Matthews Asia, an asset management firm known for its mutual funds dedicated mainly to Asian markets, today expanded its product line with the debut of three exchange-traded funds that are largely similar to three of its existing mutual funds that focus on global emerging markets, Asia and China.

The active, fully transparent products mark the first foray into ETFs for Matthews Asia, which has 14 mutual funds across various equity and fixed-income categories spanning the Asian region, along with two global emerging market equity funds. All told, the company has roughly $17.4 billion in assets under management.

The Matthews Emerging Markets Equity Active ETF (MEM), Matthews Asia Innovators Active ETF (MINV) and Matthews China Active ETF (MCH) all have expense ratios of 0.79%, which range from 27 to 34 basis points cheaper than their respective corresponding mutual funds. And all three ETFs are managed by the same portfolio managers and employ the same investment approach and process as their counterpart mutual funds.

Jonathan Schuman, global head of distribution at Matthews Asia, noted in an interview that some minor differences between the ETF and mutual fund portfolios could occur due to, say, a certain market not allowing for in-kind settlement of trades that take place within the ETF structure.

“But investors quite literally will be getting very comparable exposure for the two types of vehicles for these three strategies,” he said.

Schuman said Matthews Asia chose these three strategies for its maiden ETF launch because each represents a distinct category reflecting the company's investment expertise based on its extensive boots-on-the-ground coverage in its targeted overseas markets.

“China is a market where a substantial percentage of the listed market universe are companies that don’t create value for shareholders, so you need an active approach in order to get access to the value creators in China,” he explained. “Our active China strategy provides access to both A-shares and offshore-listed Chinese companies.”

Regarding the Matthews Asia Innovators Active ETF, Schuman said it provides broader access to the types of innovative companies that are driving Asian economies when compared to narrowly focused thematic ETFs or ETFs focused on a particular country.

In the area of emerging markets, he offered that his firm’s active approach is best suited for finding growth opportunities. “Many global emerging market indices tend to be core- to value- oriented as a style, and investing passively doesn’t provide as much growth as one would expect from an emerging markets allocation.

Full Transparency
Matthews Asia joins a growing list of traditional asset managers previously known for their mutual funds who are jumping into the fast-growing, actively managed ETF space. Some, like Dimensional Fund Advisors, have converted existing mutual funds into ETFs. Others have introduced ETFs that have the same investment strategies and portfolio managers as their corresponding mutual funds while employing so-called semi-transparent portfolios that don’t fully disclose their holdings on a daily basis like traditional ETFs do. For example, T. Rowe Price’s active fixed-income ETFs publish holdings on a daily basis, while its active equity ETFs publish a proxy basket daily and full holdings quarterly.

The new Matthews Asia ETFs are fully transparent because, well, they have to be. “One practical reality is that semi-transparent ETFs have not yet been approved for markets where these funds invest,” Schuman said.

Advisors Have A Choice
Schuman said Matthews Asia canvassed financial advisors in preparation for these ETF launches, and found a large majority of them view active ETFs as complements to mutual funds in their client portfolios, rather than as pure substitutes.

“The tax-efficiency benefits of the ETF vehicle may be more applicable for one set of their clients and less applicable for others,” he said. “There are some advisors who plan to use only mutual funds in client portfolios for the foreseeable future; likewise, there are advisors who plan to use only ETFs. So we don’t have cannibalization concerns.”

The three new Matthews Asia ETFs come to market at a time when the emerging markets, Asian region and China categories have fared slightly to more-than-slightly worse than the S&P 500 Index this year. The corresponding mutual funds for these ETFs are down anywhere from 20% to 26% year to date as of yesterday, and all are substantially below the S&P 500 on a one-year basis. 

But Asia and emerging markets in general are expected to have better growth opportunities over the long term versus the U.S, and are seen as a way for U.S. investors to diversify their equity portfolios.

The mutual fund associated with the Matthews Emerging Markets Equity Active ETF launched in April 2020, so it doesn’t have a lengthy track record. But the mutual fund linked to the Matthews China Active ETF has a solid long-term track record that has exceeded its China Region category average, according to Morningstar. Meanwhile, the mutual fund affiliated with the Matthews Asia Innovators Active ETF has been a top-quartile performer in Morningstar’s Pacific/Asia ex-Japan Stock category during the three-, five, 10- and 15-year time frames.

Schuman noted that while Matthews Asia has no immediate plans to roll out additional ETFs, that doesn’t mean the new crop of ETFs are a one-and-done deal. 

“Right now we’re focused on the successful launch of these three ETFs, but we’ll continue to canvass demand in the marketplace and think about whether an existing Matthews strategy or a new Matthews strategy would be applicable for the active ETFs,” he said.