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Matthews Emerging Markets Sustainable Future Fund
MASGX

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

-12.30%

YTD Return

(as of 12/01/2022)

$13.48

NAV

(as of 12/01/2022)

-0.16

1 Day NAV Change

(as of 12/01/2022)

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 $139.15 million (10/31/2022)
Currency USD
Ticker MASGX
Cusip 577-130-727
Portfolio Turnover 65.6%
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 10/31/2022
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
-2.55% -15.17% -25.44% -29.30% 6.47% 4.62% n.a. 5.35%
MSCI Emerging Markets Index
-3.09% -14.02% -29.16% -30.73% -4.07% -2.73% n.a. -0.01%
MSCI All Country Asia ex Japan Index
-6.09% -18.02% -32.03% -33.74% -4.51% -3.05% n.a. 0.11%
As of 09/30/2022
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
-11.78% -13.15% -23.49% -25.33% 9.06% 5.87% n.a. 5.78%
MSCI Emerging Markets Index
-11.67% -11.42% -26.89% -27.80% -1.71% -1.44% n.a. 0.41%
MSCI All Country Asia ex Japan Index
-12.73% -13.69% -27.62% -28.48% -1.03% -0.91% n.a. 0.96%
For the years ended December 31st
Name 2021 2020 2019 2018 2017 2016
Matthews Emerging Markets Sustainable Future Fund - MASGX
MASGX
11.76% 42.87% 12.55% -9.73% 33.79% -1.40%
MSCI All Country Asia ex Japan Index
-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 09/30/2022)

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 52 funds
  • 3 YEAR
  • out of 52 funds
  • 5 YEAR
  • out of 47 funds
  • 1 YEAR
  • 2nd
  • 9 out of 28 funds
  • 3 YEAR
  • 1st
  • 2 out of 25 funds
  • 5 YEAR
  • 1st
  • 2 out of 23 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 09/30/2022)
Fund Benchmark
Number of Positions 53 1,387
Weighted Average Market Cap $17.2 billion $86.5 billion
Active Share 96.3 n.a.
P/E using FY1 estimates 18.3x 9.9x
P/E using FY2 estimates 13.7x 9.7x
Price/Cash Flow 11.9 6.0
Price/Book 2.5 1.5
Return On Equity 7.4 16.9
EPS Growth (3 Yr) 6.9% 13.1%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 09/30/2022)
11.18%
Alpha
1.08
Beta
120.32%
Upside Capture
80.52%
Downside Capture
0.38
Sharpe Ratio
0.89
Information Ratio
11.34%
Tracking Error
75.15

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
Legend Biotech Corp. Health Care United States 6.5
Shriram City Union Finance, Ltd. Financials India 5.5
Samsung SDI Co., Ltd., Pfd. Information Technology South Korea 5.2
Full Truck Alliance Co., Ltd. Industrials China/Hong Kong 4.9
Bandhan Bank, Ltd. Financials India 4.8
JD Health International, Inc. Consumer Discretionary China/Hong Kong 4.4
Phoenix Mills, Ltd. Real Estate India 3.8
Marico, Ltd. Consumer Staples India 3.8
Hong Kong Exchanges & Clearing, Ltd. Financials China/Hong Kong 3.4
Ecopro BM Co., Ltd. Industrials South Korea 3.0
TOTAL 45.3

Top 10 holdings may combine more than one security from the same issuer and related depositary receipts.
Source: BNY Mellon Investment Servicing (US) Inc.

Presentation PDF Matthews Emerging Markets Sustainable Future Fund Composition as of August 31, 2022

Portfolio Breakdown (%)

(as of 09/30/2022)
  • Sector Allocation
  • Country Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Industrials 23.3 5.8 17.5
Financials 21.6 22.6 -1.0
Consumer Discretionary 14.9 14.0 0.9
Information Technology 13.1 18.3 -5.2
Health Care 11.0 3.9 7.1
Real Estate 7.0 2.0 5.0
Consumer Staples 5.4 6.6 -1.2
Communication Services 2.7 9.7 -7.0
Utilities 0.7 3.2 -2.5
Materials 0.0 8.7 -8.7
Energy 0.0 5.3 -5.3
Cash and Other Assets, Less Liabilities 0.3 0.0 0.3

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 36.5 31.9 4.6
India 27.1 15.3 11.8
South Korea 8.2 10.7 -2.5
United States 7.3 0.0 7.3
Taiwan 7.1 13.7 -6.6
Indonesia 3.1 2.2 0.9
Portugal 2.2 0.0 2.2
Brazil 2.0 5.8 -3.8
Bangladesh 1.6 0.0 1.6
Saudi Arabia 1.0 4.8 -3.8
Romania 1.0 0.0 1.0
Vietnam 1.0 0.0 1.0
United Kingdom 0.9 0.0 0.9
Estonia 0.7 0.0 0.7
South Africa 0.0 3.0 -3.0
Mexico 0.0 2.2 -2.2
Thailand 0.0 2.1 -2.1
Malaysia 0.0 1.5 -1.5
United Arab Emirates 0.0 1.4 -1.4
Qatar 0.0 1.3 -1.3
Kuwait 0.0 0.9 -0.9
Philippines 0.0 0.7 -0.7
Chile 0.0 0.6 -0.6
Poland 0.0 0.5 -0.5
Turkey 0.0 0.4 -0.4
Greece 0.0 0.3 -0.3
Hungary 0.0 0.2 -0.2
Peru 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 0.3 0.0 0.3

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

Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 17.5 52.3 -34.8
Large Cap ($10B-$25B) 15.1 21.4 -6.3
Mid Cap ($3B-$10B) 38.6 22.3 16.3
Small Cap (under $3B) 28.4 4.0 24.4
Cash and Other Assets, Less Liabilities 0.3 0.0 0.3

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 9/30/22.

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)
12/14/2021 12/15/2021 $0.00000 $0.70374 $0.64204 $1.34578 7.8% 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 third quarter ending September 30, 2022, the Matthews Emerging Markets Sustainable Future Fund returned -13.15% (Investor Class) and -13.19% (Institutional Class), while its benchmark, the MSCI Emerging Markets Index, returned -11.42%.

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 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.

Turkey, Brazil, Indonesia and India were the best-performing emerging markets during the third quarter while Poland, China, Colombia and Czech Republic were the worst performers. Emerging market currencies had a challenging quarter as continued 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 during the quarter.

Performance Contributors and Detractors:

On a country basis, our stock selection in Taiwan and our overweight allocation in India were the biggest contributors to relative performance during the third quarter. On the other hand, our overweight and stock selection in China was the biggest detractor. Our underweight in Brazil was also a drag on performance. From a sector perspective, stock selection in consumer discretionary was the biggest contributor to relative performance. Our stock selection in real estate and information technology (IT) were also top contributors. On the flip side, stock selection in health care and industrials were the biggest detractors to relative performance.

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. Another strong contributor, Shriram City Union Finance, a specialist retail and small-company lender, was also aided by India’s post-pandemic recovery. On the other hand, many of our key China and China-affiliated holdings, including Hong Kong Exchanges and Clearing, Full Truck Alliance and Legend Biotech Corp, 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. 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:

During the quarter, we initiated some positions outside of Asia ex-Japan as part of the portfolio’s transition to emerging market countries including Portugal, Brazil, Saudi Arabia, Romania and Estonia. As part of this transition, we initiated positions in Saudi Tadawul and Brasil Bolsa Balcao (B3). In addition to their attractive long-term growth prospects, we view both these stock exchange operators as being well positioned to bring positive sustainability-oriented changes in the capital markets of Saudi Arabia and Brazil. We also initiated a position in Estonian renewable energy operator Enefit Green. The company has a strong capacity addition program and is well-placed to serve the energy needs of several Eastern European economies at a time of extreme stress due to the natural gas shortage resulting from the fallout of Russia’s war in Ukraine.

During the quarter we exited positions in Korean financials DGB Financial Group and BNK Financial Group to deploy capital elsewhere.

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 in the country. 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.

Companies that address critical challenges, such as climate change and inclusive development, will potentially 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 global economy embarks on a post-pandemic recovery path and markets contend with macro headwinds and volatility, we believe there are attractive opportunities for alpha generation throughout our large, diverse, sustainable investment universe.

 

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

 

Average Annual Total Returns - MASGX as of 09/30/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-25.33% 9.06% 5.87% N.A. 5.78% 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.