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Matthews China Fund MCHFX

Snapshot
  • High-conviction equity portfolio seeks companies benefiting from China’s domestic consumption
  • All-cap fundamental GARP approach driven by on-the-ground, proprietary research
  • Combines long-term core holdings with more opportunistic ideas to provide consistency through cycles

02/19/1998

Inception Date

-13.56%

YTD Return

(as of 06/27/2022)

$17.79

Price

(as of 06/27/2022)

$927.78 million

Fund Assets

(as of 05/31/2022)

Objective

Long-term capital appreciation

Strategy

Under normal circumstances, the Matthews China Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in China. The Fund seeks to invest in companies capable of sustainable growth based on the fundamental characteristics of those companies, including balance sheet information; number of employees; size and stability of cash flow; management’s depth, adaptability and integrity; product lines; marketing strategies; corporate governance; and financial health.

Risks

Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Investing in emerging markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.

These and other risks associated with investing in the Fund can be found in the prospectus.

Fund Facts
Inception Date 02/19/1998
Fund Assets $927.78 million (05/31/2022)
Currency USD
Ticker MCHFX
Cusip 577-130-701
Portfolio Turnover 92.3%
Benchmark MSCI China Index MSCI China All Shares Index
Geographic Focus China - China includes its administrative and other districts, such as Hong Kong
Fees & Expenses
Gross Expense Ratio 1.06%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 05/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund
MCHFX
2.98% -16.67% -24.44% -37.76% 4.41% 5.01% 5.96% 8.66% 02/19/1998
MSCI China Index
1.19% -10.70% -16.71% -35.86% 0.01% 1.46% 5.24% 3.59%
MSCI China All Shares Index
1.83% -12.48% -18.16% -31.13% 3.55% 2.89% n.a. n.a.
As of 03/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund
MCHFX
-12.06% -20.26% -20.26% -31.78% 2.77% 7.80% 5.56% 8.96% 02/19/1998
MSCI China Index
-8.00% -14.19% -14.19% -32.47% -2.88% 3.67% 4.76% 3.75%
MSCI China All Shares Index
-8.31% -14.26% -14.26% -24.11% 1.46% 4.84% n.a. n.a.
For the years ended December 31st
Name 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
Matthews China Fund
MCHFX
-12.26% 43.05% 34.56% -21.42% 59.37% -5.18% 2.41% -4.42% 6.84% 11.96%
MSCI China Index
-21.64% 29.67% 23.66% -18.75% 54.33% 1.11% -7.62% 8.26% 3.96% 23.10%
MSCI China All Shares Index
-12.80% 33.61% 27.87% -23.15% 41.43% -7.69% -2.88% 23.64% 1.39% 19.53%

MSCI China Index since inception value calculated from 2/28/98.

Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.

Assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund’s fees and expenses had not been waived. Performance differences between the Institutional class and the Investor class may arise due to differences in fees charged to each class.

Additional performance, attribution, liquidity, value at risk (VaR), security classification and holdings information is available on request for certain time periods.

Growth of a Hypothetical $10,000 Investment Since Inception

(as of 03/31/2022)

Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.

The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gain distributions or redemption of fund shares.

Ratings

  • OVERALL
  • out of 95 funds
  • 3 YEAR
  • out of 95 funds
  • 5 YEAR
  • out of 73 funds
  • 10 YEAR
  • out of 53 funds
  • 1 YEAR
  • 3rd
  • 78 out of 107 funds
  • 3 YEAR
  • 2nd
  • 38 out of 83 funds
  • 5 YEAR
  • 2nd
  • 20 out of 65 funds
  • 10 YEAR
  • 2nd
  • 21 out of 46 funds
  • SINCE INCEPTION
  • 1st
  • 3 out of 14 funds

Ratings agency calculation methodology

Portfolio Managers

Andrew  Mattock, CFA photo
Andrew Mattock, CFA

Lead Manager

Winnie  Chwang photo
Winnie Chwang

Co-Manager

Sherwood  Zhang, CFA photo
Sherwood Zhang, CFA

Co-Manager

Portfolio Characteristics

(as of 03/31/2022)
Fund Benchmark
Number of Positions 59 742
Weighted Average Market Cap $99.5 billion $136.5 billion
Active Share 72.3 n.a.
P/E using FY1 estimates 13.7x 9.9x
P/E using FY2 estimates 11.5x 8.9x
Price/Cash Flow 15.6 6.9
Price/Book 2.5 1.4
Return On Equity 15.5 13.4
EPS Growth (3 Yr) 13.1% 14.8%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 03/31/2022)
6.02%
Alpha
1.01
Beta
125.85%
Upside Capture
98.39%
Downside Capture
0.09
Sharpe Ratio
0.89
Information Ratio
6.35%
Tracking Error
90.96

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 05/31/2022)
Name Sector % Net Assets
Alibaba Group Holding, Ltd. Consumer Discretionary 7.8
Meituan Consumer Discretionary 6.0
Tencent Holdings, Ltd. Communication Services 5.6
Pinduoduo, Inc. Consumer Discretionary 5.5
JD.com, Inc. Consumer Discretionary 4.9
China Merchants Bank Co., Ltd. Financials 4.3
China International Capital Corp., Ltd. Financials 3.9
CITIC Securities Co., Ltd. Financials 3.3
Shenzhen Inovance Technology Co., Ltd. Industrials 2.3
Wuliangye Yibin Co., Ltd. Consumer Staples 2.1
TOTAL 45.7

Top 10 holdings may combine more than one security from the same issuer and related depositary receipts.

Source: BNY Mellon Investment Servicing (US) Inc.

Portfolio Breakdown (%)

(as of 03/31/2022)
  • Sector Allocation
  • Market Cap Exposure
  • China Exposure

Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.

China Exposure Portfolio Weight
A Shares 50.7
SAR (Hong Kong) 32.3
H Shares 9.8
Overseas Listed Companies (OL) 6.6
Cash and Other Assets, Less Liabilities 0.5

Definitions: SAR (Hong Kong) companies are companies that conduct business in Hong Kong and/or mainland China. China-affiliated corporations [CAC], also known as "Red Chips," are mainland China companies with partial state ownership listed in Hong Kong, and incorporated in Hong Kong. China A Shares are Mainland Chinese companies incorporated in China and listed on the Shanghai or Shenzhen exchanges, available mostly to local Chinese investors and qualified institutional investors. H Shares are mainland Chinese companies listed on the Hong Kong exchange but incorporated in mainland China. B Shares are mainland Chinese companies listed on the Shanghai and Shenzhen stock exchanges, available to both Chinese and non-Chinese investors. Overseas Listed [OL] companies are companies that conduct business in mainland China but listed in overseas markets such as Japan, Singapore, Taiwan and the United States.

Source: FactSet Research Systems.

Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Percentage values may be derived from different data sources and may not be consistent with other Fund literature.

Distributions

Record Date Ex, Pay and
Reinvest Date
Ordinary
Income
Short Term
Capital Gains
Long Term
Capital Gains
Total Distributions
Per Share
% of NAV Nondividend Distribution (Return of Capital)
12/14/2021 12/15/2021 $0.05000 $1.52705 $1.62473 $3.20178 12.9% N.A.
View History

 

There is no guarantee that the Fund will pay or continue to pay distributions. 

Past performance is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that shares, when redeemed, may be worth more or less than their original cost.

Commentary

Period ended March 31, 2022

For the quarter ending March 31, 2022, the Matthews China Fund returned -20.26% (Investor Class) and -20.26% (Institutional Class), while its benchmark, the MSCI China Index, returned -14.19% over the same period.

Market Environment:

The first quarter of the year was broadly negative and choppy for emerging and Asian equity markets for the third consecutive quarter. Chinese equities were weak led down by the confluence of COVID-19 case spikes resulting policy enforced lockdowns in tier one cities, ADR delisting pricing pressures and investor worries that Russia-like sanctions could be implemented upon select Chinese companies. Although macro data in January and February contained upside surprises, the Chinese government’s zero-COVID policy continued to weigh heavily on certain sectors.

The Chinese government announced during the quarter that they favor a 2022 GDP growth rate of “around 5.5%.”  In our opinion, this was an important “stake in the ground” announcement. Because of the significant lockdown pressure on consumption, GDP growth will need to be created elsewhere in the economy in order to reach the 5.5% growth target. We envision a battle between temporary lockdowns and stimulus to unfold. Regardless, we think the government will largely succeed in supporting the Chinese economy and that corporate earnings will remain some of the highest globally in 2022-23.

Performance Contributors and Detractors:

The portfolio’s overweight to A shares detracted from performance in the first quarter. The A-share markets experienced pull back on weak consumer sentiment given the Chinese government’s zero-COVID policy, and a general property market weakness. The A-share market has also performed well over the past two years, and growth sectors, which have become expensive, are undergoing a healthy correction. Around half of the portfolio exposure is currently to A-shares. Despite the recent pull back in the A-share market, we intend to maintain rather similar levels of exposures and believe that there are still many secularly growing opportunities in this market.

From a sector perspective, financials detracted the most from overall relative performance largely due to the portfolio’s overweight in securities companies, including China Merchants Securities Co. and China International Capital Corp. Securities companies tend to be sensitive to market and trading sentiment and therefore underperformed during this period of market volatility. Longer term, we still view these companies as attractively priced businesses that would benefit from China’s deepening capital markets.

On the other hand, the portfolio’s underweight to U.S. ADRs was beneficial given continued pressure on this space with rising risks of ADR listings, including the onset of the Russia and Ukraine war which weakened sentiment on emerging markets.  From a sector perspective, allocation and stock section in real estate contributed the most to relative performance given our holding in China Overseas Land and Development, which is a state-owned enterprise (SOE) property developer. SOE developers have stronger balance sheets and portfolio managers believe they will benefit from the ability to buy attractively priced assets as the consolidation of the real estate continues. 

Notable Portfolio Changes:

The portfolio’s A shares exposure continued to trend up over the quarter to around 50%. Given the selloff in platform companies, we think there is lot of value emerging and added a few names including Pinduoduo, one of China’s largest ecommerce shopping platforms with a focus on lower tier city residents. Platform companies in China continue to be dominant businesses and they are still largely unmonetized at the moment. While there will be a moderation of growth, we do not think that regulations derail these businesses from growth entirely. The focus going forward will be on quality growth is a promising sign.

We also increased exposure to the IT sector, driven by more A-share companies, including semiconductor equipment company Beijing Huafeng Test & Control Technology and semiconductor component company Hangzhou Silan Microelectronics Co. Given the continued geo-political tensions, the self-sufficiency drive in China continues to be a definite path for the country in its next stage of development. We believe Huafeng and Silan Micro stand to benefit from market share gains in this industry where foreign firms are still very dominant in China. To fund some of these new positions, we reduced our exposure to financials. We also reduced some exposure from holdings in communication services, including 

Tencent as it had held up relatively well compared to other platform companies, and redeployed capital towards other more attractively valued opportunities.

Outlook:

Looking ahead, we expect that China’s Zero COVID-19 policy will likely linger, and especially over the next quarter, and watching the overhang closely as it puts pressure on consumer sentiment. At the same time, the property market continues to be weak, although there are signs that the government is increasingly in the camp of loosening the very tight conditions of the property market. Given these two pressures, we believe there is more support for monetary easing in the second half of 2022 as China’s key goal is still both economic and political stability.

The larger unknown is how U.S. – China relations will pan out. While we see China becoming more willing to make concessions, we have not quite seen the same level of openness from the U.S. This lack of ability to ascertain U.S. – China politics will be a risk that will unfortunately be hard to manage for. Elsewhere, results remain largely in-line with expectations and continued healthy pace of growth is seen with some signs of margin erosion but managed relatively well. We remain more hopeful of an improvement in sentiment given still resilient earnings growth and an increased likelihood of policy easing ahead.

View the Fund’s Top 10 holdings as of March 31, 2022. Current and future holdings are subject to change and risk.

Average Annual Total Returns - MCHFX as of 03/31/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-31.78% 2.77% 7.80% 5.56% 8.96% 02/19/1998

All performance quoted is past performance and is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. Please see the Fund's most recent month-end performance.

Fees & Expenses
Gross Expense Ratio 1.06%

Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Investing in emerging markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.

 

Visit our Glossary of Terms page for definitions and additional information.

Index Definitions

The information contained herein has been derived from sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Neither the funds nor the Investment Advisor accept any liability for losses either direct or consequential caused by the use of this information.

The views and opinions in the commentary were as of the report date, subject to change and may not reflect current views. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the Fund's future investment intent. It should not be assumed that any investment will be profitable or will equal the performance of any securities or any sectors mentioned herein. The information does not constitute a recommendation to buy or sell any securities mentioned.