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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

-3.35%

YTD Return

(as of 01/26/2022)

$19.89

Price

(as of 01/26/2022)

$1.34 billion

Fund Assets

(as of 12/31/2021)

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 $1.34 billion (12/31/2021)
Currency USD
Ticker MCHFX
Cusip 577-130-701
Portfolio Turnover 52.6%
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 1.09%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 12/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund
MCHFX
-3.70% -5.66% -12.26% -12.26% 19.09% 16.16% 8.91% 10.10% 02/19/1998
MSCI China Index
-3.15% -6.06% -21.64% -21.64% 7.91% 9.52% 7.38% 4.46%
MSCI China All Shares Index
-1.52% -2.52% -12.80% -12.80% 14.21% 10.12% n.a. n.a.
As of 12/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund
MCHFX
-3.70% -5.66% -12.26% -12.26% 19.09% 16.16% 8.91% 10.10% 02/19/1998
MSCI China Index
-3.15% -6.06% -21.64% -21.64% 7.91% 9.52% 7.38% 4.46%
MSCI China All Shares Index
-1.52% -2.52% -12.80% -12.80% 14.21% 10.12% 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 12/31/2021)

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 72 funds
  • 10 YEAR
  • out of 53 funds
  • 1 YEAR
  • 3rd
  • 61 out of 105 funds
  • 3 YEAR
  • 2nd
  • 30 out of 83 funds
  • 5 YEAR
  • 1st
  • 16 out of 64 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

Portfolio Characteristics

(as of 12/31/2021)
Fund Benchmark
Number of Positions 63 739
Weighted Average Market Cap $127.5 billion $156.1 billion
Active Share 68.8 n.a.
P/E using FY1 estimates 15.9x 11.7x
P/E using FY2 estimates 13.8x 10.7x
Price/Cash Flow 17.0 8.5
Price/Book 2.8 1.7
Return On Equity 16.9 13.4
EPS Growth (3 Yr) -19.7% -7.1%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 12/31/2021)
10.72%
Alpha
0.97
Beta
129.37%
Upside Capture
90.10%
Downside Capture
0.89
Sharpe Ratio
1.97
Information Ratio
5.68%
Tracking Error
92.36

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 12/31/2021)
Name Sector % Net Assets
Tencent Holdings, Ltd. Communication Services 10.4
Alibaba Group Holding, Ltd. Consumer Discretionary 7.6
Meituan Consumer Discretionary 4.5
China Merchants Bank Co., Ltd. Financials 4.5
JD.com, Inc. Consumer Discretionary 4.4
China International Capital Corp., Ltd. Financials 3.8
CITIC Securities Co., Ltd. Financials 3.0
Sungrow Power Supply Co., Ltd. Industrials 2.2
China Merchants Securities Co., Ltd. Financials 2.0
China Tourism Group Duty Free Corp., Ltd. Consumer Discretionary 2.0
TOTAL 44.4

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 12/31/2021)
  • 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 49.4
SAR (Hong Kong) 34.1
H Shares 9.2
Overseas Listed Companies (OL) 3.9
China-affiliated corporations (CAC) 2.3
Cash and Other Assets, Less Liabilities 1.2

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.
12/15/2020 12/16/2020 $0.06025 $0.17213 $0.10568 $0.33806 1.3% 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 December 31, 2021

For the year ending December 31, 2021, the Matthews China Fund returned -12.26% (Investor Class) and -12.07% (Institutional Class), while its benchmark, the MSCI China Index, returned -21.64% over the same period. For the fourth quarter of the year, the Fund returned -5.66% (Investor Class) and -5.62% (Institutional Class), while the benchmark returned -6.06%.

Market Environment:

2021 was a volatile year for Chinese equity markets with a variety of issues including concerns regarding anti-monopoly regulations faced by internet platform companies, Chinese ADR delistings, solvency risks surrounding China’s property markets and general concerns about growth slowing given both internal and external factors. These concerns resulted in weak foreign sentiment and resulted in stock market performance divergence between U.S. and Hong Kong-listed Chinese securities with that of the domestic A-share-listed Chinese securities. Hong Kong dually listed stocks continue to see record high levels of discount compared with those of their China counterparts.

The regulatory environment in China has been rather tight since the end of the first half in 2021 given that China met many of its economic goals early in the year. We believe that regulations continue to be part and parcel of China’s economy and look toward opportunities in sectors where there is continued regulatory support, such as in the areas of renewables and import substitution which will continue to drive local businesses to use more locally made content.

Performance Contributors and Detractors:

Stock selection within information technology, consumer discretionary and financials contributed to performance for the full year. A contributor among individual stocks was e-commerce company JD.com. After being weighed down earlier in the year by market concerns stemming from China’s regulatory announcements directed at large internet platforms, the company stock price gained ground in the second half of the year. Despite the uncertain regulatory backdrop, JD.com reported strong second quarter earnings late in August, which boosted market sentiment toward the company. China Merchants Bank, a retail bank franchise that employs a prudent approach and commands good asset quality, was another contributor. Strong share price performance of the company’s stock has been supported, in our view, by resilient earnings per share growth. We believe the stock remains attractively valued and may have further room for price appreciation, as the bank serves an appealing demographic of high-end clients and continues to expand its business.

On the other hand, the Fund’s real estate and consumer staples detracted from performance. The market continued to be increasingly worried about real estate sentiment in the second half of the year which drove stock prices down. A detractor among individual stocks was Times China Holdings, a southern China focused developer which experienced weak performance due to a tightening policy environment. We believe that this presents the opportunity for market consolidation over the longer term, and that leading regional players such as Times China should be able to grow market share under these conditions given their strong balance sheets. Real estate opportunities in China are also attractively valued and may offer high dividend yields making the risk reward still favorable in our view.

Chinese liquor company Wuliangye Yibin was another detractor. As the second-largest liquor company in China, the company specializes in manufacturing “baijiu,” a clear liquor made from grain. Wuliangye’s underperformance was in line with the overall sector correction experienced in 2021. The consumer staples sector was one of the best performing sectors in 2020 and saw valuations become rather expensive for the growth it was offering. Hence what we saw was a healthy correction of the overall sector, including that of white liquor names and Wuliangye.

The Fund’s allocation to A-shares has continued to increase over time during the year. At the end of December, the strategy had 49.4% in A-shares compared to the beginning of the year, where it had 37.5%. As A-shares have performed much better compared to both the U.S. and Hong Kong-listed shares, the portfolio’s increasing allocation to A-shares generated positive returns.

Notable Portfolio Changes:

During the year, we consolidated the portfolio’s U.S. American Depository Receipt (ADR) exposure into Hong Kong shares, including for Alibaba and JD.com due to increased levels of uncertainty of U.S. – China relations. Over the next few years, we anticipate that more U.S.-listed ADRs will continue to seek secondary listings in Hong Kong. We also consolidated the Fund’s consumer staples exposure in the beginning of the year due to the sector’s high valuations, and lowered the portfolio’s overall exposure to insurance companies given China’s lower interest rate environment and intensifying competition in the country. We initiated new positions in Sungrow Power Supply and Nari Technology. Sungrow is the leading inverter manufacturer in China benefiting from renewable energy growth. . China’s plan to be carbon neutral by 2060 has promoted significant volume expansion opportunities across the solar chain. Sungrow has strong product offerings in the high end inverter space and strong execution by management has grown the company’s global market share considerably over the past decade. Additionally, we believe there is further opportunity to expand Sungrow’s total addressable market as the energy storage system market grows. Nari Technology is a leading provider of equipment and digital solutions to China’s state grid. As the proportion of renewable energy in China’s energy mix increases, China’s grid is seeing upgrading needs for smarter grid capabilities. We believe these increased needs will spur capital expenditure spending and benefit vendors such as Nari Technology.

Outlook:

Looking ahead, we believe 2022 will be a year of adaptation to the new policies in place. Tough regulations might have moderated growth but have not completely derailed growth for many of China’s leading companies. There will likely be stability, both economically and politically, for the country as highlighted in the recent central economic work conference. China’s government also has sufficient monetary tools to deploy if it needs to step in to support economic growth. However, given growth targets which are largely within expectation, we expect that any monetary support will be more targeted.

In 2022, we believe that China will continue to be focused on a strict COVID-19 policy. China’s well executed COVID measures have ensured that most businesses operations continued smoothly albeit the recovery in consumer related opportunities may take slightly longer to unfold. China will also be focused on its longer-term renewable goals and we continue to expect these areas to be fast growing opportunities. Valuations have corrected down with market uncertainty over the past year providing for an opportunity to buy into the market.

As of Dec 31, 2021, the securities mentioned comprised the Matthews China Fund in the following percentages: JD.com, Inc., 4.4%; China Merchants Bank Co., Ltd., 4.5%; Times China Holdings, 0.9%; Wuliangye Yibin Co., Ltd., 1.8%; Alibaba Group Holding, Ltd., 7.6%; Sungrow Power Supply Co., Ltd., 2.2%; and Nari Technology Co., Ltd., 1.5%.

Current and future holdings are subject to change and risk.

 

Average Annual Total Returns - MCHFX as of 12/31/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
-12.26% 19.09% 16.16% 8.91% 10.10% 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 1.09%

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.