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Matthews Emerging Markets Discovery Fund

Snapshot
  • Seeks alpha in innovative, capital efficient entrepreneurial companies in emerging markets
  • Focus on firms that have a strong competitive advantage through pricing power, distribution capability, and/or differentiated technologies and services
  • Bias toward businesses that cater to rising domestic consumer demand

15/09/2023

Inception Date

n.a.

YTD Return (USD)

(as of 24/06/2024)

$10.62

NAV (USD)

(as of 24/06/2024)

-0.03

1 Day NAV Change

(as of 24/06/2024)

Objective

Seeks to achieve long term capital appreciation.

Sustainability

The Fund promotes environmental and social characteristics according to Article 8 of SFDR. Furthermore, the Fund uses both activity- and norm-based exclusions. Information relating to the environmental and social characteristics of this Fund is available in the prospectus.

Strategy

Under normal market conditions, the Fund seeks to achieve its investment objective by investing, directly or indirectly, primarily (i.e., at least 65% of its total net assets) in equities of Small Companies located in or with substantial ties to emerging market countries. Emerging Market countries generally include every country in the world except the United States, Australia, Canada, Hong Kong, Israel, Japan, New Zealand, Singapore and most of the countries in Western Europe. Certain emerging market countries may also be classified as “frontier” market countries, which are a subset of emerging market countries with newer or even less developed economies and markets, such as Sri Lanka and Vietnam. The list of emerging market countries and frontier market countries may change from time to time. In addition, the Fund may also invest in depositary receipts that are treated as emerging markets investments, including American, European and Global Depositary Receipts.

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, emerging and frontier market securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation, which may adversely affect the value of the Fund's assets. The Fund invests in holdings denominated in foreign currencies, 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. The Fund invests in smaller companies, which are more volatile and less liquid than larger companies.

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

Fund Facts
Inception Date 15/09/2023
Fund Assets $16.55 million (31/05/2024)
Base Currency USD
ISIN: LU2651608676 (USD) LU2651608759 (GBP)
Bloomberg Symbol MAEDIAU:LX (USD) MAEDSIA:LX (GBP)
Benchmark MSCI Emerging Markets Small Cap Index
Geographic Focus Emerging market countries generally include every country in the world except the United States, Australia, Canada, Hong Kong, Israel, Japan, New Zealand, Singapore and most of the countries in Western Europe.
SFDR Classification Article 8
Fees & Expenses
Management Fee 1.00%
Total Expense Ratio 1.15% ( USD ) 1.15% ( GBP )

Performance

  • Monthly
  • Quarterly
  • data_graph_selected Created with Sketch.
As of 31/05/2024
Annualized Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Discovery Fund (USD)
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 15/09/2023
MSCI Emerging Markets Small Cap Index (USD)
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Matthews Emerging Markets Discovery Fund (GBP)
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 15/09/2023
MSCI Emerging Markets Small Cap Index (GBP)
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
As of 31/03/2024
Annualized Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets Discovery Fund (USD)
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 15/09/2023
MSCI Emerging Markets Small Cap Index (USD)
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Matthews Emerging Markets Discovery Fund (GBP)
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 15/09/2023
MSCI Emerging Markets Small Cap Index (GBP)
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

The Fund has commenced operations from 15 September 2023 and performance will not be shown until the fund has reached one year since inception.

Portfolio Characteristics

(as of 31/05/2024)
Fund Benchmark
Number of Positions 69 2,051
Weighted Average Market Cap $4.5 billion $2.1 billion
Active Share 97.4 n.a.
P/E using FY1 estimates 15.7x 13.9x
P/E using FY2 estimates 12.7x 11.8x
Price/Cash Flow 9.8 8.4
Price/Book 2.1 1.6
Return On Equity 12.2 12.6
EPS Growth (3 Yr) 26.7% 22.1%

Sources: Factset Research Systems, Inc.

Top 10 Holdings

(as of 31/05/2024)
Name Sector Country % Net Assets
Shriram Finance, Ltd. Financials India 5.8
Bandhan Bank, Ltd. Financials India 5.5
Full Truck Alliance Co., Ltd. Industrials China/Hong Kong 4.5
Legend Biotech Corp. Health Care China/Hong Kong 3.4
Wiwynn Corp. Information Technology Taiwan 3.2
M31 Technology Corp. Information Technology Taiwan 2.9
Phoenix Mills, Ltd. Real Estate India 2.9
Hugel, Inc. Health Care South Korea 2.8
Finolex Cables, Ltd. Industrials India 2.7
Airtac International Group Industrials China/Hong Kong 2.5
TOTAL 36.2

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 31/05/2024)
  • Sector Allocation
  • Country Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Industrials 23.1 18.8 4.3
Information Technology 20.9 17.6 3.3
Financials 17.6 10.6 7.0
Consumer Discretionary 17.3 11.4 5.9
Health Care 10.6 8.8 1.8
Real Estate 5.3 5.9 -0.6
Materials 1.9 11.8 -9.9
Communication Services 1.4 3.7 -2.3
Consumer Staples 1.3 6.3 -5.0
Utilities 0.5 3.1 -2.6
Energy 0.0 2.0 -2.0
Cash and Other Assets, Less Liabilities 0.0 0.0 0.0

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 27.1 8.6 18.5
India 24.0 26.6 -2.6
Taiwan 13.3 22.5 -9.2
Brazil 8.5 4.1 4.4
South Korea 7.2 13.2 -6.0
Vietnam 5.2 0.0 5.2
Chile 3.2 0.8 2.4
Saudi Arabia 3.1 3.7 -0.6
Poland 2.1 1.4 0.7
Turkey 2.0 2.4 -0.4
Philippines 1.4 0.7 0.7
South Africa 1.2 3.0 -1.8
Thailand 0.7 2.9 -2.2
Indonesia 0.6 1.5 -0.9
Bangladesh 0.3 0.0 0.3
Mexico 0.1 1.9 -1.8
Malaysia 0.0 2.6 -2.6
Kuwait 0.0 1.2 -1.2
United Arab Emirates 0.0 1.0 -1.0
Qatar 0.0 0.7 -0.7
Greece 0.0 0.6 -0.6
Egypt 0.0 0.3 -0.3
Hungary 0.0 0.1 -0.1
Peru 0.0 0.1 -0.1
Cash and Other Assets, Less Liabilities 0.0 0.0 0.0

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

Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 0.0 0.0 0.0
Large Cap ($10B-$25B) 10.8 0.1 10.7
Mid Cap ($3B-$10B) 42.5 19.8 22.7
Small Cap (under $3B) 46.7 80.0 -33.3
Cash and Other Assets, Less Liabilities 0.0 0.0 0.0

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.

ESG Characteristics

(as of 31/03/2024)
  • Business Involvement
  • Sustainability Attributes
Name Fund Benchmark Difference
Controversial Weapons
Fund Coverage: 96% Benchmark Coverage: 99%
0.0 0.3 -0.3
Tobacco
Fund Coverage: 96% Benchmark Coverage: 98%
0.0 0.2 -0.2
Name Fund Benchmark Difference
UN Global Compact Violators
Fund Coverage: 100% Benchmark Coverage: 95%
0.0 0.1 -0.1
Board Diversity
Fund Coverage: 100% Benchmark Coverage: 99%
19.4 14.6 4.8

Board Diversity: Represents the weighted average ratio of female board members in investee companies.
Tobacco: Represents companies that generate more than 5% of revenue from tobacco manufacturing exposure to or production or that generate more than 50% of revenue from tobacco retail. 
UN Global Compact Violators: Represents companies that have been assessed as failing to comply with the 10 United Nations Global Compact Principles by ISS-ESG Norms-Based Research. Different ESG research providers may come to different conclusions on the severity of the violation.
Controversial weapons include companies with involvement in the following: anti-personnel mines; biological and chemical weapons; cluster weapons; depleted uranium; nuclear weapons and white phosphorus. A company is excluded if it is directly involved in the production, selling and/or distribution of (parts of) controversial weapons and this involvement concerns the core weapon system, or components/services of the core weapon system that are tailor-made and essential for the lethal use of the weapon.

Source: Sustainalytics, Factset, MSCI, Matthews Asia.

GHG Intensity

(as of 31/03/2024)

Fund Coverage: 99%; Benchmark Coverage: 92% as of 31/03/2024

GHG Intensity: Represents the normalized portfolio’s total weighted average (scope 1 + scope 2) carbon emissions intensity, using the most recently available data (emissions data from 2020, 2021). Carbon intensity represents the issuer’s total carbon emissions per EUR million of revenue (tCO2e divided by EUR million in revenue).

Source: Sourced from ISS ESG. Where not covered by external data providers, we have tried to source these data points.

Sustainability-related Disclosures

This Fund Yes No
Complies with Article 8 of SFDR  
Investment process integrates ESG factors and sustainability risks based on proprietary and third-party research  
Applies norms- and activity-based exclusions  
Promotes environmental and social characteristics  
Has a sustainable investment objective  
Conducts engagement  
Exercises Voting Rights  

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 Fund’s investment objective and risk factors.

For more information, please refer to our Responsible Investment and Stewardship Policy and our ESG-Related Investment Policy of Matthews Asia Funds.

Portfolio Managers

Vivek  Tanneeru photo
Vivek Tanneeru

Lead Manager

Jeremy  Sutch, CFA photo
Jeremy Sutch, CFA

Co-Manager

Alex  Zarechnak photo
Alex Zarechnak

Co-Manager

Hardy  Zhu photo
Hardy Zhu

Co-Manager

Commentary

Period ended 31 March 2024

Market Environment

  • The first quarter of the year was a period of contrast across emerging markets. In particular, markets linked to technology, communication services and the global supply chains of semiconductors and artificial intelligence (AI) benefited while other interest-rate sensitive areas were held back by a reset in expectations as to the trajectory of U.S. Federal Reserve cuts.
  • In terms of currencies, they were moderately weaker against a backdrop of “higher-for-longer” U.S. rates, but commodities were broadly higher which tends to be supportive of many cyclical exporters in emerging markets.
  • By region, India outperformed the broad emerging markets, though there was some consolidation over concerns regarding elevated valuations. South Korea was aided by its exposure to global trade while Taiwan gained amid demand for AI-related hardware. China on the other hand had a poor start, weighed down by weak economic growth and broad-based concerns including the lack of large-scale policy support for its real estate sector and slow recovery in consumer demand.
  • Key markets of Latin America were challenged as it became clear that global interest rates would stay higher for longer. While Brazil and Mexico were ahead of the curve in raising interest rates to combat inflation, their economies are now contending with prolonged and elevated interest rates which will likely be cut in lockstep with the measured strategy of the U.S. Fed. 

Contributors and Detractors

  • For the quarter ended March 31, 2024, the Emerging Markets Discovery Fund returned 0.29%, (I Acc USD) while its benchmark, the MSCI Emerging Markets Small Cap Index, returned 1.11% over the same period.
  • The top three contributors to relative performance, on a country basis, were Vietnam due to an off-benchmark allocation, and South Korea and Saudi Arabia due to stock selection. The top three detractors to relative performance, were Brazil due to stock selection, China/Hong Kong due to an overweight allocation and India due to stock selection.
  • The top three contributors to relative performance, on a sector basis, were information technology (IT) and financials due to stock selection, and materials due to an underweight allocation. The top three detractors to relative performance were industrials, communication services and consumer discretionary due to stock selection.
  • The largest contributors to absolute performance during the quarter included Saudi Tadawul Group Holding, a Saudi Arabian-based stock exchange operator, Shriram Finance, an Indian financial services provider, and M31 Technology, a Taiwanese silicon intellectual property (IP) provider. The top three detractors to performance included Bandhan Bank, an Indian commercial bank, Silergy, a Taiwanese manufacturer of power management integrated circuits (IC) that draws majority of its sales from China, and Zhihu, a Chinese online content company.

Outlook

  • Greater clarity in the global macro environment may cause market volatility to dampen in the coming months. As we look out to the rest of the year, we see three reasons to be positive on emerging markets. The first is the natural recovery that is taking hold after COVID. Economic growth is picking up across emerging markets and is being driven by domestic consumption. Secondly, when interest rates are cut in the U.S., many emerging markets will in turn be able to cut and so we should get a cyclical pickup. Thirdly, we expect the second half of the year to yield slightly better news for China. We think earnings will continue to improve and there will be more initiatives to support the consumer.
  • Looking across regions, countries and sectors, valuations are elevated in many areas warranting an active approach to seek out relative value in an effort to minimize risk wherever possible in our view.
  • We believe small companies in emerging markets offer long-term growth opportunities given their innovation and domestic consumption orientation while also being less exposed to regulatory and geo-political risks. We continue to find quality businesses at attractive valuations in this asset class.

 

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

To find documents in additional languages, please visit the Fund Literature page in our Resources section.

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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