What is the objective of the Matthews Emerging Markets Small Companies Fund?

The Matthews Emerging Markets Small Companies Fund seeks long-term capital appreciation by investing in small companies that have a market capitalization of less than US$5 billion at purchase, or the largest company included in the Fund’s primary benchmark, the MSCI Emerging Markets Small Cap Index, and that are located in emerging markets (EM). A company or other issuer is considered to be “located” in a country or a region if it has substantial ties to that country or region, such as deriving at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed, or has at least 50% of its assets located, within that country or region.

How do you define small companies?

Typically, the Fund will invest in companies that have a market capitalization between US$100 million to US$5 billion at the time of purchase (or the largest company in the benchmark). However, the Fund can continue to hold current companies in the portfolio that have grown in market capitalization over US$5 billion.

What countries will the Matthews Emerging Markets Small Companies Fund be able to invest in?

Emerging market countries generally include every country in the world except the U.S., 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, Bangladesh and Vietnam.

Will the Fund invest in frontier markets?

Yes, the Fund will be able to invest in frontier markets. Given the portfolio’s broad investment universe, it will be able to invest in a large number of emerging and frontier markets.

Why should investors consider a dedicated allocation to emerging markets small cap equities?

We believe small companies offer attractive growth potential, as well as the opportunity to gain highly differentiated portfolio exposures. For many global investors, a dedicated allocation to emerging markets small companies are unlikely to overlap with existing investments. The MSCI EM Small Cap Index provides for differentiated country allocations versus the MSCI EM Index. For example, China is 40% of the MSCI EM Index but only 11% of the MSCI EM Small Cap Index. An allocation to emerging markets small cap equities can therefore diversify country/currency exposure and in our view help improve the risk/reward profile of an overall portfolio, while providing access to nimble, entrepreneurial businesses in fast-growing economies. Another potential benefit is that stocks of smaller companies may be inefficiently priced, creating a marketplace where active management can add value. And finally, smaller companies tend to offer access to businesses whose earnings and market share are growing faster than that of larger companies.