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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

-15.31%

YTD Return

(as of 08/09/2022)

$25.34

NAV

(as of 08/09/2022)

+0.03

1 Day NAV Change

(as of 08/09/2022)

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 $353.40 million (07/31/2022)
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 07/31/2022
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
1.19% -1.40% -17.35% -17.39% 15.52% 9.09% 8.55% 10.86%
MSCI Emerging Markets Small Cap Index
2.90% -9.34% -17.53% -16.93% 7.76% 3.74% 4.98% 6.31%
As of 06/30/2022
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
-6.93% -8.09% -18.32% -15.79% 14.31% 9.48% 8.39% 10.84%
MSCI Emerging Markets Small Cap Index
-10.46% -16.28% -19.85% -20.29% 6.24% 3.89% 4.67% 6.13%
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 06/30/2022)

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 54 funds
  • 3 YEAR
  • out of 54 funds
  • 5 YEAR
  • out of 49 funds
  • 10 YEAR
  • out of 36 funds
  • 1 YEAR
  • 1st
  • 43 out of 782 funds
  • 3 YEAR
  • 1st
  • 2 out of 702 funds
  • 5 YEAR
  • 1st
  • 3 out of 605 funds
  • 10 YEAR
  • 1st
  • 3 out of 346 funds
  • SINCE INCEPTION
  • 1st
  • 1 out of 204 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 06/30/2022)
Fund Benchmark
Number of Positions 60 1,827
Weighted Average Market Cap $4.3 billion $1.5 billion
Active Share 98.8 n.a.
P/E using FY1 estimates 15.2x 10.2x
P/E using FY2 estimates 11.6x 9.1x
Price/Cash Flow 11.4 6.0
Price/Book 2.5 1.3
Return On Equity 8.7 14.5
EPS Growth (3 Yr) -6.0% 10.5%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 06/30/2022)
9.24%
Alpha
0.75
Beta
82.25%
Upside Capture
61.59%
Downside Capture
0.64
Sharpe Ratio
0.60
Information Ratio
13.35%
Tracking Error
68.18

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 07/31/2022)
Name Sector Country % Net Assets
Ginlong Technologies Co., Ltd. Industrials China/Hong Kong 7.1
Shriram City Union Finance, Ltd. Financials India 6.8
Ecopro BM Co., Ltd. Industrials South Korea 5.2
Bandhan Bank, Ltd. Financials India 5.1
Phoenix Mills, Ltd. Real Estate India 4.6
Legend Biotech Corp. Health Care United States 4.0
Silergy Corp. Information Technology China/Hong Kong 3.8
Lemon Tree Hotels, Ltd. Consumer Discretionary India 3.5
Vamos Locacao de Caminhoes Maquinas e Equipamentos SA Industrials Brazil 3.2
Mobile World Investment Corp. Consumer Discretionary Vietnam 3.0
TOTAL 46.3

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 06/30/2022)
  • Sector Allocation
  • Country Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Industrials 31.2 15.3 15.9
Financials 18.9 10.5 8.4
Information Technology 15.2 17.5 -2.3
Consumer Discretionary 12.9 11.8 1.1
Health Care 10.8 8.8 2.0
Real Estate 8.9 7.0 1.9
Materials 1.1 13.1 -12.0
Communication Services 1.1 3.6 -2.5
Consumer Staples 0.5 6.4 -5.9
Utilities 0.0 3.6 -3.6
Energy 0.0 2.4 -2.4
Liabilities in Excess of Cash and Other Assets -0.5 0.0 -0.5

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

Country Fund Benchmark Difference
China/Hong Kong 29.2 10.6 18.6
India 24.8 21.5 3.3
South Korea 8.8 14.3 -5.5
Vietnam 7.8 0.0 7.8
Indonesia 6.1 2.6 3.5
Taiwan 4.9 20.9 -16.0
United States 4.5 0.0 4.5
Brazil 4.4 6.1 -1.7
Chile 2.6 0.6 2.0
Philippines 2.2 0.9 1.3
Mexico 1.3 2.0 -0.7
United Kingdom 1.3 0.0 1.3
Bangladesh 1.1 0.0 1.1
Canada 1.1 0.0 1.1
Turkey 0.5 1.1 -0.6
Thailand 0.0 4.1 -4.1
South Africa 0.0 4.0 -4.0
Malaysia 0.0 3.0 -3.0
Saudi Arabia 0.0 3.0 -3.0
Kuwait 0.0 1.2 -1.2
Poland 0.0 1.1 -1.1
Qatar 0.0 1.0 -1.0
United Arab Emirates 0.0 0.7 -0.7
Greece 0.0 0.6 -0.6
Colombia 0.0 0.2 -0.2
Egypt 0.0 0.2 -0.2
Hungary 0.0 0.1 -0.1
Peru 0.0 0.1 -0.1
Liabilities in Excess of Cash and Other Assets -0.5 0.0 -0.5

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) 9.7 0.2 9.5
Mid Cap ($3B-$10B) 40.6 7.4 33.2
Small Cap (under $3B) 50.2 92.5 -42.3
Liabilities in Excess of Cash and Other Assets -0.5 0.0 -0.5

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 June 30, 2022

For the first half of 2022, the Matthews Emerging Markets Small Companies Fund returned -18.32% (Investor Class) and -18.21% (Institutional Class), while its benchmark, the MSCI Emerging Markets Small Cap Index, returned -19.85% over the same period. For the quarter ending June 30, 2022, the Fund returned -8.09% (Investor Class) and -8.02% (Institutional Class), while the benchmark returned -16.28%.

Market Environment:

There were mixed fortunes for emerging markets in the first half of the year. Higher-than-expected inflation reads in the U.S. and European Union led the market to anticipate a steeper rate hike cycle. The Fed hiked its rate by 75 basis points (0.75%) in its June meeting, the first such move in almost three decades. Also attendant was the view that the steeper pace of tightening may lead to recession. With no end in sight to the Russian invasion of Ukraine, prices in the oil and gas markets remained elevated notwithstanding periodic pullbacks over recessionary concerns.

Still, in China, after several quarters, sentiment has turned a corner with the expectation that regulatory risk has peaked and the Chinese government is taking a more pragmatic approach to its zero COVID policy and aiding economic activity through a stimulus package. In Latin America, Colombia elected its first ever left-leaning president, solidifying gains for the left in the region following victories for left-leaning candidates in Chile and Peru.

Turkey and Kuwait were the strongest performing markets in the first six months of the year, while Egypt and Hungary were the worst. During the second quarter, Turkey and United Arab Emirates were the strongest while Hungary and Brazil were the biggest laggards.

In the second quarter, all major investable emerging market currencies weakened against a surging U.S. dollar. Currencies of commodity-exporting countries such as Chile, South Africa and Brazil that appreciated strongly in the first quarter gave up some of those gains during the second quarter. During the second quarter the Chilean peso depreciated the most followed by the Hungarian forint and the Turkish lira.

Performance Contributors and Detractors:

India, Vietnam and South Korea were major contributors to relative performance during the first half of the year. India’s contribution was driven by stock selection while the portfolio benefited from being overweight Vietnam and underweight South Korea. On the other hand, our underweight and stock selection in Taiwan was the biggest detractor.

From a sector perspective, stock selection in Industrials and consumer discretionary were the biggest drivers of performance in the first half, while stock selection in information technology and financials detracted from performance.

Turning to individual stocks, Ginlong Technologies, a Chinese solar inverter manufacturer, was the biggest contributor to the Fund’s absolute and relative performance in the first six months. Ginlong continues to benefit from the strong growth in the underlying demand for solar power globally and from distributed solar power in particular. The company’s strong performance stemmed from both domestic and overseas markets and it gained further market share. Looking ahead we see strong demand prospects for solar power on the back of reduced raw material pricing pressures in the supply chain compared to last year. This should benefit the company alongside the progress it is making in the commercial and industrial space as well as with utility projects and storage inverters. On the other hand, technology holdings such as Silergy, Formosa Sumco Technology, and Andes Technology detracted from performance due to rotation away from companies that derive a significant part of their value from growth in the long term. Such stocks face a headwind in a sharply rising interest-rate environment and near-term concerns about the semiconductor demand outlook in light of growing worries about softness in economic growth.

Notable Portfolio Changes:

During the second quarter we initiated positions including Hainan Meilan International Airport, a leading operator that serves Haikou, the capital city of Hainan island province in China. Hainan island is a major tourist destination in China and Haikou airport is a major gateway to the island. We expect the pent-up domestic tourism demand to be strong as China’s government takes a more pragmatic approach to implementing its zero COVID policy while outbound international tourism take off might be a few quarters away pending large-scale mRNA vaccination rollout in China. Meilan Airport has a strong duty-free revenue exposure given it has China’s largest duty-free store area and is expected to benefit from the opening of a new terminal that doubled the airport’s passenger handling capacity both from aeronautical and non-aeronautical revenue lines. The stock was available at very attractive valuations amid COVID-19 related lockdowns in Shanghai and Beijing during the quarter.

We exited positions such as Hua Hong Semiconductor—which was a source of cash to fund other promising ideas—and GMR Power and Urban Infra, a stub holding as a result of a de-merger from an airport operator.

Outlook:

The pace and scope of the Fed’s interest-rate hikes and quantitative tightening and the market’s expectation of its evolution remain the most important variables to watch and will have near-term implications for regional, sector and style performance. Russia’s invasion of Ukraine and its impact on  energy prices also needs careful monitoring.

Overall, the impact of weak external balances and strongly depreciating currencies in addition to rampant inflation in soft and industrial commodities and energy have led to severe stress in frontier countries like Sri Lanka. But generally, larger emerging markets seem to be reasonably well placed to weather the storm. We believe there is sufficient liquidity in emerging markets in general and that there are early signs of the rate hiking cycle coming to a potential close in commodity-orientated markets like Brazil. In many parts of the emerging markets, the COVID-19 vaccination is progressing well and provides hope for economic activity normalization in the coming quarters led by a pickup in the services sector.

From a portfolio standpoint, we will look to maintain a balance between growth and value exposure while staying broadly diversified across sectors and countries. We remain watchful about the impact of input inflation and potentially slower economic growth on corporate earnings for the rest of the year and into 2023. Barring another serious pandemic wave or a major recession, we believe small companies are poised to grow and are available at attractive valuations.

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

 

 

 

Average Annual Total Returns - MSMLX as of 06/30/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-15.79% 14.31% 9.48% 8.39% 10.84% 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.