.0 n.a.
P/E using FY1 estimates 16.4x 13.0x
P/E using FY2 estimates 13.7x 11.5x
Price/Cash Flow 10.3 6.6
Price/Book 2.5 1.7
Return On Equity 20.2 18.0
EPS Growth (3 Yr) 24.7% 23.1%

Sources: Factset Research Systems, Inc.

Top 10 Holdings

(as of 01/31/2024)
Name Sector Country % Net Assets
Taiwan Semiconductor Manufacturing Co., Ltd. Information Technology Taiwan 7.4
Samsung Electronics Co., Ltd., Pfd. Information Technology South Korea 5.8
Tencent Holdings, Ltd. Communication Services China/Hong Kong 4.4
HDFC Bank, Ltd. Financials India 3.1
Infosys, Ltd. Information Technology India 2.8
FPT Corp. Information Technology Vietnam 2.8
Banco BTD Pactual SA Financials Brazil 2.7
Prologis Property Mexico SA de CV REIT Real Estate Mexico 2.4
Globant SA Information Technology United States 2.4
PT Bank Rakyat Indonesia Persero Tbk Financials Indonesia 2.3
TOTAL 36.1

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 12/31/2023)
  • Sector Allocation
  • Country Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Financials 24.7 22.3 2.4
Information Technology 22.3 22.1 0.2
Consumer Discretionary 15.1 12.8 2.3
Materials 10.3 7.8 2.5
Energy 5.8 5.1 0.7
Real Estate 5.0 1.6 3.4
Consumer Staples 4.5 6.0 -1.5
Industrials 4.2 6.9 -2.7
Communication Services 4.0 8.8 -4.8
Health Care 2.5 3.8 -1.3
Utilities 0.0 2.7 -2.7
Cash and Other Assets, Less Liabilities 1.6 0.0 1.6

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

Country Fund Benchmark Difference
India 16.9 16.7 0.2
China/Hong Kong 15.8 26.7 -10.9
Brazil 10.9 5.8 5.1
Mexico 9.0 2.7 6.3
South Korea 7.5 13.0 -5.5
Taiwan 6.7 15.9 -9.2
United States 5.5 0.0 5.5
Vietnam 5.0 0.0 5.0
France 3.7 0.0 3.7
Philippines 2.7 0.6 2.1
Australia 2.4 0.0 2.4
Indonesia 2.2 1.9 0.3
United Arab Emirates 2.1 1.3 0.8
United Kingdom 2.1 0.0 2.1
Poland 2.0 1.0 1.0
Kazakhstan 1.5 0.0 1.5
Switzerland 1.4 0.0 1.4
Saudi Arabia 1.0 4.2 -3.2
South Africa 0.0 3.1 -3.1
Thailand 0.0 1.8 -1.8
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
Hungary 0.0 0.3 -0.3
Peru 0.0 0.3 -0.3
Czech Republic 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 1.6 0.0 1.6

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

Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 58.9 54.8 4.1
Large Cap ($10B-$25B) 12.4 22.4 -10.0
Mid Cap ($3B-$10B) 20.5 21.3 -0.8
Small Cap (under $3B) 6.6 1.5 5.1
Cash and Other Assets, Less Liabilities 1.6 0.0 1.6

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 12/31/2023)
-0.90%
Alpha
0.93
Beta
95.17%
Upside Capture
99.09%
Downside Capture
-0.43
Sharpe Ratio
-0.07
Information Ratio
6.56%
Tracking Error
86.27

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)
12/13/2023 12/14/2023 $0.21539 $0.00000 $0.00000 $0.21539 1.8% N.A.
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.

Commentary

Period ended December 31, 2023

For the year ending December 31, 2023, the Matthews Emerging Markets Equity Fund returned 8.43% (Investor Class) and 8.63% (Institutional Class), while its benchmark, the MSCI Emerging Markets Index, returned 10.27% over the same period. For the fourth quarter, the Fund returned 7.37% (Investor Class) and 7.47% (Institutional Class), while the benchmark returned 7.93%.

Market Environment 

2023 was challenging for emerging markets on a number of levels. At the macro level, rising interest rates and a strong U.S. dollar were headwinds while geopolitical tensions between the U.S. and China remained elevated and continued to be a significant drag on international sentiment toward China. Another notable trait of the year was the prolonged weakness of the Chinese economy. The rapid post-COVID recovery that many investors expected didn’t materialize and the country struggled with a lack of confidence and problems in specific sectors like real estate. Mitigating China’s woes somewhat was India’s continued resilient growth, supported in part by its domestic infrastructure programs and increasing global trade. Toward the end of the year, there was a general consensus that inflation had peaked in the global economy and that the U.S. Federal Reserve would pivot toward cutting rates in 2024. 

It is also encouraging to reflect on the economic conditions of most emerging markets coming out of the pandemic. COVID was a ‘stress test’ that most of these markets passed as far as macroeconomic policy and financial conditions are concerned. Emerging markets stimulated less fiscally and monetarily compared with developed markets and that left them with lower relative debt levels and more monetary policy credibility.

Performance Contributors and Detractors

At the regional level, our overweight and stock selection in Mexico was the biggest contributor to total and relative returns in 2023, benefiting from gains in real estate, cement and banking stocks. An underweight to China also supported relative performance, as did our off-benchmark positions in Vietnam and the U.S., the latter buoyed by semiconductor equipment and enterprise software positions. On the other hand, stock selection in India was the biggest detractor to relative returns. We think we got our India allocation decision right,  but poor stock selection more than offset that. Our underweight in technology companies in Taiwan and underweight and stock selection in South Korea also detracted. 

At the sector level, stock selection in real estate contributed the most to relative returns in the period. An overweight to IT also contributed, as did an underweight and stock selection in consumer staples. In contrast, stock selection in consumer discretionary was the biggest detractor to relative performance due to holdings in China. Stock selection in energy also impacted relative returns. 

At the holdings level, Prologis Property Mexico, a Mexican real estate developer, FPT Corp., a Vietnamese IT services company, Banco BTG Pactual, a Brazilian investment bank and Globant, an enterprise software company with coders located throughout emerging markets, were among the top contributors to total and relative returns in 2023. Prologis benefited from the growing demand for quality warehouse space in Mexico, driven partly by re-shoring of supply chains from Asia. Globant bucked the trend of weaker enterprise software demand by nimbly emphasizing new verticals, like sports and entertainment, and leaning into vibrant geographies like Latin America and the Middle East. On the other hand, Chinese e-commerce company JD.com was the biggest detractor to total returns and was among the biggest detractors to relative returns. The company struggled against the backdrop of weak consumption as well as rising competitive intensity in the industry. First Quantum Minerals, a Canadian-based miner with global operations, also detracted, following a forced shutdown of its copper mine in Panama after countrywide protests. We exited that position toward the end of the year. Asia focused insurers AIA Group and Prudential also declined in 2023. 

Notable Portfolio Changes  

The portfolio added a number of new positions, including Emaar Properties, a real estate developer in Dubai, and Prio, a Brazilian oil and gas producer. Emaar will benefit, we believe, as Dubai’s reforms attract capital and stimulate economic growth. Prio is building a strong oil production business, in our view, by buying and rehabilitating fields which larger companies no longer want. On the flip side, we sold positions in companies including First Quantum, CapitaLand, a real estate investment trust in Singapore, and Bangkok Dusit Medical Services (BDMS), a hospital operator. 

Outlook  

We continue to find many attractive emerging markets companies to consider for the portfolio. Even in uncertain times they are solving problems for their societies, or creating value for their customers. Inflation in emerging markets is also on the way down, and interest rate cuts around the world this year could help overall liquidity conditions. Near-shoring and ‘China+1’ trends also continue to benefit countries in Southeast Asia, Central Europe and Latin America. In the Middle East, the landscape has been changing as Saudi Arabia and the United Arab Emirates diversify away from oil. In Asia, we believe economies are finding their feet post COVID and we expect some cyclical growth to return. We also see opportunities coming from domestic structural drivers like infrastructure spend in certain markets, notably India, and these could help counter any slowdown in global trade and economic activity.

 

Top 10 holdings as of December 31, 2023. Current and future holdings are subject to change and risk.

 

Average Annual Total Returns - MEGMX as of 12/31/2023
1YR 3YR 5YR 10YR Since Inception Inception Date
8.43% -5.20% N.A. N.A. 9.04% 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.

 

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.