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Matthews Emerging Markets Small Companies Fund
MSMLX

Snapshot
  • Seeks alpha in innovative, capital efficient entrepreneurial companies in emerging markets
  • Focus on firms that have a strong competitive advantage through pricing power, distribution capability, and/or differentiated technologies and services
  • Bias toward businesses that cater to rising domestic consumer demand

09/15/2008

Inception Date

-14.97%

YTD Return

(as of 12/01/2022)

$25.44

NAV

(as of 12/01/2022)

-0.02

1 Day NAV Change

(as of 12/01/2022)

Objective

Long-term capital appreciation

Strategy

Under normal circumstances, the Matthews Emerging Markets Small Companies 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 Small 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 defines Small Companies as companies with market capitalization no higher than the greater of US $5 billion or the market capitalization of the largest company included in the Fund's primary benchmark, the MSCI Emerging Markets Small Cap Index.

Risks

Investing in international and emerging markets may involve additional 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 securities involves greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. The Fund is non-diversified as it concentrates its investments in small sized companies. Investing in small- and mid-size companies is more risky and volatile than investing in large companies as they may be more volatile and less liquid than larger companies.

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

Fund Facts
Inception Date 09/15/2008
Fund Assets $332.62 million (10/31/2022)
Currency USD
Ticker MSMLX
Cusip 577-125-206
Portfolio Turnover 50.8%
Benchmark MSCI Emerging Markets Small Cap Index
Geographic Focus 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.
Fees & Expenses
Gross Expense Ratio 1.51%
Net Expense Ratio 1.35%

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 Small Companies Fund - MSMLX
09/15/2008
MSMLX
-0.62% -8.33% -24.23% -25.98% 10.44% 6.28% 6.62% 9.98%
MSCI Emerging Markets Small Cap Index
-0.06% -7.76% -23.93% -23.00% 4.66% 0.96% 3.42% 5.59%
As of 09/30/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Small Companies Fund - MSMLX
09/15/2008
MSMLX
-9.16% -6.67% -23.76% -22.44% 11.67% 6.74% 6.68% 10.09%
MSCI Emerging Markets Small Cap Index
-9.99% -5.03% -23.88% -22.76% 6.01% 1.67% 3.28% 5.63%
For the years ended December 31st
Name 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
Matthews Emerging Markets Small Companies Fund - MSMLX
MSMLX
22.14% 43.68% 17.38% -18.05% 30.59% -1.44% -9.43% 11.39% 7.19% 23.92%
MSCI Emerging Markets Small Cap Index
19.29% 19.72% 11.93% -18.30% 34.22% 2.56% -6.57% 1.34% 1.35% 22.60%

Before April 30, 2021, the Fund was managed with a materially different investment strategy and may have achieved materially different performance results under its current investment strategy from the performance shown for periods before that date.

MSCI Emerging Markets Small Cap Index since inception value calculated from 9/15/08.

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)

MSCI AC Asia ex Japan Small Cap Index since inception value calculated from 9/15/08.

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 723 funds
  • 3 YEAR
  • out of 723 funds
  • 5 YEAR
  • out of 642 funds
  • 10 YEAR
  • out of 371 funds
  • 1 YEAR
  • 1st
  • 66 out of 768 funds
  • 3 YEAR
  • 1st
  • 4 out of 690 funds
  • 5 YEAR
  • 1st
  • 4 out of 608 funds
  • 10 YEAR
  • 1st
  • 1 out of 348 funds
  • SINCE INCEPTION
  • 1st
  • 1 out of 200 funds

Ratings agency calculation methodology

Portfolio Managers

Vivek  Tanneeru photo
Vivek Tanneeru

Lead Manager

Jeremy  Sutch, CFA photo
Jeremy Sutch, CFA

Co-Manager

Portfolio Characteristics

(as of 09/30/2022)
Fund Benchmark
Number of Positions 63 1,823
Weighted Average Market Cap $3.3 billion $1.6 billion
Active Share 97.9 n.a.
P/E using FY1 estimates 14.8x 10.6x
P/E using FY2 estimates 12.2x 9.7x
Price/Cash Flow 10.3 5.9
Price/Book 2.3 1.4
Return On Equity 10.0 14.8
EPS Growth (3 Yr) -10.9% 10.8%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 09/30/2022)
6.79%
Alpha
0.77
Beta
78.25%
Upside Capture
67.44%
Downside Capture
0.51
Sharpe Ratio
0.43
Information Ratio
13.27%
Tracking Error
70.10

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 10/31/2022)
Name Sector Country % Net Assets
Shriram City Union Finance, Ltd. Financials India 6.4
Bandhan Bank, Ltd. Financials India 5.5
Legend Biotech Corp. Health Care United States 5.4
Ecopro BM Co., Ltd. Industrials South Korea 4.8
Phoenix Mills, Ltd. Real Estate India 4.3
Ginlong Technologies Co., Ltd. Industrials China/Hong Kong 3.9
Vamos Locacao de Caminhoes Maquinas e Equipamentos SA Industrials Brazil 3.8
Lemon Tree Hotels, Ltd. Consumer Discretionary India 2.6
Silergy Corp. Information Technology China/Hong Kong 2.6
Network International Holdings PLC Information Technology United Arab Emirates (U.A.E.) 2.6
TOTAL 41.9

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
Industrials 25.4 15.5 9.9
Financials 19.7 11.1 8.6
Information Technology 14.4 16.1 -1.7
Consumer Discretionary 14.0 12.7 1.3
Health Care 9.6 8.3 1.3
Real Estate 9.4 6.7 2.7
Consumer Staples 1.2 6.6 -5.4
Materials 0.9 13.3 -12.4
Communication Services 0.9 3.6 -2.7
Utilities 0.0 3.7 -3.7
Energy 0.0 2.4 -2.4
Cash and Other Assets, Less Liabilities 4.4 0.0 4.4

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

Country Fund Benchmark Difference
India 28.1 25.6 2.5
China/Hong Kong 21.2 8.3 12.9
Vietnam 7.1 0.0 7.1
Taiwan 6.3 19.6 -13.3
South Korea 6.3 12.6 -6.3
Indonesia 6.3 2.8 3.5
Brazil 5.5 6.9 -1.4
United States 4.0 0.0 4.0
Chile 2.8 0.7 2.1
United Kingdom 2.3 0.0 2.3
Philippines 1.9 0.9 1.0
Mexico 1.3 2.1 -0.8
Bangladesh 1.0 0.0 1.0
Canada 0.9 0.0 0.9
Turkey 0.5 1.4 -0.9
Thailand 0.2 3.9 -3.7
South Africa 0.0 3.9 -3.9
Saudi Arabia 0.0 3.4 -3.4
Malaysia 0.0 3.0 -3.0
Kuwait 0.0 1.2 -1.2
Qatar 0.0 1.1 -1.1
Poland 0.0 0.8 -0.8
United Arab Emirates 0.0 0.8 -0.8
Greece 0.0 0.6 -0.6
Colombia 0.0 0.2 -0.2
Egypt 0.0 0.2 -0.2
Peru 0.0 0.1 -0.1
Cash and Other Assets, Less Liabilities 4.4 0.0 4.4

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

Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 0.0 0.0 0.0
Large Cap ($10B-$25B) 4.5 0.0 4.5
Mid Cap ($3B-$10B) 41.7 12.1 29.6
Small Cap (under $3B) 49.3 87.9 -38.6
Cash and Other Assets, Less Liabilities 4.4 0.0 4.4

The Portfolio’s market cap exposure breakdown presented is used for comparison purposes and the definition of the capitalization breakdown is from MSCI.

The Fund defines Small Companies as companies with market capitalization no higher than the greater of US$5 billion or the market capitalization of the largest company included in the Fund's primary benchmark, the MSCI Emerging Markets Small Cap Index.

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 $0.00000 $1.52123 $0.22299 $1.74422 5.5% 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 Emerging Markets Small Companies Fund returned -6.67% (Investor Class) and -6.63% (Institutional Class), while its benchmark, the MSCI Emerging Markets Small Cap Index, returned -5.03%.

Market Environment:

Global interest rates in general, and U.S. 10-year yields in particular, continued their northward journey in the third quarter after a strong pick up in the first two quarters of the year. U.S. 10-year yields gained about 1.25% from early August to the end of September after a worse than expected inflation print. China was a notable exception to this trend, where yields were lower at the end of the third quarter than they were at the beginning of the year due to a lack of domestic inflationary pressure and the impact of the country’s zero-COVID policy and stressed real estate market on economic activity.

During the quarter the MSCI Emerging Markets Small Cap Index meaningfully outperformed the broader MSCI Emerging Markets Index due to a strong performance from small-cap equities in Turkey, India, Brazil and Chile. Columbia, China, Hungary and Poland were the worst-performing small-cap emerging markets.

Emerging market currencies had a challenging quarter as jumbo rate rises by the Federal Reserve designed to contain inflation contributed to a very strong U.S. dollar environment. The Mexican peso, Indonesian rupiah and Indian rupee were the best-performing currencies in the period while the Argentine peso, Hungarian forint, South African rand and Russian ruble were the worst performers. To add perspective, some major developed market currencies, such as the British pound, the euro and the Japanese yen, fared worse than some emerging-market currencies in the period.

Performance Contributors and Detractors:

On a country basis, our underweight and stock selection in Taiwan was the biggest contributor to relative performance. Our overweight and stock selection in Indonesia and stock selection in Mexico also contributed to performance. While our overweight in China was the biggest detractor, our stock selection contributed the most to relative performance. Our allocation to Vietnam and stock selection in India and South Korea also hurt performance. From a sector perspective, our stock selection in real estate and overweight and stock selection in financials were the top contributors to relative performance while our stock selection in industrials was the biggest detractor, followed by stock selection in health care.

At the stock level, our Indian holdings benefited from the normalization of economic activity in the country. Phoenix Mills, a retail mall operator, and Lemon Tree Hotels were top contributors as they gained from higher sales and stronger pricing respectively compared with pre-pandemic levels. Our Taiwan technology holdings Andes Technology and M31 Technology recovered from the sell-off earlier in the year and were also strong contributors. On the other hand, holdings that have significant exposure to China such as Airtac International and Silergy were the biggest detractors. Persistent fears about softening economic activity in China tied to its zero-COVID restrictions, challenges in the country’s real-estate market and geo-political concerns over perceived closeness to Russia and ongoing frictions with the U.S. all contributed negatively to market sentiment. While our overweight allocation to China has been a drag on performance, we continue to believe these names have potential to do well in the long term given their market positioning. In addition, as and when the zero-COVID policy normalizes over the coming quarters and economic activity rebounds, we expect market sentiment to likely improve.

Notable Portfolio Changes:

There was limited trading activity during the quarter. We initiated a position in Siam Wellness, a leading Thai spa operator. We expect the company to benefit from a recovery in tourism as well as easing mobility restrictions in Thailand. In our view, Siam will be able to reopen more branches and bring back more therapists as tourism traffic normalizes. China tourists were a meaningful part of the company’s client base before the pandemic and Siam stands to benefit from any resumption in outbound tourism from China. We didn’t exit any securities during the quarter.

Outlook:

The Fed’s interest rate strategy and the market’s expectation of its evolution remain the most important variables impacting near-term regional, sector and currency performance in emerging markets. In addition, we are wary of the impact of the Fed’s interest rate approach on U.S. and global economic activity.

Our other key focus is on China’s zero-COVID policy and its ongoing impact on economic activity. Russia’s invasion of Ukraine and its effect on energy prices (alongside OPEC’s efforts to keep the prices high) also needs careful watching. We expect corporate earnings to moderate in 2022 and we’re mindful about the impact of potentially slowing economic growth on 2023 earnings estimates. This all said, over the coming years we expect the emerging markets gross domestic product (GDP) growth differential with developed markets to improve from a 23-year low in 2022. This, alongside relatively attractive valuations, should potentially lend support to better equity performance against developed markets compared with the last decade.

From a portfolio standpoint, we will look to maintain a balance between different style factors while staying broadly diversified across sectors and countries. As the global economy embarks on a post-pandemic recovery path while contending with macro and external headwinds, we believe small companies will continue to offer long-term growth opportunities given their innovation and domestic consumption orientation. There are also currently quality businesses at attractive valuations in this asset class.

 

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

 

 

 

Average Annual Total Returns - MSMLX as of 09/30/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-22.44% 11.67% 6.74% 6.68% 10.09% 09/15/2008

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 1.51%
Net Expense Ratio 1.35%

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.

Investing in international and emerging markets may involve additional 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 securities involves greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. The Fund is non-diversified as it concentrates its investments in small sized companies. Investing in small- and mid-size companies is more risky and volatile than investing in large companies as they may be more volatile and less liquid than larger companies.

 

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.