The Matthews Emerging Markets Small Companies Fund (Institutional) received the 2023 Refinitiv Lipper Fund Award for Best Emerging Markets Fund over three years. Methodology.
09/15/2008
Inception Date
13.74%
YTD Return
(as of 09/22/2023)
$26.25
NAV
(as of 09/22/2023)
+0.17
1 Day NAV Change
(as of 09/22/2023)
Long-term capital appreciation
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.
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.
| Inception Date | 09/15/2008 | |
| Fund Assets | $574.08 million (08/31/2023) | |
| Currency | USD | |
| Ticker | MSMLX | |
| Cusip | 577-125-206 | |
| Portfolio Turnover | 27.9% | |
| 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. | |
| Gross Expense Ratio | 1.49% | |
| Net Expense Ratio | 1.37% | |
| 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 $5 billion or the market capitalization of the largest company included in the Fund's primary benchmark, the MSCI Emerging Markets Small Cap Index. |
| Risks |
Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange rate fluctuations, a high level of volatility and limited regulation. Additionally, investing in emerging and frontier securities involves greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. The Fund is non-diversified as it concentrates its investments in small sized companies. Investing in small- and mid-size companies is more risky and volatile than investing in large companies as they may be more volatile and less liquid than larger companies.
The risks associated with investing in the Fund can be found in the prospectus |
Before April 30, 2021, the Fund was managed with a materially different investment strategy and may have achieved materially different performance results under its current investment strategy from the performance shown for periods before that date.
MSCI Emerging Markets Small Cap Index since inception value calculated from 9/15/08.
Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.
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.
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.
(as of 06/30/2023)
CATEGORY: Diversified Emerging Mkts
| OVERALL | 5 stars | out of 723 funds |
| 3 YEAR | 5 stars | out of 723 funds |
| 5 YEAR | 5 stars | out of 646 funds |
| 10 YEAR | 5 stars | out of 385 funds |
(as of 06/30/2023)
CATEGORY: Emerging Markets Funds
| 1 YEAR | 1st | 47 out of 788 funds |
| 3 YEAR | 1st | 10 out of 698 funds |
| 5 YEAR | 1st | 2 out of 622 funds |
| 10 YEAR | 1st | 2 out of 372 funds |
| SINCE INCEPTION | 1st | 1 out of 207 funds |
MISMX honored with 2023 Refinitiv Lipper Fund Award.
MethodologyRatings agency calculation methodology
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.
Lead Manager
Portfolio Manager
Vivek Tanneeru is a Portfolio Manager at Matthews and manages the firm’s Emerging Markets Sustainable Future, Emerging Markets Small Companies, Asia Small Companies and Asia Sustainable Future Strategies. Prior to joining Matthews in 2011, Vivek was an Investment Manager on the Global Emerging Markets team of Pictet Asset Management in London. While at Pictet, he also worked on the firm’s Global Equities team, managing Japan and Asia ex-Japan markets. Before earning his MBA from the London Business School in 2006, Vivek was a Business Systems Officer at The World Bank and served as a Consultant at Arthur Andersen Business Consulting and Citicorp Infotech Industries. He interned at Generation Investment Management while studying for his MBA Vivek received his Master’s in Finance from the Birla Institute of Technology & Science in India. He is fluent in Hindi and Telugu.
Co-Manager
Portfolio Manager
Jeremy Sutch is a Portfolio Manager at Matthews and co-manages the firm’s Emerging Markets Small Companies, Asia Small Companies and Asia ex Japan Total Return Equity Strategies. Prior to joining Matthews in 2015, he was Director and Global Head of Emerging Companies at Standard Chartered Bank in Hong Kong from 2012 to 2015, responsible for the fundamental analysis of companies in Asia, with a particular focus on small- and mid-capitalization companies. From 2009 to 2012, he was Managing Director at MJP Capital in Hong Kong, which he co-founded. His prior experience has included managing small-cap equities at Indus Capital Advisors and serving as Head of Hong Kong Research for ABN AMRO Asia Securities. Jeremy earned an M.A. in French and History from the University of Edinburgh.
Co-Manager
Portfolio Manager
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.
Sources: Factset Research Systems, Inc.
Fund Risk Metrics are reflective of Investor share class.
Sources: Zephyr StyleADVISOR
Top 10 holdings may combine more than one security from the same issuer and related depositary receipts.
Source: BNY Mellon Investment Servicing (US) Inc.
Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.
Not all countries are included in the benchmark index(es).
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.
Visit our Glossary of Terms page for definitions and additional information.
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 Small Companies Fund returned 14.00% (Investor Class) and 14.11% (Institutional Class), while its benchmark, the MSCI Emerging Markets Small Cap Index, returned 10.73% over the same period. For the quarter ending June 30, 2023, the Fund returned 8.05% (Investor Class) and 8.10% (Institutional Class), while the benchmark returned 6.53%.
Market Environment:
There were two key developments during the first six months of the year. Firstly, the market has been surprised by the persistence of higher inflation and as a result peak interest rate expectations in the western world have been steadily revised up. Secondly, there was the market’s excitement about the potential of artificial intelligence (AI), with the release of very successful, large language and stable diffusion models and blowout quarterly results and guidance from NVIDIA, a key player in the space, which together triggered a reassessment of the growth prospects of large tech companies. This led to a very top-heavy performance of equity markets, in the U.S. in particular.
During the period, the attractiveness of large emerging markets also came into focus as they were relatively well positioned from an inflation perspective, with either low inflation or high real interest rates. Latin American currencies like the Columbian peso, Mexican peso, Brazilian real, Chilean peso and Peruvian sol performed well against the U.S. dollar while currencies in inflation-hit countries like Turkey and Argentina performed poorly.
Brazil, after aggressively raising interest rates to fight inflation starting in early 2021, has seemingly reached the top of the rate cycle. With the potential moderation in inflation in sight, the market has taken a positive view on the trajectory of rates from here and the potential boost lower rates could provide the economy.
In the first half, Greece, Saudi Arabia and Hungary, alongside Brazil, were among the best performing markets in the MSCI Emerging Markets Small Cap Index, while China, Turkey, Thailand and South Africa were the worst performers. From a sector perspective, IT and industrials were the best performers while energy and real estate were the weakest.
Performance Contributors and Detractors:
From a country perspective, our stock selections in South Korea, Brazil and India were the biggest contributors to relative performance in the first half of the year. Our underweight to Thailand and lack of exposure to South Africa also contributed. On the other hand, despite our positive stock selection, our overweight to China was the biggest detractor amid negative sentiment over the country’s uneven economy recovery and geopolitical tensions. Our underweight to Taiwan was also a detractor. At the sector level, stock selections in financials and consumer discretionary were the top contributors while our underweight to consumer staples also had a positive impact. On the flip side, selections in IT and an overweight and selections in health care were the biggest detractors.
At the holdings level, Brazilian company YDUQS was among the top contributors. YDUQS, a leading on-campus and distance-learning education company, navigated the COVID-19 related-slowdown successfully and has positioned itself to benefit from improvements in household finances on account of expected lower interest rates, which will enable more low-mid income families to enroll students in its programs. The company could also see reduced interest payment burdens and potentially benefit from any increase in government-sponsored tuition support programs. On the flip side, our Chinese or China-exposed holdings such as Silergy, a Taiwanese analog semiconductor company, Hugel, a South Korean botulin toxin maker, and Hainan Meilan International Airport, a Chinese airport operator, were among the biggest detractors as the market worried about the slow pace of the Chinese economic recovery. We remain positive about the long-term prospects of these companies and our base case remains a steady, not spectacular, recovery of the Chinese economy over the coming quarters.
Notable Portfolio Changes:
We initiated a position in Aguas Andinas, a leading water utilities company in Chile, which provides services for water collection, and the production, transportation and distribution of drinking water as well as sewage collection, treatment and disposal. It operates under a unique regulatory environment in Chile that uses a model greenfield company method to set tariffs. This has incentivized strong investments into the water and sewage infrastructure and has enabled Chile to achieve drinking and sewage water treatment standards that are among the highest in the world. The company also offers steady growth and an attractive dividend yield.In the period we exited Lemon Tree, an Indian mid-market hotel chain operator, to take profits, and sold our position in Bank Tabungan Negara in Indonesia to deploy capital elsewhere.
Outlook:
The U.S. Fed’s interest rate strategy and the market’s expectation of its evolution were the most important variables impacting the performance of emerging markets over the last few quarters. With the Fed seemingly coming close to the end of the interest rate hiking cycle, the focus will now shift to assessing the cumulate impact of all the rate hikes on economic growth prospects over the coming quarters.
Like during the first half, our focus in the second half of 2023 will be on assessing how China’s economic recovery and growth prospects play out and how they might affect the dynamics of other emerging markets. And Russia’s invasion of Ukraine and its effect on energy prices—alongside OPEC’s (Organization of the Petroleum Exporting Countries) persistent efforts to keep the prices high—will need ongoing, careful monitoring; although to a lesser extent than in 2022.
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 reached in 2022. This development, alongside relatively attractive valuations, should potentially lend support to better equity performance against developed markets compared with the last decade.
As the global economy wades through a tricky 2023, we believe small companies in emerging markets offer long-term growth opportunities given their innovation and domestic consumption orientation. We continue to find quality businesses at attractive valuations in this asset class.
Top 10 holdings as of June 30, 2023. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MSMLX 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.
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.