A sound investment process and strong management team underpin Matthews Emerging Markets Sus Fut ActETF's Morningstar Medalist Rating of Silver. The portfolio maintains a cost advantage over competitors, priced within the cheapest fee quintile among peers.  

 The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in liquidity exposure and an underweight in momentum exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And low momentum exposure is rooted in holding stocks that are not currently on a winning streak and instead holding those that managers believe are undervalued. The strategy’s management team earns an Above Average People Pillar rating. The strategy's parent organization earns the firm an Average Parent Pillar rating. People Pillar and Parent Pillar ratings for this strategy are indirectly assigned by a Morningstar analyst rather than algorithmically derived. Please see the notes following each pillar section for more details. The details of assigning methods can be found in each pillar section.

Analyst Rating

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Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category benchmark on a risk-adjusted basis over the long term. Matthews Emerging Markets Sus Fut ActETF earns an Above Average Process Pillar rating. 

The most significant contributor to the rating is its parent firm's superior long-term risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 3.7 stars. Noteworthy risk-adjusted performance also supports the process. This can be seen in the fund's five-year alpha calculated relative to the category index, which suggests that the managers have shown skill in their allocation of risk. Lastly, the process is limited by the parent firm's five-year retention rate of 50%, which suggests it could do more to retain its portfolio managers.

 This strategy skews toward smaller, higher-growth companies than its average peer in the Diversified Emerging Mkts Morningstar Category. Analyzing additional factors, this fund has constantly tilted toward stocks with higher trading volumes than its Morningstar Category Peers over the past few years. This gives the managers more flexibility during bear markets to sell without adversely affecting prices. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy has had lower exposure to momentum stocks over peers in recent years. Momentum investors tend to expect stocks that have done well recently to continue to do so in the short term. Momentum approaches can entail higher turnover and trading costs since the top stocks can often change. Similarly, in recent months, the strategy also had less exposure to the Momentum factor than peers. In addition, this strategy has not maintained a defensive tilt, demonstrated by low exposure to the quality factor. This means the fund avoids holding firms that are consistently profitable, growing, and have solid balance sheets. Lacking this ballast, the fund's prospects could rest on its ability to beat peers during economic booms. In recent months, the strategy also had less Quality factor exposure than its peers. More information on a fund and its respective category's factor exposure can be found in the Factor Profile module within the Portfolio section. 

 The portfolio is overweight in healthcare and industrials relative to the category average by 7.4 and 6.1 percentage points, respectively. The sectors with low exposure compared to category peers are basic materials and energy, underweight the average by 5.5 and 4.9 percentage points of assets, respectively. The portfolio is composed of 58 holdings and is relatively top-heavy. Of the strategy's assets, 46.3% are concentrated within the top 10 holdings, compared to the category’s 25.4% average. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 0% of the fund's holdings have changed, whether through increasing, decreasing, or changing a position.

Above Average

Process

Matthews Emerging Markets Sus Fut ActETF earns an Above Average People Pillar rating. Vivek Tanneeru, the longest-tenured manager on the strategy, provides strong guidance, offering 10 years of listed portfolio management experience. The average Morningstar Rating of the strategies they currently manage is 4.8 stars, demonstrating impressive risk-adjusted performance. Vivek Tanneeru has an experienced listed co-manager. Together, they average 10 years of listed portfolio management experience. As a team, they manage three investment vehicles together, with solid long-term prospects. The strategies average a Bronze asset-weighted Morningstar Medalist Rating, indicating a position to deliver positive alpha in aggregate. 

 Note: The People Pillar rating is indirectly assigned by an analyst. The longest-tenured manager of the fund also manages a different product rated by an analyst. Their analyst-assigned People Pillar rating is combined here with the People scores (algorithmic or analyst-assigned) for the fund’s other managers on a tenure-weighted basis.

People

Matthews International Capital Management still has strengths, but a transforming strategy roster, personnel turnover, and a big decline in assets warrant a drop of its Parent rating to Average from Above Average.

Matthews has a long history of success with funds that focus on Asian equities, but it has overhauled its strategy roster in recent years. Since early 2020, it has liquidated three funds, merged another away, launched its first diversified emerging-markets fund, and converted two of its Asia funds into diversified emerging-markets offerings. It also has opened four active exchange-traded funds in the past 12 months. That's a lot of change, and the firm is unproven in the diversified emerging-markets arena, though the fact that Asian stocks dominate the emerging-markets universe is grounds for optimism.
 
Matthews still has 30 individuals—excluding portfolio strategists and traders—on its investment team, and many are seasoned and skilled. But the firm has lost quite a few managers and analysts since the start of 2020, and the investment team is much smaller than it was. Further, its management team has had notable departures and retirements, such as former CEO William Hackett. Fundholders have pulled sizable amounts from Matthews' funds in recent years, and assets under management fell to $12 billion as of May 31, 2023, from $27 billion as of Dec. 31, 2019.

Average

Parent

Matthews Emerging Markets Sustainable Future Active ETF

EMSF is an actively managed portfolio of emerging market companies fundamentally screened for sustainable growth. The fund also uses ESG criteria to identify companies better positioned to contribute to environmental and social sustainability.

Matthews Asia Dividend Active ETF

Matthews Pacific Tiger Active ETF

Matthews India Active ETF

Matthews Japan Active ETF

Matthews Asia has launched five new actively managed emerging market ETFs on the New York Stock Exchange. The firm's full suite of transparent active ETF strategies will be similar to its existing mutual funds.

Matthews Asia Launches 5 New Active Emerging Market ETFs

SAN FRANCISCO, Sept. 22, 2023 (GLOBE NEWSWIRE) -- Matthews further enhanced its Emerging Markets leadership in Active ETFs today with the launch of five new actively managed exchange-traded funds (ETFs) on the New York Stock Exchange. Following the launch of its Active ETFs platform last year, this will bring the firm's suite of Emerging Market and Asia-focused ETFs to 10.

News for Matthews Emerging Markets Sustainable Future Active ETF ETF (EMSF)