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Matthews Emerging Markets Small Companies Fund
MSMLX

The Matthews Emerging Markets Small Companies Fund (Institutional) received the 2023 Refinitiv Lipper Fund Award for Best Emerging Markets Fund over three years. Methodology.

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

2.82%

YTD Return

(as of 02/27/2024)

$26.24

NAV

(as of 02/27/2024)

+0.05

1 Day NAV Change

(as of 02/27/2024)

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 $639.89 million (01/31/2024)
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.
Fees & Expenses
Gross Expense Ratio 1.49%
Net Expense Ratio 1.37%

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 Small Companies Fund - MSMLX
09/15/2008
MSMLX
-2.23% 9.96% -2.23% 8.07% 4.76% 13.93% 8.25% 10.93%
MSCI Emerging Markets Small Cap Index
-1.71% 12.61% -1.71% 15.50% 6.34% 8.88% 5.84% 7.07%
As of 12/31/2023
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
2.90% 5.40% 19.88% 19.88% 6.79% 15.48% 8.13% 11.16%
MSCI Emerging Markets Small Cap Index
4.48% 9.05% 24.49% 24.49% 6.99% 10.41% 5.74% 7.23%
For the years ended December 31st
Name 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014
Matthews Emerging Markets Small Companies Fund - MSMLX
MSMLX
19.88% -16.84% 22.14% 43.68% 17.38% -18.05% 30.59% -1.44% -9.43% 11.39%
MSCI Emerging Markets Small Cap Index
24.49% -17.54% 19.29% 19.72% 11.93% -18.30% 34.22% 2.56% -6.57% 1.34%

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 12/31/2023)

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 721 funds
  • 3 YEAR
  • out of 721 funds
  • 5 YEAR
  • out of 656 funds
  • 10 YEAR
  • out of 402 funds
  • 1 YEAR
  • 1st
  • 97 out of 785 funds
  • 3 YEAR
  • 1st
  • 14 out of 691 funds
  • 5 YEAR
  • 1st
  • 2 out of 631 funds
  • 10 YEAR
  • 1st
  • 2 out of 381 funds
  • SINCE INCEPTION
  • 1st
  • 1 out of 202 funds

Best Emerging Markets Fund Over 3 Years

MISMX honored with 2023 Refinitiv Lipper Fund Award.

Methodology

Ratings agency calculation methodology

Portfolio Managers

Vivek  Tanneeru photo
Vivek Tanneeru

Lead Manager

Jeremy  Sutch, CFA photo
Jeremy Sutch, CFA

Co-Manager

Alex  Zarechnak photo
Alex Zarechnak

Co-Manager

Portfolio Characteristics

(as of 12/31/2023)
Fund Benchmark
Number of Positions 78 1,986
Weighted Average Market Cap $4.0 billion $1.8 billion
Active Share 97.4 n.a.
P/E using FY1 estimates 16.9x 14.5x
P/E using FY2 estimates 13.6x 12.5x
Price/Cash Flow 9.8 7.2
Price/Book 2.1 1.5
Return On Equity 12.2 14.1
EPS Growth (3 Yr) 26.3% 23.3%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 12/31/2023)
0.62%
Alpha
0.91
Beta
88.57%
Upside Capture
90.10%
Downside Capture
0.25
Sharpe Ratio
-0.02
Information Ratio
10.53%
Tracking Error
65.67

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 01/31/2024)
Name Sector Country % Net Assets
Shriram Finance, Ltd. Financials India 7.1
Bandhan Bank, Ltd. Financials India 5.8
M31 Technology Corp. Information Technology Taiwan 3.7
Full Truck Alliance Co., Ltd. Industrials China/Hong Kong 3.1
Phoenix Mills, Ltd. Real Estate India 2.9
Hugel, Inc. Health Care South Korea 2.8
Legend Biotech Corp. Health Care China/Hong Kong 2.7
Vamos Locacao de Caminhoes Maquinas e Equipamentos SA Industrials Brazil 2.5
YDUQS Participacoes SA Consumer Discretionary Brazil 2.4
Airtac International Group Industrials China/Hong Kong 2.4
TOTAL 35.4

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
Industrials 23.8 16.8 7.0
Information Technology 18.4 17.7 0.7
Financials 18.2 10.5 7.7
Consumer Discretionary 16.8 11.6 5.2
Health Care 10.9 9.4 1.5
Real Estate 5.9 6.2 -0.3
Communication Services 2.1 3.8 -1.7
Consumer Staples 1.7 6.5 -4.8
Materials 1.5 12.3 -10.8
Utilities 0.7 3.4 -2.7
Energy 0.0 1.9 -1.9
Liabilities in Excess of Cash and Other Assets -0.1 0.0 -0.1

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 28.7 7.5 21.2
India 23.8 25.7 -1.9
Taiwan 11.6 22.3 -10.7
Brazil 11.2 5.3 5.9
South Korea 7.2 13.4 -6.2
Vietnam 4.5 0.0 4.5
Chile 3.5 0.9 2.6
Philippines 2.3 0.8 1.5
Saudi Arabia 1.7 3.8 -2.1
Poland 1.6 1.3 0.3
Indonesia 1.5 1.9 -0.4
Thailand 0.9 3.2 -2.3
Turkey 0.6 2.0 -1.4
Bangladesh 0.5 0.0 0.5
United Arab Emirates 0.2 1.1 -0.9
Mexico 0.1 2.2 -2.1
South Africa 0.0 3.5 -3.5
Malaysia 0.0 2.4 -2.4
Kuwait 0.0 1.0 -1.0
Qatar 0.0 0.7 -0.7
Greece 0.0 0.5 -0.5
Egypt 0.0 0.4 -0.4
Hungary 0.0 0.1 -0.1
Liabilities in Excess of Cash and Other Assets -0.1 0.0 -0.1

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) 5.3 0.1 5.2
Mid Cap ($3B-$10B) 43.5 16.5 27.0
Small Cap (under $3B) 51.3 83.4 -32.1
Liabilities in Excess of Cash and Other Assets -0.1 0.0 -0.1

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)
12/13/2023 12/14/2023 $0.40545 $0.00000 $1.72886 $2.13431 7.9% N.A.
12/13/2022 12/14/2022 $0.08965 $0.14027 $1.62616 $1.85608 7.3% 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 December 31, 2023

For the year ending December 31, 2023, the Matthews Emerging Markets Small Companies Fund returned 19.88% (Investor Class) and 20.12% (Institutional Class), while its benchmark, the MSCI Emerging Markets Small Cap Index, returned 24.49% over the same period. For the fourth quarter, the Fund returned 5.40% (Investor Class) and 5.47% (Institutional Class), while the benchmark returned 9.05%.

Market Environment   

2023 was a year of opportunities and challenges marked by two distinct narratives: the Federal Reserve’s ‘higher for longer’ interest rate strategy and China’s labored and ongoing struggle to recover from the pandemic. Elevated interest rates and a strong U.S. dollar posed headwinds while China’s travails impacted the economies of other markets like Thailand. But there were also strong performances by markets like India which benefited from national infrastructure programs and strong domestic investor inflows. Smaller companies in emerging markets also thrived in many cases in 2023. And toward the end of the year there was a general consensus that inflation had peaked in the global economy and that the Fed would pivot toward cutting rates in 2024. This provided some tailwinds across markets. 
 
Hungary was the best-performing emerging market in the benchmark index during 2023, followed by Poland, Egypt and Greece, while larger markets like South Korea, Brazil and India and Mexico delivered robust returns. China/Hong Kong was the worst-performer followed by Thailand and Kuwait. From a sector perspective, information technology (IT) was the top performer, supported by market exuberance over advancements in commercial artificial intelligence (AI), while consumer discretionary and real estate were the worst performers, impacted in part by China’s challenges in these sectors. 

From a currency perspective, Latin American currencies like the Colombian peso, Mexican peso and Brazilian real appreciated against the U.S. dollar alongside Eastern European currencies like the Polish zloty and Hungarian forint. The Argentinian peso, Turkish lira and South African rand were the worst performers.

Performance Contributors and Detractors  

From a country perspective, stock selection in South Korea was the top contributor to total and relative returns. Stock selection in Brazil and an underweight in Thailand also contributed. On the flip side,
an overweight to China/Hong Kong was by far the biggest detractor to total and relative returns in the period. As the year progressed, markets grew more pessimistic about the prospects of China’s economic recovery, for a turnaround in its real estate sector and for an improvement in consumer sentiment. In our view, the MSCI Emerging Markets Small Cap Index has a much smaller allocation to China than is warranted as it doesn’t have mainland A-shares representation, and this accounts for the bulk of the small-cap investment universe in China. An underweight and stock selection in India also impacted relative performance. 

At the sector level, stock selection in consumer discretionary, an underweight and stock selection in consumer staples and an overweight and stock selection in financials contributed to returns. In contrast, stock selection in industrials, IT and communication services were the biggest detractors to relative returns. 
 
From a holdings perspective, Ecopro BM, a South Korean cathode maker, Shriram Finance, an Indian financial services provider, and YDUQS, a Brazilian on-campus and distance-learning education company, were among the top contributors to relative returns. Ecopro BM’s share price rallied on the expectations of a strong pickup in orders from U.S. battery manufacturing capex spend. Shriram continued to deliver strong results and, given its very attractive valuations, the stock performed well. YDUQS recovered well from pandemic-related weakness and as Brazilian interest rates started dropping, the market took a more positive view on the company’s reduced debt-servicing burden. Very depressed valuations earlier in the year also helped the stock perform well.

On the other hand, China consumption-oriented names such as Hainan Meilan International Airport Co., Beijing Capital International Airport Co. and Xtep International, a sporting goods company, were among the biggest detractors to relative returns in the year. The Chinese airport operators were weak on the back of reduced expectations of a rebound in consumption broadly, and in air travel services, in particular, as 2023 progressed. We remain positive on the longer-term outlook for international travel in the case of Beijing Capital International Airport and for domestic tourist arrivals in the case of Hainan Meilan, despite near-term headwinds as people tilt their travel budgets internationally.

Notable Portfolio Changes  

In 2023, we participated in the initial public offering (IPO) of Wuxi XDC. The company is an affiliate of Wuxi Biologics, a leading Chinese contract, development and manufacturing entity. XDC specializes in bioconjugates, including anti-body drug conjugates, a promising area of growth within the biotech industry globally. Among our exits, we sold 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 

Today, emerging markets contain many companies with solid business models and quality management. In addition, U.S. interest rates are looking downward which should create some macro tailwinds for the coming year. As well as the macro landscape and global trade, our focus in 2024 will be on key emerging markets that are generating robust growth, like India, and those that are challenged, like China, and how they can affect the dynamics of other emerging markets. We are also focused on economies that might be turning a corner like Turkey.

Longer term, 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, alongside relatively attractive valuations, should potentially lend support to better equity performance against developed markets compared with the last decade.

We believe small companies in emerging markets offer long-term growth opportunities given their innovation and domestic consumption orientation while also being less exposed to regulatory and geo-political risks. We continue to find quality businesses at attractive valuations in this asset class.

 

View the Fund’s Top 10 holdings as of December 31, 2023. Current and future holdings are subject to change and risk.

Average Annual Total Returns - MSMLX as of 12/31/2023
1YR 3YR 5YR 10YR Since Inception Inception Date
19.88% 6.79% 15.48% 8.13% 11.16% 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 1.49%
Net Expense Ratio 1.37%

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.

 

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.