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Matthews Emerging Markets ex China Equity Fund

Snapshot
  • Seeks alpha in global emerging markets ex China—capitalizes on consumption and innovation trends
  • Quality growth portfolio—based on deep, holistic analysis
  • All-cap, company-first approach—emphasizes fundamental research over top-down country or sector allocation

15/09/2023

Inception Date

n.a.

YTD Return (USD)

(as of 20/02/2024)

$10.73

NAV (USD)

(as of 20/02/2024)

+0.02

1 Day NAV Change

(as of 20/02/2024)

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 companies located in or with substantial ties to emerging market countries excluding China. 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.

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 $2.05 million (31/01/2024)
Base Currency USD
ISIN: LU2651608247 (USD) LU2651608320 (GBP)
Bloomberg Symbol EMMKCIA:LX (USD) EMMEXCI:LX (GBP)
Benchmark MSCI Emerging Markets ex China Index
Geographic Focus Emerging Markets excluding China- 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 0.75%

Performance

  • Monthly
  • Quarterly
  • data_graph_selected Created with Sketch.
As of 31/01/2024
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets ex China Equity Fund (USD)
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 15/09/2023
MSCI Emerging Markets ex China Index (USD)
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Matthews Emerging Markets ex China Equity Fund (GBP)
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 15/09/2023
MSCI Emerging Markets ex China Index (GBP)
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
As of 31/12/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Emerging Markets ex China Equity Fund (USD)
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 15/09/2023
MSCI Emerging Markets ex China Index (USD)
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Matthews Emerging Markets ex China Equity Fund (GBP)
n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 15/09/2023
MSCI Emerging Markets ex China 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 31/01/2024)
Fund Benchmark
Number of Positions 42 675
Weighted Average Market Cap $119.4 billion $109.9 billion
Active Share 94.7 n.a.
P/E using FY1 estimates 15.8x 13.9x
P/E using FY2 estimates 13.2x 12.2x
Price/Cash Flow 10.1 7.1
Price/Book 2.6 1.9
Return On Equity 22.0 18.1
EPS Growth (3 Yr) 18.0% 22.0%

Sources: Factset Research Systems, Inc.

Top 10 Holdings

(as of 31/01/2024)
Name Sector Country % Net Assets
Taiwan Semiconductor Manufacturing Co., Ltd. Information Technology Taiwan 9.7
Samsung Electronics Co., Ltd., Pfd. Information Technology South Korea 6.0
FPT Corp. Information Technology Vietnam 3.8
Infosys, Ltd. Information Technology India 3.4
HDFC Bank, Ltd. Financials India 3.4
Banco BTD Pactual SA Financials Brazil 2.8
ICICI Bank, Ltd. Financials India 2.8
Globant SA Information Technology United States 2.7
Dino Polska SA Consumer Staples Poland 2.5
Prologis Property Mexico SA de CV REIT Real Estate Mexico 2.4
TOTAL 39.5

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 31/01/2024)
  • Sector Allocation
  • Country Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Information Technology 27.9 27.7 0.2
Financials 22.1 25.0 -2.9
Materials 11.2 8.8 2.4
Consumer Discretionary 8.2 6.5 1.7
Consumer Staples 6.8 6.2 0.6
Energy 5.0 6.2 -1.2
Industrials 4.6 7.3 -2.7
Real Estate 3.8 1.3 2.5
Health Care 0.9 3.1 -2.2
Communication Services 0.0 4.9 -4.9
Utilities 0.0 2.9 -2.9
Cash and Other Assets, Less Liabilities 9.4 0.0 9.4

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

Country Fund Benchmark Difference
India 20.4 23.9 -3.5
Taiwan 9.7 21.9 -12.2
Brazil 9.6 7.6 2.0
South Korea 8.9 16.3 -7.4
United States 7.2 0.0 7.2
Mexico 6.6 3.8 2.8
Vietnam 6.4 0.0 6.4
France 3.9 0.0 3.9
Philippines 3.6 0.9 2.7
United Arab Emirates 2.5 1.7 0.8
Poland 2.5 1.3 1.2
Indonesia 2.3 2.6 -0.3
Kazakhstan 1.6 0.0 1.6
Turkey 1.5 0.9 0.6
Chile 1.5 0.6 0.9
Australia 1.2 0.0 1.2
Saudi Arabia 1.1 5.8 -4.7
South Africa 0.0 4.0 -4.0
Thailand 0.0 2.3 -2.3
Malaysia 0.0 1.9 -1.9
Qatar 0.0 1.2 -1.2
Kuwait 0.0 1.1 -1.1
Greece 0.0 0.7 -0.7
Hungary 0.0 0.4 -0.4
Peru 0.0 0.4 -0.4
China/Hong Kong 0.0 0.2 -0.2
Czech Republic 0.0 0.2 -0.2
Egypt 0.0 0.2 -0.2
Colombia 0.0 0.1 -0.1
Cash and Other Assets, Less Liabilities 9.4 0.0 9.4

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

Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 49.1 50.7 -1.6
Large Cap ($10B-$25B) 12.3 24.5 -12.2
Mid Cap ($3B-$10B) 25.2 23.7 1.5
Small Cap (under $3B) 3.9 1.2 2.7
Cash and Other Assets, Less Liabilities 9.4 0.0 9.4

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 31/12/2023)
  • Business Involvement
  • Sustainability Attributes
Name Fund Benchmark Difference
Controversial Weapons
Fund Coverage: 93% Benchmark Coverage: 99%
0.0 0.6 -0.6
Tobacco
Fund Coverage: 93% Benchmark Coverage: 99%
0.0 0.5 -0.5
Name Fund Benchmark Difference
UN Global Compact Violators
Fund Coverage: 100% Benchmark Coverage: 99%
0.0 2.2 -2.2
Board Diversity
Fund Coverage: 100% Benchmark Coverage: 99%
20.4 16.3 4.1

Board Diversity: Represents the weighted average ratio of female board members in investee companies.
Tobacco: Represents companies that generate revenue from tobacco manufacturing 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.

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

Alex  Zarechnak photo
Alex Zarechnak

Lead Manager

Peeyush  Mittal, CFA photo
Peeyush Mittal, CFA

Co-Manager

Sean  Taylor photo
Sean Taylor

Co-Manager

Jeremy  Sutch, CFA photo
Jeremy Sutch, CFA

Co-Manager

Commentary

Period ended 31 December 2023

This is the first commentary for the Matthews Emerging Markets ex China Equity Fund, which was launched on 15 September 2023.

Market Environment

2023 was challenging for emerging markets on a number of levels. At the macro level, rising interest rates and a strong U.S. dollar were headwinds. Another notable trait of the year was the prolonged weakness of the Chinese economy. While the portfolio’s remit doesn’t include China, the country’s struggle to recover from COVID lockdowns impacted the wider region and emerging markets generally which in many cases have strong trade and supply connections with China. Mitigating China’s woes somewhat was India’s continued resilient growth, supported in part by its domestic infrastructure programs and increasing global trade. Toward the end of the year, there was a general consensus that inflation had peaked in the global economy and that the U.S. Federal Reserve would pivot toward cutting rates in 2024. 

It is also encouraging to reflect on the economic conditions of most emerging markets coming out of the pandemic. COVID was a ‘stress test’ that most of these markets passed as far as macroeconomic policy and financial conditions are concerned. Emerging markets stimulated less fiscally and monetarily compared with developed markets and that left them with lower relative debt levels and more monetary policy credibility.

Performance Contributors and Detractors  

At the regional level, an off-benchmark position to the U.S., an overweight to Mexico and an underweight and stock selection in South Korea were the biggest contributors to relative returns since inception. An underweight position to Thailand and an overweight to Poland also contributed.  On the other hand, stock selection in India and off-benchmark positions in Zambia and Australia were the biggest detractors to relative returns. 

At the sector level, stock selection in real estate contributed the most to relative returns in the period. Stock selection in industrials was also a top contributor. In contrast, stock selection in financials, consumer discretionary and materials were the biggest detractors to relative returns. 

At the holdings level, Prologis Property Mexico, a Mexican real estate developer, Banco BTG Pactual, a Brazilian investment bank, and Globant, an enterprise software company with coders located throughout emerging markets, were among the top contributors to total returns in the period. Prologis benefited from the growing demand for quality warehouse space in Mexico, driven partly by increasing re-shoring of supply chains from Asia. Globant bucked the trend of weaker enterprise software demand by nimbly emphasizing new verticals, like sports and entertainment, and leaning into vibrant geographies like Latin America and the Middle East. 

On the other hand, First Quantum Minerals, a Canadian-based miner with global operations, was the biggest detractor to total and relative returns. The company’s copper mine in Panama was forced to shut down following countrywide protests. We exited that position toward the end of the year. Woodside Energy Group, an Australian oil and gas producer, and Restaurant Brands Asia, an Indian operator of quick service food chains under the Burger King brand, were also big detractors.  

Notable Portfolio Changes   

During the period, the portfolio added a position in Varun Beverages, an Indian bottler and beverage distributor, that we believe has demonstrated itself to be a business capable of delivering strong, sustainable growth.  

We also exited positions in First Quantum and Dabur India, a Indian multinational consumer goods company that manufactures and sells alternative and natural medicines and treatments. Dabur, in view, is facing growth challenges. It did well during the pandemic but since then we think growth has been subpar. We also believe that recent product introductions are in areas where barriers to entry are low and that these propositions could dilute brand.

Outlook    

We continue to find many attractive emerging markets companies to consider for the portfolio. Even in uncertain times they are solving problems for their societies, or creating value for their customers. Inflation in emerging markets is also on the way down, and interest rate cuts around the world this year could help overall liquidity conditions. Near-shoring and ‘China+1’ trends also continue to benefit countries in Southeast Asia, Central Europe and Latin America. In the Middle East, the landscape has been changing as Saudi Arabia and the United Arab Emirates diversify from oil. In Asia, we believe economies are finding their feet post COVID and we expect some cyclical growth to return. We also see opportunities coming from domestic structural drivers like infrastructure spend in certain markets, notably India, and these could help counter any slowdown in global trade and economic activity.

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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