An incline in People Pillar rating is the primary driver of Matthews Asia Innovators Active ETF's upgrade to a Morningstar Medalist Rating of Silver from Bronze. The strategy charges fees in line with its similarly distributed peers, priced within the middle quintile. The strategy changed its peer group last February, moving from the Diversified Pacific/Asia category to the Pacific/Asia ex-Japan Stk Morningstar Category. 

 The strategy's sensible investment philosophy merits 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 volatility exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And high volatility exposure is rooted in stocks that have a higher standard deviation of returns. 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

Lam Research

Nu Holdings

Broadcom

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 Asia Innovators Active ETF earns an Above Average Process Pillar rating. 

The largest contributor to the rating is its parent firm's excellent long-term risk-adjusted performance, as shown by the firm's average 10-year Morningstar Rating of 3.8 stars. The parent firm's five-year risk-adjusted success ratio of 57% also influences the rating. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. Their noteworthy success ratio suggests that the firm does well for investors and that this fund may benefit from that. 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 has more exposure to the Growth factor than the Pacific/Asia ex-Japan Stk Morningstar Category average. But in terms of size exposure, it does not have much of a bias and resembles the typical portfolio. Examining additional factor exposure, this strategy has consistently tilted toward companies with relatively higher trading volumes in the last few years. Such stocks may have less potential upside than illiquid holdings, but they are easier to trade during market downturns. In recent months, the strategy was more exposed to the Liquidity factor compared with its Morningstar Category peers as well. This strategy also has had an overweight bias to the volatility factor over these years, meaning it has owned companies that have a higher historical standard deviation of returns. Such exposure tends to pay off when markets are hot and to be costly when they are not. Compared with category peers, the strategy also had more exposure to the Volatility factor in the most recent month. In addition, this strategy has displayed lower yield exposure than peers, holding fewer companies with high dividend or buyback yields over recent years. This is demonstrated by the portfolio's low exposure to dividends or buybacks. While companies with high yields provide steady income payments, they may cut payouts if their earnings fall. In recent months, the strategy also had less Yield 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 technology and consumer cyclical relative to the category average by 23.0 and 8.5 percentage points, respectively. The sectors with low exposure compared to category peers are financial services and basic materials, underweight the average by 13.9 and 5.9 percentage points of assets, respectively. The portfolio is composed of 49 holdings and is relatively top-heavy. Of the strategy's assets, 45.9% are concentrated within the top 10 holdings, as opposed to the category’s 29.9% average. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 278% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Above Average

Process

Matthews Asia Innovators Active ETF earns an Above Average People Pillar rating. Michael J. Oh’s veteran status, with 18 years of listed portfolio management experience, brings a wealth of experience to the table. The average Morningstar Rating of the strategies they manage is 4.0 stars, demonstrating excellent risk-adjusted performance relative to category peers. Michael J. Oh has an experienced listed co-manager. Together, they average 14 years of listed portfolio management experience. As a team, they manage three investment vehicles together, with a Bronze asset-weighted average Morningstar Medalist Rating, indicating the potential to deliver positive alpha in aggregate. The highest personal investment in the fund by any of its managers is between $100,000 and $500,000. That's on the low side--it would need to be more than $1 million for us to see the investment as sufficient to promote the strong alignment of their interests with the strategy's investors. 

 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 Asia Innovators Active ETF

MINV is actively managed to hold stocks of innovative companies in Asia. Holdings are fundamentally screened for sustainable growth.

Matthews China Active ETF

Matthews Emerging Markets Equity Active ETF

Matthews Emerging Markets Ex China Active ETF

When investing in emerging markets, Matthews Asia's head of portfolio strategy David Dali said at Exchange 2023 that active management is key. “Our benchmarks tend to be blind to things like corporate governance and regulatory issues and geopolitics,” Dali told NYSE's Judy Shaw.

NYSE's ETF Leaders: Matthews Asia's David Dali

While a global downdraft has affected nearly all segments of the market, emerging markets have been particularly impacted by a strong U.S. dollar. Thus, emerging markets rallied in mid-December as the U.S. dollar weakened against other major currencies amid growing concerns of the U.S.

A Weakening Dollar Is Good News for Emerging Markets Investors

Active emerging markets ETFs showed their strength this year, tactically adding new exposure to counter challenges in volatile markets and outperforming passive benchmarks.

3 Active Emerging Markets ETFs to Consider in 2023

As advisors look at options for tax-loss harvesting EM losses, ditching passive funds in favor of active ETFs may be worth consideration. With the end of the year approaching quickly, tax-loss harvesting is becoming a large focus among advisors and clients.

Move Into Active ETFs When Tax-Loss Harvesting EM Losses

The outlook for emerging markets is bright, particularly for longer-term investors able to capitalize on the current discounted valuations. Investors with an intermediate- to longer-term perspective will benefit from allocating to a China-focused, Asia, or broad emerging markets ETF while these funds are still trading at a discount.

Emerging Markets Poised for Strong Growth Ahead

Innovation should be a core growth theme within an investor's allocation to emerging markets. The Matthews Asia Innovators Active ETF (MINV) is a high-conviction and concentrated equity portfolio, investing in innovative companies in Asia ex-Japan, capitalizing on the new economy and rising disposable income in the region.

Innovation Among Top Reasons Why EM Is Investable Today

Many advisors avoid allocating to emerging markets over concerns the asset class will bring significant risk to a portfolio; however, this is a common misconception. Looking at the risk profile of emerging markets from an academic perspective, they are still volatile – albeit less than the asset class used to be.

Risks in Emerging Markets Allocation Are Commonly Misunderstood

One of Matthews Asia's new active ETFs has seen a considerable increase in investor attention. The Matthews Asia Innovators Active ETF (MINV) saw a significant rise in trading volume beginning on November 29 and remained elevated through December 2, coupled with significant inflows.

MINV Sees Significant Increase in Trading Volume and Flows

Screening for quality in emerging markets has become of paramount importance in recent years. Emerging markets have evolved tremendously, and while the potential for growth remains, the focus is more about seeking exposure to companies across all sorts of markets that are embedded for growth over the long term, according to Matthews Asia.

Look to Matthews Active ETFs for Quality in Emerging Markets

In an overall good month for markets, active emerging markets ETFs stood out in November for particularly strong performance. While this year has seen a downdraft in global markets that has affected nearly all regions and asset classes, global markets staged impressive rebounds during November.

Active Emerging Markets ETFs Outperform in November

ARK Innovation ETF

As advisors look to tax-loss harvesting to enhance clients' overall investment returns, now is the ideal time to reallocate emerging markets exposure to an active ETF.  With the end of the year approaching quickly, tax-loss harvesting is becoming a large focus among advisors and clients.

Consider MEM, MINV, MCH When Tax-Loss Harvesting

Funds offering exposure to innovation in Asia provide diversification benefits without sacrificing strong growth potential.  Beneath the global inflationary headwinds, Asian economies are resetting after the pandemic and innovation is growing, Michael Oh, portfolio manager for Matthews Asia, said in a September insight.

The Advisor's Guide to MINV and Innovation in Asia

As the outlook for Asia equities remains in construction, longer-term investors are in the ideal position to capitalize on the opportunities present in emerging markets.  Investors with an intermediate- to longer-term perspective will benefit from allocating to an emerging market, Asia, or China ETF while these funds are still trading at a discount.

Outlook for Asia Equities Is Constructive; Check Out MEM, MCH, MINV

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There is a lot to be thankful for in the ETF industry in 2022 despite global equity and bond markets remaining under pressure from high inflation and the aggressive actions of central banks that could result in prolonged economic weakness.   U.S.-listed ETFs Already Gathered More Than $500 Billion in Assets.

Thankful Times in the ETF Industry

Investors who want a thematic and concentrated approach to their emerging markets exposure should consider the Matthews Asia Innovators Active ETF (MINV), which offers exposure to innovation in Asia.  Now is an ideal time to add exposure as, beneath the global inflationary headwinds, Asian economies are resetting and innovation is growing.

Outlook for Innovation in Asia Is Bright; Add Exposure With MINV

This year has seen a downdraft in global markets that has affected nearly all regions and asset classes; however, for long-term investors, this unveils an opportunity in emerging markets.  Many advisors are understandably standing by the sidelines, unsure of when to jump back into the game.

Add Exposure to Emerging Markets With MEM, MCH, and MINV

Matthews Asia's new ETF offering exposure to Asia innovators has seen a significant pickup in trading volume and flows in the past month.  Incepted in mid-July, the Matthews Asia Innovators Active ETF (MINV) has picked up considerable steam in the past month, even garnering attention from institutional investors.

MINV Sees Jump in Trading Volume and Flows

Many advisors have historically gotten emerging markets exposure from a passive ETF or a mutual fund, but there are numerous benefits to switching to active ETFs when tax-loss selling. Matthews Asia has a long history of offering active management expertise to investors, traditionally through mutual funds and separately managed account wrappers.

The Benefits of Active ETFs for EM Exposure

There are many misconceptions about emerging markets, with a key one being that EM investing brings significant risk to a portfolio.  The reality is that the volatility of emerging markets has evolved over the years, and adding emerging markets exposure to a portfolio can potentially act as a diversifier and reduce risks.

Dispelling the Myth That EM Investing Is Too Risky

Investors can take a look at active ETFs in emerging markets to target innovative companies and sectors primed to thrive despite inflationary headwinds.

Why Investors Should Consider Active ETFs to Capture Emerging Opportunities

As the market shakes from inflation pressure, the investment landscape is changing. Innovative companies and sectors are well-positioned to take advantage of the new landscape, creating unique opportunities.

Be Active: Beating Inflation With Innovation

Matthews Asia is a boutique asset manager specializing in emerging markets, offering advisors access to the lucrative asset class through compelling active strategies.  The firm unveiled its first ETFs in July, launching the Matthews Emerging Markets Equity Active ETF (MEM), the Matthews Asia Innovators Active ETF (MINV), and the Matthews China Active ETF (MCH).

Matthews Asia PMs on Tax Loss Harvesting, Capturing Opportunities in Emerging Markets

Issuer of Asia-focused funds says country's strengths are intact.

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An active ETF that has been available to investors for just three months already appears to be attracting institutional money, a notable development in the ETF industry.

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Matthews Asia has a strong reputation for investments in Asia and emerging markets, with a track record spanning over 30 years. The San Francisco-headquartered firm expanded its offerings in July with the debut of its first ETFs, a trio of transparent active ETF strategies focused on global emerging markets, Asia, and China.

News for Matthews Asia Innovators Active ETF ETF (MINV)