Matthews: Expertise in Emerging Asia
03/01/2017 7:00 am EST
Matthews Emerging Asia (MEASX) invests in stocks of companies in Asia, excluding Japan, South Korea, Hong Kong and Singapore, explains funds expert Cynthia Andrade, contributing editor to MoneyLetter.
The bulk of its assets are invested in emerging and frontier Asia countries. The remainder may be in more established Asia countries such as Taiwan.
The firm notes that in 2001, the market cap of Thailand, Indonesia and the Philippines were all less than $50. By 2015, the Philippines had surpassed $200 billion while both Thailand and Indonesia were in excess of $300 billion.
This growth plus rising corporate governance standards creates attractive investment opportunities.
Managers Taizo Ishida and Robert Harvey use a fundamental, bottom-up investment process to manage the fund. Their first step is to reduce the size of the target investment universe from about 13,000 firms by analyzing company fundamentals and business models.
From the reduced pool, the managers drill deeper, looking for high quality companies with strong market positions, and which can deliver sustainable earnings growth.
Important criteria include balance sheet strength, cash flow size and sustainability, management quality, product lines and marketing strategies, and corporate governance.
Additionally, give the tendencies toward higher inflation in some of these countries, pricing power is an important attribute.
Matthews Asia notes that the company visits and meetings with managements are an integral part of the research process.
The firm explains, "We conduct face-to-face meetings and onsite visits for all companies that we plan to add to our portfolio and conduct frequent follow-up meetings to ensure that companies are delivering on what they have promised."
While the fund can invest across the entire market cap spectrum, it does tend to focus its portfolio of 60 to 70 holdings (71 recently) on small and micro-cap firms. Recently, 80% of assets were in the small and micro cap space.
For the 2016 calendar year, Matthews Emerging Asia returned 19.3% compared to 6.5% for its benchmark.
Looking forward, the managers note that the timing and degree of changing policies is very uncertain, making it more difficult to forecast what lies ahead.
However, they emphasize that Asia's emerging markets have been resilient. The fund has a minimum investment of $2,500 or $500 in an IRA. There is a 2% redemption fee if sold within 90 days.