Matthews Japan’s People rating has dropped to Average from Above Average owing to investment-team changes, while its Process rating remains at Above Average.
Personnel turnover remains an issue at Matthews. The firm dismissed three portfolio managers and an analyst in December, and many of the remaining investment professionals took on new roles at the same time. (Sean Taylor also took over from Robert Horrocks as CIO on Jan. 1 as expected.) Many other changes that occurred between the end of 2019 and early 2023 played a major role in the mid-2023 downgrade of the firm’s Parent rating to Average from Above Average. 
This strategy was affected by the latest round of changes. Taizo Ishida was dismissed from his co-lead manager role here as well as from his lead manager role on another strategy and left the firm. Shuntaro Takeuchi is still a co-lead manager here, but he also took on a new comanager role on another offering. Donghoon Han was promoted to co-lead manager from comanager on this strategy.
Ishida managed this strategy for more than 17 years, so his abrupt departure is disquieting. Takeuchi has solid credentials, but he has been a co-lead manager only since April 2021, and this strategy has posted mixed results since he assumed that role. Han had some comanager experience when he joined Mathews in 2020, but he has been working on this strategy for only a few years and was promoted from analyst to comanager less than one year ago. While dismissals and other team changes can pay off over time, of course, there’s no evidence that will be the case here yet.
Takeuchi and Han are sticking with the quality-growth process that has always been used here and on several other Matthews offerings. It's sound and distinctive, but Ishida and Takeuchi implemented it in a much bolder manner than the family norm and made lots of execution mistakes in the early 2020s. This strategy's Process rating was downgraded to Above Average from High in March 2023 as a result. And while the firm’s leaders and portfolio managers have emphasized that they’re striving to improve position sizing, portfolio construction, and active-risk management across the lineup—which is sensible—it’s early days for their efforts.

Analyst Rating

Additional personnel turnover lowers this strategy's appeal.

Senior Analyst

William Samuel Rocco

This strategy's Process rating was lowered to Above Average from High in March 2023 for stylistic and execution reasons, and it remains at Above Average. 
This strategy uses the same quality-growth approach as several of its siblings. The managers pursue strong and durable growers selling at moderate valuations. They make full use of their investment universe and pay particular attention to firms that will benefit from the region's rising income levels. They’re also willing to load up on sectors with compelling growers. As is the case at the family’s other growth-oriented strategies, the result here is a portfolio that stands out from those of most rivals and relevant benchmarks.
This approach is sound as well as distinctive, and until March 2023 it earned a High Process rating at all the firm's Asia funds with analyst-driven Morningstar Medalist Ratings that use it. But former co-lead manager Taizo Ishida and current co-lead manager Shuntaro Takeuchi implemented this approach in a much bolder manner than the family norm and made lots of execution mistakes in the early 2020s, resulting in a downgrade to this strategy's Process rating.
The December 2023 investment-team departures and other changes—plus the many prior ones—call into question whether the Matthews team has the overall resources, stability, and continuity to implement any process in an excellent fashion. For that and other reasons, Matthews India MINDX and Matthews Pacific Tiger MAPTX also recently had their Process ratings lowered to Above Average from High.

Above Average

Process

Matthews continues to suffer from too much portfolio manager and analyst turnover, and recent changes here and elsewhere at the firm drop this strategy's People rating to Average from Above Average.
Investment-team departures and changes have been a problem at the firm for years. Most recently, three portfolio managers and an analyst were dismissed in December, and many of the remaining team members took on new roles at the same time. Some of those changes affected this strategy. Taizo Ishida was dismissed from his co-lead manager role here as well as from his lead manager role on Matthews Asia Growth MPACX and left the firm. Shuntaro Takeuchi remains a co-lead manager here, but he also took on a new comanager role on Matthews Asia Growth. Donghoon Han was promoted to co-lead manager from comanager on this strategy.
Ishida had served as a manager on this strategy since 2006, so his abrupt departure is disquieting. Takeuchi spent roughly 2.5 years as an analyst and 2.25 years as comanager on this strategy before being promoted to co-lead manager in April 2021, but his tenure as a co-lead manager is still short, and this strategy has posted mixed results since he assumed his current role. Han had roughly three years of comanager experience when he joined Mathews in 2020 and has 14 years of investment overall. But he has been working on this strategy for only a few years and was promoted from analyst to comanager in April 2023.

Average

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.

Parent

Matthews Japan Active ETF

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