San Francisco-based Matthews Asia, a specialist in emerging markets investing, has launched a new actively managed ETF providing broad EM exposure while excluding stocks from China.

John Paul Lech, Portfolio Manager at Matthews Asia.

The Matthews Emerging Markets ex-China Active ETF (MEMX US) has been listed on NYSE Arca with an expense ratio of 0.79%.

The fund is designed for investors who wish to exert greater control over the level of China exposure they have in their emerging markets equity portfolios.

China represents a third (32.2%) of the flagship MSCI Emerging Markets Index and is by far the benchmark’s largest single-country exposure. The Asian giant’s equity market was rocked last year amid strict zero-Covid policies, although it is currently robustly bouncing back as Beijing abruptly pivots away from those measures.

An emerging markets ex-China strategy can help mitigate both country-specific and idiosyncratic risk factors, while also placing greater emphasis on a broader number of emerging market opportunities often overlooked in core emerging market portfolios.

Matthews Asia notes that some investors currently want to avoid exposure to China altogether, while others may wish to customize their specific allocations by combining the fund with the Matthews China Active ETF (MCH US), which offers alpha-seeking exposure to a Greater China equity portfolio, in their desired proportions.

Commenting on the launch, John Paul Lech, lead portfolio manager of MEMX, said: “In my view, emerging markets can offer investors the biggest potential for long-term growth over many other equity asset classes. With this launch, investors now have a broader set of options to control their China exposure, either as part of a core emerging markets portfolio or excluding it and using MCH to add dedicated China exposure.”

The new ETF harnesses Matthews Asia’s core investment approach of seeking out quality companies capable of sustainable growth. Stock selection is based on fundamental characteristics including balance sheet strength, number of employees, size and stability of cash flow, the depth and adaptability of management, and the strength of corporate governance. The fund represents a high-conviction portfolio of around just 50 holdings.

Matthews Asia debuted its first ETFs in July 2022. In addition to MEMX and MCH, the firm also offers the Matthews Emerging Markets Equity Active ETF (MEM US), which provides broad EM exposure including Chinese equities, and the Matthews Asia Innovators Active ETF (MINV US), which invests in developed and emerging market stocks from the Asia Pacific region, excluding Japan, focusing on innovative companies within science and technology-related sectors.