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.
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%
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.
The risks associated with investing in the Fund can be found in the prospectus
Performance
Monthly
Quarterly
Calendar Year
As of 07/31/2022
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
-0.22%
4.49%
-12.10%
-13.82%
13.61%
9.34%
n.a.
7.97%
MSCI All Country Asia ex Japan Index
-1.13%
-5.03%
-17.09%
-19.65%
2.61%
2.08%
n.a.
2.89%
As of 06/30/2022
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
0.67%
0.74%
-11.91%
-13.98%
13.03%
9.91%
n.a.
8.10%
MSCI All Country Asia ex Japan Index
-4.40%
-8.90%
-16.14%
-24.78%
2.41%
3.39%
n.a.
3.09%
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.
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 $10,000 Investment Since Inception
(as of 06/30/2022)
Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.
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.
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.
Vivek Tanneeru is a Portfolio Manager at Matthews Asia 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 Asia 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.
Portfolio Characteristics
(as of 06/30/2022)
Fund
Benchmark
Number of Positions
53
1,201
Weighted Average Market Cap
$24.3 billion
$110.6 billion
Active Share
94.9
n.a.
P/E using FY1 estimates
17.3x
11.6x
P/E using FY2 estimates
13.1x
10.7x
Price/Cash Flow
13.1
7.1
Price/Book
2.4
1.6
Return On Equity
2.5
14.5
EPS Growth (3 Yr)
4.9%
11.2%
Sources: Factset Research Systems, Inc.
Risk Metrics (3 Yr Return)
(as of 06/30/2022)
Category
3YR Return Metric
Alpha
11.1%
Beta
1.08
Upside Capture
119.04%
Downside Capture
75.87%
Sharpe Ratio
0.58
Information Ratio
0.93
Tracking Error
11.46%
R²
71.56
11.10%
Alpha
1.08
Beta
119.04%
Upside Capture
75.87%
Downside Capture
0.58
Sharpe Ratio
0.93
Information Ratio
11.46%
Tracking Error
71.56
R²
Fund Risk Metrics are reflective of Investor share class.
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
28.9
6.6
22.3
Financials
20.4
20.4
0.0
Consumer Discretionary
14.3
15.8
-1.5
Information Technology
13.2
21.4
-8.2
Health Care
11.4
4.0
7.4
Real Estate
6.6
4.1
2.5
Communication Services
2.5
10.4
-7.9
Consumer Staples
1.2
5.3
-4.1
Materials
0.0
5.2
-5.2
Energy
0.0
3.7
-3.7
Utilities
0.0
3.1
-3.1
Cash and Other Assets, Less Liabilities
1.6
0.0
1.6
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
44.6
47.3
-2.7
India
23.2
14.2
9.0
South Korea
11.3
12.5
-1.2
United States
8.5
0.0
8.5
Taiwan
4.5
16.0
-11.5
Indonesia
3.2
2.0
1.2
Bangladesh
1.8
0.0
1.8
Vietnam
0.9
0.0
0.9
Singapore
0.4
3.4
-3.0
Thailand
0.0
2.1
-2.1
Malaysia
0.0
1.6
-1.6
Philippines
0.0
0.8
-0.8
Cash and Other Assets, Less Liabilities
1.6
0.0
1.6
Not all countries are included in the benchmark index(es).
Equity market cap of issuer
Fund
Benchmark
Difference
Mega Cap (over $25B)
21.7
58.6
-36.9
Large Cap ($10B-$25B)
21.2
21.1
0.1
Mid Cap ($3B-$10B)
28.8
18.5
10.3
Small Cap (under $3B)
26.7
1.7
25.0
Cash and Other Assets, Less Liabilities
1.6
0.0
1.6
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 All Country Asia ex Japan Index as of 6/30/22.
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.
For the first half of 2022, the Matthews Asia ESG Fund returned -11.91% (Investor Class) and -11.77% (Institutional Class), while its benchmark, the MSCI All Country Asia ex Japan Index, returned -16.14% over the same period. For the quarter ending June 30, 2022, the Fund returned 0.74% (Investor Class) and 0.89% (Institutional Class), while the benchmark returned -8.90%.
Market Environment:
The continually higher-than-expected inflation reads both in the U.S. and European Union have led the market to increasingly expect a steeper rate-hike cycle. The U.S. Federal Reserve hiked its rate by 75 basis points (0.75%) at its June meeting, the first such move in almost three decades. Also attendant was the view that this steeper pace of tightening may lead to a recession down the road. With no end in sight for the Russian invasion of Ukraine, the prices in the oil and gas markets remain elevated notwithstanding periodic pullbacks predicated on worries of recession.
That said, in China, after several quarters, sentiment has turned a corner with an expectation that the regulatory risk has peaked and the Chinese government is taking a more pragmatic approach to implementing its zero COVID policy and aiding economic activity through a stimulus package.
Indonesia was the strongest performing market in the first six months and the only major market to deliver positive returns, while South Korea and Taiwan were the worst performing markets. In the second quarter, China/Hong Kong was the top performer and South Korea and Taiwan were again the bottom performers.
Asian currencies weakened against a surging U.S. dollar during the second quarter but have held up relatively well compared to other developed market currencies. The South Korean won depreciated the most followed by the Thai baht, while the Singapore dollar and the Indonesian rupiah did relatively better.
Performance Contributors and Detractors:
On a country basis, China, India and South Korea were major contributors to relative performance during the first half of 2022 primarily driven by stock selection. On the other hand, our underweight and stock selection within Taiwan and stock selection within Indonesia detracted from relative performance.
From a sector perspective, good stock selection in industrials and health care were the biggest drivers of relative performance, while poor stock selection in information technology and financials detracted performance.
Turning to individual holdings, Full Truck Alliance was a top contributor to the Fund’s relative performance in the first half of the year. The company is a leading digital-freight platform in China and the world connecting shippers with truckers online, enabling faster, more efficient order listing and matching and creating broader access while at the same time lowering shipping costs and carbon emissions by reducing empty miles. During the period, a key part of the Cyberspace Administration of China (CAC) cybersecurity review that started in July 2021, during which time Full Truck was not allowed to register new users, was resolved. The company was again allowed to register new users thereby lifting a major overhang on stock price performance. We continue to take a constructive view of Full Truck’s market positioning, growth prospects, social and environmental value-add.
On the other hand, semiconductor companies Andes Technology and Micron Technology were among the top detractors to relative performance due to rotation away from companies that derive a significant part of their value from long-term growth amid a sharply rising interest rate environment and near-term concerns about memory demand outlook, respectively.
Notable Portfolio Changes:
There were no meaningful additions to the portfolio during the second quarter but we initiated a small position in Zhejiang Hangke, a leading Chinese battery cell-making equipment manufacturer. The company has a diversified customer base and is expected to benefit from fast-growing battery cell manufacturing capabilities globally. There were no exits during the quarter.
Outlook:
Looking ahead, the Fed’s pace and scope of 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 the attendant impact on energy prices also needs careful watching.
We expect corporate earnings to moderate in 2022 and remain watchful about the impact of inflation on financial results. Across the region we see sufficient liquidity, and while we have not seen as much uptake in credit, any meaningful pick up in credit issuance should further support economic growth. In many parts of Asia, COVID-19 vaccination is progressing well and provides hope for economic activity normalization in the coming quarters but China’s zero-COVID policy and its variants need monitoring.
Over the mid-to-long term, we continue to believe that companies that address critical challenges such as climate change and inclusive development will continue to thrive. And for investors interested in sustainability themes, including reducing carbon emissions, alleviating poverty and creating greater financial inclusion in the developing world, Asia remains a key investment destination, in our view. To tackle sustainable themes globally, we believe we need to include the world’s most populous economies, many of which lie in Asia.
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 June 30, 2022. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MASGX as of 06/30/2022
1YR
3YR
5YR
10YR
Since Inception
Inception Date
-13.98%
13.03%
9.91%
N.A.
8.10%
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.
The Markit iBoxx Asian Local Bond Index tracks the total return performance of a bond portfolio consisting of local-currency denominated, high quality and liquid bonds in Asia ex-Japan. The Markit iBoxx Asian Local Bond Index includes bonds from the following countries: China (on- and offshore markets), Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand.
The J.P. Morgan Asia Credit Index (JACI) tracks the total return performance of the Asia fixed-rate dollar bond market. JACI is a market cap-weighted index comprising sovereign, quasi-sovereign and corporate bonds and is partitioned by country, sector and credit rating. JACI includes bonds from the following countries: China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea and Thailand.
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 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 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, 2022
For the first half of 2022, the Matthews Asia ESG Fund returned -11.91% (Investor Class) and -11.77% (Institutional Class), while its benchmark, the MSCI All Country Asia ex Japan Index, returned -16.14% over the same period. For the quarter ending June 30, 2022, the Fund returned 0.74% (Investor Class) and 0.89% (Institutional Class), while the benchmark returned -8.90%.
Market Environment:
The continually higher-than-expected inflation reads both in the U.S. and European Union have led the market to increasingly expect a steeper rate-hike cycle. The U.S. Federal Reserve hiked its rate by 75 basis points (0.75%) at its June meeting, the first such move in almost three decades. Also attendant was the view that this steeper pace of tightening may lead to a recession down the road. With no end in sight for the Russian invasion of Ukraine, the prices in the oil and gas markets remain elevated notwithstanding periodic pullbacks predicated on worries of recession.
That said, in China, after several quarters, sentiment has turned a corner with an expectation that the regulatory risk has peaked and the Chinese government is taking a more pragmatic approach to implementing its zero COVID policy and aiding economic activity through a stimulus package.
Indonesia was the strongest performing market in the first six months and the only major market to deliver positive returns, while South Korea and Taiwan were the worst performing markets. In the second quarter, China/Hong Kong was the top performer and South Korea and Taiwan were again the bottom performers.
Asian currencies weakened against a surging U.S. dollar during the second quarter but have held up relatively well compared to other developed market currencies. The South Korean won depreciated the most followed by the Thai baht, while the Singapore dollar and the Indonesian rupiah did relatively better.
Performance Contributors and Detractors:
On a country basis, China, India and South Korea were major contributors to relative performance during the first half of 2022 primarily driven by stock selection. On the other hand, our underweight and stock selection within Taiwan and stock selection within Indonesia detracted from relative performance.
From a sector perspective, good stock selection in industrials and health care were the biggest drivers of relative performance, while poor stock selection in information technology and financials detracted performance.
Turning to individual holdings, Full Truck Alliance was a top contributor to the Fund’s relative performance in the first half of the year. The company is a leading digital-freight platform in China and the world connecting shippers with truckers online, enabling faster, more efficient order listing and matching and creating broader access while at the same time lowering shipping costs and carbon emissions by reducing empty miles. During the period, a key part of the Cyberspace Administration of China (CAC) cybersecurity review that started in July 2021, during which time Full Truck was not allowed to register new users, was resolved. The company was again allowed to register new users thereby lifting a major overhang on stock price performance. We continue to take a constructive view of Full Truck’s market positioning, growth prospects, social and environmental value-add.
On the other hand, semiconductor companies Andes Technology and Micron Technology were among the top detractors to relative performance due to rotation away from companies that derive a significant part of their value from long-term growth amid a sharply rising interest rate environment and near-term concerns about memory demand outlook, respectively.
Notable Portfolio Changes:
There were no meaningful additions to the portfolio during the second quarter but we initiated a small position in Zhejiang Hangke, a leading Chinese battery cell-making equipment manufacturer. The company has a diversified customer base and is expected to benefit from fast-growing battery cell manufacturing capabilities globally. There were no exits during the quarter.
Outlook:
Looking ahead, the Fed’s pace and scope of 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 the attendant impact on energy prices also needs careful watching.
We expect corporate earnings to moderate in 2022 and remain watchful about the impact of inflation on financial results. Across the region we see sufficient liquidity, and while we have not seen as much uptake in credit, any meaningful pick up in credit issuance should further support economic growth. In many parts of Asia, COVID-19 vaccination is progressing well and provides hope for economic activity normalization in the coming quarters but China’s zero-COVID policy and its variants need monitoring.
Over the mid-to-long term, we continue to believe that companies that address critical challenges such as climate change and inclusive development will continue to thrive. And for investors interested in sustainability themes, including reducing carbon emissions, alleviating poverty and creating greater financial inclusion in the developing world, Asia remains a key investment destination, in our view. To tackle sustainable themes globally, we believe we need to include the world’s most populous economies, many of which lie in Asia.
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 June 30, 2022. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MASGX as of 06/30/2022
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
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.