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Matthews Emerging Markets Sustainable Future Fund
MASGX

The Matthews Asia ESG Fund won the inaugural 2021 UNCTAD Sustainable Emerging Market Fund Award. Press Release. Methodology.

Formerly known as the Matthews Asia ESG Fund.

Snapshot
  • Unconstrained strategy focused on companies that make a positive environmental, social and economic impact in emerging markets
  • All-cap portfolio with diversified emerging and frontier market exposures
  • Deep bottom-up fundamental approach that seeks to generate attractive long-term risk-adjusted returns by investing in well-governed companies

04/30/2015

Inception Date

-0.88%

YTD Return

(as of 03/21/2023)

$12.40

NAV

(as of 03/21/2023)

+0.13

1 Day NAV Change

(as of 03/21/2023)

Objective

Long-term capital appreciation

Strategy

Under normal circumstances, the Matthews Emerging Markets Sustainable Future 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 of any market capitalization located in emerging market countries that satisfy one or more of the Fund’s environmental, social and governance (“ESG”) standards. 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.

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. Matthews Emerging Markets Sustainable Future Fund’s consideration of ESG factors in making its investment decisions may impact the Fund’s relative investment performance positively or negatively.

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

Fund Facts
Inception Date 04/30/2015
Fund Assets $207.30 million (02/28/2023)
Currency USD
Ticker MASGX
Cusip 577-130-727
Portfolio Turnover 31.5%
Benchmark MSCI Emerging Markets Index MSCI All Country Asia ex Japan 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 1.35%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 02/28/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Sustainable Future Fund - MASGX
04/30/2015
MASGX
-6.87% -4.84% -1.36% -6.95% 12.27% 6.44% n.a. 6.81%
MSCI Emerging Markets Index
-6.48% -0.45% 0.92% -14.91% 1.34% -1.50% n.a. 1.71%
MSCI All Country Asia ex Japan Index
-6.81% 0.71% 0.85% -14.07% 1.62% -0.61% n.a. 2.42%
As of 12/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Sustainable Future Fund - MASGX
04/30/2015
MASGX
-3.53% 11.90% -14.38% -14.38% 10.99% 6.79% n.a. 7.15%
MSCI Emerging Markets Index
-1.35% 9.79% -19.74% -19.74% -2.34% -1.03% n.a. 1.63%
MSCI All Country Asia ex Japan Index
-0.14% 11.43% -19.36% -19.36% -1.15% -0.34% n.a. 2.36%
For the years ended December 31st
Name 2022 2021 2020 2019 2018 2017 2016
Matthews Emerging Markets Sustainable Future Fund - MASGX
MASGX
-14.38% 11.76% 42.87% 12.55% -9.73% 33.79% -1.40%
MSCI Emerging Markets Index
-19.74% -2.22% 18.69% 18.88% n.a. n.a. n.a.
MSCI All Country Asia ex Japan Index
-19.36% -4.46% 25.36% 18.52% -14.12% 42.08% 5.76%

Before July 29, 2022, the Fund was managed with a slightly different investment strategy and may have achieved different performance results under its current investment strategy from the performance shown for periods before that date.

Effective July 29, 2022, in connection with changes to the Fund’s name and principal investment strategies, the primary benchmark changed from the MSCI All Country Asia ex Japan Index to the MSCI Emerging Markets Index.

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 12/31/2022)

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 48 funds
  • 3 YEAR
  • out of 48 funds
  • 5 YEAR
  • out of 44 funds
  • 1 YEAR
  • 2nd
  • 9 out of 28 funds
  • 3 YEAR
  • 1st
  • 2 out of 25 funds
  • 5 YEAR
  • 1st
  • 2 out of 24 funds
  • SINCE INCEPTION
  • 1st
  • 2 out of 23 funds

Ratings agency calculation methodology

Portfolio Managers

Vivek  Tanneeru photo
Vivek Tanneeru

Lead Manager

Portfolio Characteristics

(as of 12/31/2022)
Fund Benchmark
Number of Positions 55 1,377
Weighted Average Market Cap $19.6 billion $95.0 billion
Active Share 96.3 n.a.
P/E using FY1 estimates 20.2x 10.6x
P/E using FY2 estimates 15.4x 10.9x
Price/Cash Flow 11.1 6.3
Price/Book 2.7 1.6
Return On Equity 6.9 17.0
EPS Growth (3 Yr) 12.1% 12.3%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 12/31/2022)
13.30%
Alpha
1.07
Beta
129.64%
Upside Capture
81.78%
Downside Capture
0.41
Sharpe Ratio
1.08
Information Ratio
11.19%
Tracking Error
80.33

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 02/28/2023)
Name Sector Country % Net Assets
Bandhan Bank, Ltd. Financials India 5.9
Full Truck Alliance Co., Ltd. Industrials China/Hong Kong 5.1
Samsung SDI Co., Ltd., Pfd. Information Technology South Korea 4.7
JD Health International, Inc. Consumer Discretionary China/Hong Kong 4.7
Shriram Finance, Ltd. Financials India 4.6
Legend Biotech Corp. Health Care United States 4.6
Meituan Consumer Discretionary China/Hong Kong 4.3
Ecopro BM Co., Ltd. Industrials South Korea 3.8
Hong Kong Exchanges & Clearing, Ltd. Financials China/Hong Kong 3.4
Airtac International Group Industrials China/Hong Kong 3.1
TOTAL 44.2

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 12/31/2022)
  • Sector Allocation
  • Country Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Industrials 25.0 6.1 18.9
Financials 20.4 22.1 -1.7
Consumer Discretionary 16.4 14.1 2.3
Information Technology 12.3 18.6 -6.3
Health Care 11.2 4.1 7.1
Real Estate 6.0 1.9 4.1
Consumer Staples 5.0 6.4 -1.4
Communication Services 2.0 9.9 -7.9
Utilities 0.8 3.0 -2.2
Materials 0.0 8.9 -8.9
Energy 0.0 4.9 -4.9
Cash and Other Assets, Less Liabilities 1.0 0.0 1.0

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 40.3 32.4 7.9
India 22.1 14.4 7.7
Taiwan 7.6 13.7 -6.1
South Korea 7.2 11.3 -4.1
United States 6.3 0.0 6.3
Brazil 2.8 5.3 -2.5
Poland 2.1 0.7 1.4
Indonesia 2.0 1.9 0.1
Netherlands 1.6 0.0 1.6
Vietnam 1.6 0.0 1.6
Saudi Arabia 1.3 4.1 -2.8
Romania 1.2 0.0 1.2
Bangladesh 1.1 0.0 1.1
Jordan 1.1 0.0 1.1
Estonia 0.8 0.0 0.8
South Africa 0.0 3.7 -3.7
Mexico 0.0 2.3 -2.3
Thailand 0.0 2.2 -2.2
Malaysia 0.0 1.6 -1.6
United Arab Emirates 0.0 1.3 -1.3
Qatar 0.0 1.0 -1.0
Kuwait 0.0 0.9 -0.9
Philippines 0.0 0.7 -0.7
Turkey 0.0 0.7 -0.7
Chile 0.0 0.6 -0.6
Greece 0.0 0.3 -0.3
Peru 0.0 0.3 -0.3
Hungary 0.0 0.2 -0.2
Colombia 0.0 0.1 -0.1
Czech Republic 0.0 0.1 -0.1
Egypt 0.0 0.1 -0.1
Cash and Other Assets, Less Liabilities 1.0 0.0 1.0

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

Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 22.9 52.1 -29.2
Large Cap ($10B-$25B) 8.0 22.8 -14.8
Mid Cap ($3B-$10B) 48.6 23.0 25.6
Small Cap (under $3B) 19.5 2.0 17.5
Cash and Other Assets, Less Liabilities 1.0 0.0 1.0

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.

Portfolio Breakdown benchmark reflects the MSCI Emerging Markets Index as of 12/31/22.

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)
12/13/2022 12/14/2022 $0.04203 $0.06010 $0.57198 $0.67411 4.9% 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, 2022

For the year ending December 31, 2022, the Matthews Emerging Markets Sustainable Future Fund returned -14.38% (Investor Class) and -14.32% (Institutional Class), while its benchmark, the MSCI Emerging Markets Index, returned -19.74% over the same period. For the fourth quarter, the Fund returned 11.90% (Investor Class) and 11.87% (Institutional Class), while the benchmark returned 9.79%.

Market Environment:

In 2022, the U.S. and many other parts of the developed world saw high rates of inflation that they hadn’t experienced since the 1980s. The U.S. Federal Reserve increased the Fed funds rate seven times last year after guiding for a transitory inflation for much of 2021. This led to strong U.S. dollar performance that peaked around the end of the third quarter. Inflation was less of a challenge in key emerging markets like China, partly because of suppressed economic activity resulting from China’s zero-COVID policy which was in place for much of 2022, and because where inflation was elevated, a number of central banks proactively addressed it by sharply increasing rates.

Nonetheless, emerging markets currencies were not completely immune to the impact of a very strong greenback. Among Latin American currencies, the Brazilian real, Mexican peso and Peruvian sol gained over 5% against the dollar in 2022, while the Argentine peso and Turkish lira were the worst performers as a result of runaway inflation. For perspective, some major developed market currencies, such as the Japanese yen, British pound and the euro, fared worse than some emerging-market currencies.

For the year, Turkey was the best performing emerging market, followed by Chile and Brazil. Asian markets like South Korea, Taiwan and China were among the worst-performing emerging markets alongside Eastern European markets including Hungary and Poland. Many of the poor performers for the full year turned in robust performances in the fourth quarter as markets in Asia particularly were aided by China’s lifting of its pandemic restrictions.

Performance Contributors and Detractors:

On a country basis, our stock selection and overweight in both China and India were the biggest contributors to relative performance during the year, followed by our stock selection and underweight to Taiwan. On the other hand, our underweight to Brazil and stock selection in Indonesia detracted from performance.

From a sector perspective, stock selection in consumer discretionary was the biggest contributor to relative performance during the year. Our stock selection in health care and allocation to industrials also contributed positively. On the flip side, our stock selection in financials was the biggest detractor from relative performance.

At the stock level, as China’s zero-COVID policy was lifted toward the end of 2022, our Chinese portfolio holdings in general and holdings in JD Health and Full Truck Alliance, in particular, rebounded strongly and contributed positively to relative performance. JD Health, an internet health care platform, was the top performer as it benefited from a surge in demand for health care products and services during the latest wave of COVID and also on expectations of favorable regulatory changes. Full Truck Alliance, an online freight platform, gained as a result of China reopening expectations and rebound in economic activity that would be beneficial to its revenue growth and also on expectations of movement restrictions that constrained trucking industry being lifted. Our Indian holdings also benefited from the normalization of economic activity in the country. Phoenix Mills, a retail mall operator, and Lemon Tree Hotels were among top contributors amid stronger pricing and/or higher sales in these consumer segments compared with pre-pandemic levels. Conversely, electric vehicle (EV) supply-chain names underperformed toward the end of 2022 on worries about developed world economic growth potentially softening in 2023 at a time when the EV industry is rapidly increasing production capacity. South Korean EV component company Solus Advanced Materials, which has manufacturing operations in Europe, was one of the biggest detractors for the year amid concerns about its cost competitiveness given a significant increase in energy prices in Europe. We retain a positive view on the long-term demand trends for the EV industry and the competitiveness of Asian battery cell makers within it.

Notable Portfolio Changes:

In 2022, we initiated a position in Brazilian education services and technology provider YDUQS. The company has higher-education offerings in an on-campus setting as well as digital learning. YDUQS is among leading players in the distance-learning programs in Brazil which makes education possible for students from lower-income households and students who work. YDUQS has strong governance, and a good track record of social and community engagement and environmental stewardship, in our view. It also stands to benefit if the Lula administration decides to support the education sector through increased funding. During the fourth quarter, we exited a position in MTR Corp., a Hong Kong mass transit operator, and redeployed the capital elsewhere.

Outlook:

The Fed’s interest rate strategy and the market’s expectation of its evolution continue to be the most important variables impacting the near-term regional, sector and currency performance in emerging markets. We expect the impact of Fed’s actions in 2023 to be less than it was in 2022 as the tightening cycle enters late stages. In addition, we are also wary of the cumulative impact of the Fed’s interest rate hikes on U.S. and developed world economic activity.

Our other key focus in 2022 was the evolution of China’s zero-COVID policy and its impact on economic activity in the country. This has largely been resolved given the unexpected lifting of most COVID restrictions in China in late 2022. Elsewhere, Russia’s invasion of Ukraine and its effect on energy prices— alongside OPEC’s efforts to keep the prices high—needs careful watching, especially as Chinese economic activity is likely to pick up as 2023 progresses.

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.

Companies that address critical challenges, such as climate change and inclusive development, will continue to thrive, in our view. And for investors interested in sustainability themes, including reducing carbon emissions, alleviating poverty and creating greater financial inclusion in the developing world, emerging markets remains a key investment destination. To tackle sustainable themes globally, we believe we need to include the world’s most populous economies, many of which lie in emerging markets.  As the post-COVID global economic recovery matures and markets contend with macro headwinds and volatility, we believe there are attractive opportunities for alpha generation throughout our large, diverse, sustainable investment universe.

Top 10 holdings as of December 31, 2022. Current and future holdings are subject to change and risk.

Average Annual Total Returns - MASGX as of 12/31/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-14.38% 10.99% 6.79% N.A. 7.15% 04/30/2015

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 1.35%

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. Matthews Emerging Markets Sustainable Future Fund’s consideration of ESG factors in making its investment decisions may impact the Fund’s relative investment performance positively or negatively.

 

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.