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Matthews Japan Fund

Snapshot
  • High-conviction growth strategy seeks alpha in Japan
  • Unconstrained all-cap approach seeking Japanese companies positioned to benefit from Asia's growth
  • Invests in companies leveraged to the fast growing consumer demand across Asia, global industry leaders and entrepreneurial companies providing innovative domestic solutions

30/04/2015

Inception Date

2.61%

YTD Return (USD)

(as of 26/01/2021)

$18.89

Price (USD)

(as of 26/01/2021)

$138.12 million

Fund Assets

(as of 31/12/2020)

Objective

Long-term capital appreciation

Strategy

The Fund seeks to achieve its investment objective by investing, directly or indirectly, at least 65% of its total net assets, in publicly traded common stocks, preferred stocks and convertible securities of companies located in Japan, and may invest the remainder of its net assets in other permitted assets on a worldwide basis.

Risks

The value of an investment in the Fund can go down as well as up and possible loss of principal is a risk of investing. Investments in international and emerging market securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. The Fund invests in holdings denominated in foreign currency, and is exposed to the risk that the value of the foreign currency will increase or decrease. The Fund invests primarily in equity securities, which may result in increased volatility. Investments in a single-country fund may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.

The risks associated with investing in the Fund can be found in the prospectus.

Fund Facts
Inception Date 30/04/2015
Fund Assets $138.12 million (31/12/2020)
Base Currency USD
ISIN: LU1220257130 (USD) LU1220257486 (GBP) LU1525503915 (USD Hedged) LU1525504053 (EUR Hedged)
Bloomberg Symbol MAFJFIU:LX (USD) MAFJFIG:LX (GBP) MAFJIHU:LX (USD Hedged) MAFJIHE:LX (EUR Hedged)
Benchmark MSCI Japan Index
Geographic Focus Japan
Fees & Expenses
Management Fee 0.75%
Total Expense Ratio As of 31/03/2020 1.14% ( USD ) 1.17% ( GBP ) 1.19% ( USD Hedged ) 1.18% ( EUR Hedged )

Performance

  • Monthly
  • Quarterly
  • Calendar Year
  • Rolling 12 Month
    Returns
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As of 31/12/2020
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund (USD)
3.84% 16.74% 32.83% 32.83% 9.82% 12.10% n.a. 11.37% 30/04/2015
MSCI Japan Index (USD)
4.15% 15.29% 14.91% 14.91% 6.45% 9.04% n.a. 7.19%
Matthews Japan Fund (GBP)
1.27% 9.57% 28.30% 28.30% 9.36% 13.88% n.a. 13.71% 30/04/2015
MSCI Japan Index (GBP)
1.72% 9.04% 11.36% 11.36% 6.08% 10.69% n.a. 9.43%
Matthews Japan Fund (USD Hedged)
2.89% 13.96% 25.29% 25.29% 7.98% n.a. n.a. 13.38% 03/04/2017
MSCI Japan Index 100% Hedged to USD (USD Hedged)
3.22% 12.96% 10.14% 10.14% 5.16% n.a. n.a. 9.59%
Matthews Japan Fund (EUR Hedged)
2.44% 13.26% 24.18% 24.18% 5.44% n.a. n.a. 10.82% 03/04/2017
MSCI Japan Index 100% Hedged to EUR (EUR Hedged)
3.06% 12.34% 8.27% 8.27% 2.46% n.a. n.a. 6.90%
As of 31/12/2020
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Japan Fund (USD)
3.84% 16.74% 32.83% 32.83% 9.82% 12.10% n.a. 11.37% 30/04/2015
MSCI Japan Index (USD)
4.15% 15.29% 14.91% 14.91% 6.45% 9.04% n.a. 7.19%
Matthews Japan Fund (GBP)
1.27% 9.57% 28.30% 28.30% 9.36% 13.88% n.a. 13.71% 30/04/2015
MSCI Japan Index (GBP)
1.72% 9.04% 11.36% 11.36% 6.08% 10.69% n.a. 9.43%
Matthews Japan Fund (USD Hedged)
2.89% 13.96% 25.29% 25.29% 7.98% n.a. n.a. 13.38% 03/04/2017
MSCI Japan Index 100% Hedged to USD (USD Hedged)
3.22% 12.96% 10.14% 10.14% 5.16% n.a. n.a. 9.59%
Matthews Japan Fund (EUR Hedged)
2.44% 13.26% 24.18% 24.18% 5.44% n.a. n.a. 10.82% 03/04/2017
MSCI Japan Index 100% Hedged to EUR (EUR Hedged)
3.06% 12.34% 8.27% 8.27% 2.46% n.a. n.a. 6.90%
For the years ended December 31st
Name 2020 2019 2018 2017 2016
Matthews Japan Fund (USD)
32.83% 25.54% -20.58% 33.40% 0.19%
MSCI Japan Index (USD)
14.91% 20.07% -12.58% 24.39% 2.73%
Matthews Japan Fund (GBP)
28.30% 21.61% -16.16% 21.57% 20.43%
MSCI Japan Index (GBP)
11.36% 15.44% -7.14% 13.62% 22.53%
Matthews Japan Fund (USD Hedged)
25.29% 26.94% -20.85% n.a. n.a.
MSCI Japan Index 100% Hedged to USD (USD Hedged)
10.14% 21.81% -13.31% n.a. n.a.
Matthews Japan Fund (EUR Hedged)
24.18% 23.10% -23.30% n.a. n.a.
MSCI Japan Index 100% Hedged to EUR (EUR Hedged)
8.27% 18.17% -15.92% n.a. n.a.
For the period ended 31/12/2020
Name 2020 2019 2018 2017 2016 Inception Date
Matthews Japan Fund (USD)
32.83% 25.54% -20.58% 33.40% 0.19% 30/04/2015
MSCI Japan Index (USD)
14.91% 20.07% -12.58% 24.39% 2.73%
Matthews Japan Fund (GBP)
28.30% 21.61% -16.16% 21.57% 20.43% 30/04/2015
MSCI Japan Index (GBP)
11.36% 15.44% -7.14% 13.62% 22.53%
Matthews Japan Fund (USD Hedged)
25.29% 26.94% -20.85% n.a. n.a. 03/04/2017
MSCI Japan Index 100% Hedged to USD (USD Hedged)
10.14% 21.81% -13.31% n.a. n.a.
Matthews Japan Fund (EUR Hedged)
24.18% 23.10% -23.30% n.a. n.a. 03/04/2017
MSCI Japan Index 100% Hedged to EUR (EUR Hedged)
8.27% 18.17% -15.92% n.a. n.a.

Source: Brown Brothers Harriman (Luxembourg) S.C.A.

Since inception performance for share classes with less than one year of history represents actual performance, not annualised. In addition, for share classes less than a year old, Year to Date Return is calculated since inception. Where no past performance is shown there was insufficient data available in that year to provide performance.

Performance details provided are based on a NAV-to-NAV basis with any dividends reinvested, and are net of management fees and other expenses. Performance data has been calculated in the respective currencies stated above, including ongoing charges and excluding subscription fee and redemption fee you might have to pay.

All performance quoted represents past performance and is not indicative of future performance. Investors may not get back the full amount invested. Investors investing in funds denominated in non-local currency should be aware of the risk of currency exchange fluctuations that may cause a loss of principal.

Additional performance, attribution, liquidity, value at risk (VaR), security classification and holdings information is available on request for certain time periods.

Portfolio Characteristics

(as of 31/12/2020)
49
Number of Securities

Source: Brown Brothers Harriman (Luxembourg) S.C.A

28.1x
P/E using FY1 estimates
26.0x
P/E using FY2 estimates
$41.0 billion
Weighted Average Market Cap

Source: FactSet Research Systems

Top 10 Holdings

(as of 31/12/2020)
Name Sector % Net Assets
Shin-Etsu Chemical Co., Ltd. Materials 5.7
Sony Corp. Consumer Discretionary 4.4
TDK Corp. Information Technology 4.1
SMC Corp. Industrials 3.8
SMS Co., Ltd. Industrials 3.3
Hoya Corp. Health Care 3.0
SoftBank Group Corp. Communication Services 2.9
Nidec Corp. Industrials 2.9
Recruit Holdings Co., Ltd. Industrials 2.8
Advantest Corp. Information Technology 2.7
TOTAL 35.6

Top 10 holdings may combine more than one security from the same issuer and related depositary receipts.
Source: Brown Brothers Harriman (Luxembourg) S.C.A

Portfolio Breakdown (%)

(as of 31/12/2020)
  • Sector Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Information Technology 24.8 14.0 10.8
Industrials 20.0 20.6 -0.6
Consumer Discretionary 16.7 18.4 -1.7
Health Care 15.0 11.3 3.7
Communication Services 7.9 9.6 -1.7
Materials 7.8 5.2 2.6
Financials 7.6 8.3 -0.7
Consumer Staples 0.0 7.6 -7.6
Real Estate 0.0 3.4 -3.4
Utilities 0.0 1.2 -1.2
Energy 0.0 0.5 -0.5
Cash and Other Assets, Less Liabilities 0.2 0.0 0.2

Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.

Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 46.2 58.9 -12.7
Large Cap ($10B-$25B) 28.0 22.3 5.7
Mid Cap ($3B-$10B) 14.9 18.9 -4.0
Small Cap (under $3B) 10.8 0.0 10.8
Cash and Other Assets, Less Liabilities 0.2 0.0 0.2

Source: FactSet Research Systems unless otherwise noted.
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.

Ratings

  • OVERALL
  • 3 YEAR
  • 5 YEAR
(as of 22/01/2021)

Past performance is no guarantee of future results. High ratings and rankings does not assure favorable performance.

Overall Morningstar RatingTM is reflective of the USD Accumulation Share class. Fund ratings represent an opinion only and are not a recommendation to buy or sell any fund. Copyright ©2020 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is provided for reference purposes only.

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.

Portfolio Managers

Taizo  Ishida photo
Taizo Ishida

Lead Manager

Shuntaro  Takeuchi photo
Shuntaro Takeuchi

Co-Manager

Commentary

Period ended 31 December 2020

For the year ending 31 December 2020, the Matthews Japan Fund returned 32.83%, while its benchmark, the MSCI Japan Index, returned 14.91%. For the fourth quarter of the year, the Fund returned 16.74%, versus 15.29% for the Index.

Market Environment:

Japan’s equity markets were volatile but resilient in 2020. Equity prices declined sharply in February and March, triggered by the COVID-19 pandemic, but had rebounded strongly by year end. Swift monetary expansion actions by the major central banks, along with large-scale fiscal policy measures to offset the negative economic impact, improved sentiment toward growth-oriented stocks globally, including Japan. The Bank of Japan announced an option to double exchange-traded fund (ETF) purchases, while the Japanese government passed a significant stimulus package to help bolster the economy.

Against this backdrop, Japanese equities handily outperformed their EAFE counterparts in 2020. We believe this was driven by Japanese corporates' ample cash balance, which helped to cushion against extreme situations during the COVID outbreak. Equity prices were also bolstered by an incremental improvement in the outlook for corporate profits and economic conditions. Ample liquidity provided by the central banks around the world also benefited the Japanese equity market, as this liquidity lead to improvements in the global manufacturing cycle.

At current levels, we view the recovery scenario has somewhat been reflected in share prices. Going forward, it will be a tug of war between the trajectory of the COVID-19 situation and the pace of vaccine distribution, which will influence the pace and the magnitude of economic recovery.

Performance Contributors and Detractors:

From a sector perspective, stock selection in industrials, health care and information technology contributed to Fund performance over the course of the year. On the other hand, stock selection in consumer discretionary and financials was a slight detractor, even though these sectors in aggregate were contributors due to allocation effects. From a market-cap perspective, stock selection contributed across all capitalizations—mega, large, mid and small.

Turning to individual securities, photomask inspection equipment maker Lasertec was a contributor to the performance for the full year. Currently the only provider of mask and mask-blank inspection equipment using EUV (extreme ultraviolet lithography) as a light source, EUV adoption in major foundries and increased usage in memory makers is likely to further enhance the business opportunity of the company. However, we exited the name during the year, as we viewed the market is starting to build lofty expectations to justify the share price momentum.

Medical platformer M3 was also a contributor to the performance with its Japan platform now covering 90% of all doctors. The company is utilizing the platform to expand and disrupt the areas of contract research organizations and career business recruitment and networking, in Japan and other markets. Overseas is a meaningful part of overall revenue, with China being the largest growth driver.

On the other hand, engineer-staffing company Technopro dragged within our portfolio companies. We see long-term trend of labor tightness and trend of outsourcing in IT engineering remain intact. However, the slowdown of the economy in Japan and other economies overseas may impact the staffing industry both in terms of demand and pricing for staffing services. We exited the stock during the year.

Notable Portfolio Changes:

Our portfolio actions in 2020 occurred in two phases. During the first three months of the year, we reduced the number of names in the Fund and shifted to high-quality names that we believed could generate positive cash flow regardless of the macro economic situation. Later in the year, during July and August, we started to increase our exposure to cyclical growth companies as economic activity started to improve.

In the fourth quarter, we initiated a new position in medical equipment manufacturer Olympus. Olympus had previously struggled with governance issues, including past accounting issues and several large-scaled recalls. However, under a new management along with much stronger board oversight, we are seeing some positive changes, especially over the past year, in fundamentals and ESG measures.

We have also participated in a few IPOs, including musical instrument manufacturer Roland and application development platform Yappli. Roland has strong brand equity in its digital musical instruments, with a strong following of "Roland sound" by many professional and amateur music enthusiasts. We also believe with the current capable management, there are company specific margin improvement opportunities in product average selling price growth and reducing stock keeping units (SKUs). Yappli is one of the leading no-code mobile app development companies based in Japan, benefitting from e-commerce growth in Japan.

Outlook:

In terms of market leadership, 2020 turned out to be another great year for growth equity investing. In a recessionary environment coupled with lower interest rates and ample money supply, high-quality, stable growth, large cap, innovation sectors outperformed strongly against value, small cap, cyclical and lower-quality names. We think 2021 will not be such a one-way street like 2020. With profit recovery already baked in current consensus estimates and valuation levels, upside surprise in profits will ever be more important in investment returns going forward. We will continue to look for investment opportunities in high-quality companies that are able to execute well. At the same time we will also seek for opportunities in cyclical areas that have a potential to achieve high growth via lower and easier competition.

For many years, Japanese equities have not been considered a place to invest by many investors, but rather a place to trade in and out of. Investors tend to buy Japan when things bottom out and improve, then get out when things start to peak. However, the dynamic has meaningfully changed since 2010 as Japanese corporates have been generating improving levels of profits in each bottom of the cycle. 2020 showed another year of resiliency of Japanese corporate profits. We believe Japan’s equity market fundamentals have turned from pure value to cyclical growth, but many global investors are still skeptical of this change. In our opinion, this creates opportunities for attractive alpha generation through bottom-up, active stock selection.

 

Rolling 12 Month Returns For the period ended 31/12/2020 - I (Acc)
Name 2020 2019 2018 2017 2016 Inception Date
Matthews Japan Fund (USD)
32.83% 25.54% -20.58% 33.40% 0.19% 30/04/2015
MSCI Japan Index (USD)
14.91% 20.07% -12.58% 24.39% 2.73%
Matthews Japan Fund (GBP)
28.30% 21.61% -16.16% 21.57% 20.43% 30/04/2015
MSCI Japan Index (GBP)
11.36% 15.44% -7.14% 13.62% 22.53%
Matthews Japan Fund (USD Hedged)
25.29% 26.94% -20.85% N.A. N.A. 03/04/2017
MSCI Japan Index 100% Hedged to USD (USD Hedged)
10.14% 21.81% -13.31% N.A. N.A.
Matthews Japan Fund (EUR Hedged)
24.18% 23.10% -23.30% N.A. N.A. 03/04/2017
MSCI Japan Index 100% Hedged to EUR (EUR Hedged)
8.27% 18.17% -15.92% N.A. N.A.

Sources: Brown Brothers Harriman (Luxembourg) S.C.A, Matthews Asia, FactSet Research Systems, Bloomberg

Performance figures discussed in the Fund Manager Commentary above reflect that of the Institutional Accumulation Class Shares and has been calculated in USD. Performance details provided for the Fund are based on a NAV-to-NAV basis, with any dividends reinvested, and are net of management fees and other expenses. Past performance information is not indicative of future performance. Investors may not get back the full amount invested.

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. Matthews Asia and its affiliates do not accept any liability for losses either direct or consequential caused by the use of this information.

Information contained herein is sourced from Matthews Asia unless otherwise stated. The views and opinions in this commentary were as of the report date, subject to change and may not reflect the writer’s 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.

Investors should not invest in the Fund solely based on the information in this material alone. Please refer to the Prospectus for further details of the risk factors. 

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