Historically, one of the few market sectors where money managers have a decent chance of beating their benchmarks is international small-caps. Over the past 10 years, 43% of actively managed international small-cap funds have outperformed the S&P Developed Ex-U.S. Small Cap Index. By contrast, only 18% of large-cap U.S. equity funds have beaten the
There are thousands of small foreign companies, many not covered by analysts, leaving ample opportunity for an astute manager to add value.
That is why the departure in August of three Matthews Funds managers—Tiffany Hsiao, YuanYuan Ji and Beini Zhou—is significant. Hsiao and Zhou co-managed the $174 million
Matthews Asia Small Companies
(ticker: MSMLX) fund, while Hsiao ran the $370 million
Matthews China Small Companies
(MCSMX). Ji was an important analyst for them. Zhou was also co-manager of the new
Matthews Emerging Markets Equity
(MEGMX) and the lead manager on the tiny $6 million
Matthews Asia Value
(MAVRX) that is now liquidating at the end of this month.
Perhaps more surprising, on Sept. 22 a Matthews spokesperson told Barron’s that Yu-Ming Wang, whom Matthews hired as its new president and global CIO in February, had resigned and is leaving at the end of the month. Robert Horrocks, the firm’s CIO (as opposed to Global CIO), remains.
On the surface, Matthews Asia Small Companies doesn’t impress. Small-caps in Asia, as in the rest of the world, have lagged behind large companies in recent years. And because the fund is lumped into Morningstar’s Pacific/Asia ex-Japan category with mainly large-cap funds, it has also been a laggard. But versus its benchmark it is a champion. Through the end of August, when Zhou and Hsiao left, it produced an 8.4% five-year annualized return versus the MSCI All Country Asia ex-Japan Small Cap Index’s 5.3%.
Matthews China Small Companies is even more impressive. It is up a blistering 61% in 2020 and 24% annually in the past five years, besting 99% of its peers in the China fund category. Its manager, Hsiao, was a rising star at Matthews, so her departure is particularly impactful. Barron’s had recently interviewed her.
For a few weeks, the departures were mysterious, until rival Artisan Funds dropped said in a news release: “Artisan Partners announced today the addition of Beini Zhou and Anand Vasagiri as portfolio managers on the Artisan Partners International Value Team. Mr. Zhou and Mr. Vasagiri will be co-portfolio managers of the forthcoming Artisan International Small Cap Value Strategy, which is expected to launch in October 2020.” The strategy will initially be a private one, and Artisan wouldn’t disclose if a public fund will become available.
More interesting is the fact that Artisan spokesman Mike Roos confirmed that Hsiao has also joined Artisan, although in what capacity he couldn’t say. The fate of YuanYuan Ji is still uncertain.
“To have such expertise suddenly leave at once is absolutely a loss for Matthews,” Robby Greengold, a senior Morningstar analyst who covers Matthews funds, said. “That said, they continue to continue to have a deep team full of seasoned Asia specialists. So, we continue to think that the team is strong.” For this reason, he still gives the Matthews Asia Small Companies fund a Bronze rating. According to his updated report on the fund, “An impressive crew comprised of roughly 40 Asia specialists remains. Many of them have considerable smaller-cap expertise because most of the firm’s other stock funds pay ample attention to small- and midcap stocks.”
Matthews’ Horrocks would agree with that statement. “We are fortunate to have a strong bench of talented portfolio managers and, with several capable of taking over the relevant funds, we have already transitioned the management to them,” he wrote in an email.
Regarding China Small Companies, he stated, “Winnie Chwang and Andrew Mattock are now Co-Lead Managers on the China Small Companies Strategy. With Winnie and Andrew both portfolio managers on our core China strategy, we saw this as an opportunity to enhance synergies across our China investment platform. Winnie and Andrew have over 40 years of combined experience researching companies across the market capitalization spectrum in China and the all-cap China strategy has a sizable allocation to small and midcap companies.”
For Asia Small Companies, Vivek Tanneeru, who joined Matthews in 2011 and has 16 years’ experience, has been left to run the fund by himself. Though the team backing him may be strong, two of its top members now reside at Artisan.
Email: [email protected]