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Asia Growth

Matthews China Small Companies Fund MCSMX

Snapshot
  • Seeks alpha in China’s lesser known small entrepreneurial companies
  • Invests in industries that are leveraged to China’s increasingly innovative and dynamic economy driven by fast growing domestic consumer demand
  • Tilt towards higher value-added growth sectors benefiting from innovation and capital efficiency

05/31/2011

Inception Date

-20.38%

YTD Return

(as of 06/27/2022)

$13.09

Price

(as of 06/27/2022)

$251.21 million

Fund Assets

(as of 05/31/2022)

Objective

Long-term capital appreciation.

Strategy

Under normal circumstances, the 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 Small Companies located in China. China includes its administrative and other districts, such as Hong Kong. The Fund seeks to invest in smaller 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. The Fund defines Small Companies as companies with market capitalization no higher than the greater of US $5 billion or the market capitalization of the largest company included in the Fund's primary benchmark, the MSCI China Small Cap Index.

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. The Fund is non-diversified as it concentrates its investments in small sized companies. Investing in small- and mid-size companies is more risky and volatile than investing in large companies as they may be more volatile and less liquid than larger companies.

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

Fund Facts
Inception Date 05/31/2011
Fund Assets $251.21 million (05/31/2022)
Currency USD
Ticker MCSMX
Cusip 577-125-404
Portfolio Turnover 119.7%
Benchmark MSCI China Small Cap Index
Geographic Focus China - China includes its administrative and other districts, such as Hong Kong
Fees & Expenses
Gross Expense Ratio 1.48%
Net Expense Ratio 1.43%

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 Small Companies Fund
MCSMX
4.84% -18.04% -26.22% -32.34% 16.62% 13.03% 11.83% 7.42% 05/31/2011
MSCI China Small Cap Index
-1.81% -13.03% -22.15% -38.08% -1.97% -1.60% 3.21% -0.82%
As of 03/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund
MCSMX
-11.08% -19.95% -19.95% -23.59% 17.45% 16.09% 11.95% 8.34% 05/31/2011
MSCI China Small Cap Index
-6.52% -16.33% -16.33% -30.18% -2.56% -0.59% 3.18% -0.17%
For the years ended December 31st
Name 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
Matthews China Small Companies Fund
MCSMX
-3.59% 82.52% 35.41% -17.68% 53.88% -2.35% 4.07% -3.33% 28.85% 10.53%
MSCI China Small Cap Index
-6.26% 27.21% 6.63% -19.53% 24.62% -5.95% 3.48% -0.34% 18.68% 22.98%
 

Unusually high returns may not be sustainable. 

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
  • 2nd
  • 40 out of 107 funds
  • 3 YEAR
  • 1st
  • 5 out of 83 funds
  • 5 YEAR
  • 1st
  • 2 out of 65 funds
  • 10 YEAR
  • 1st
  • 1 out of 46 funds
  • SINCE INCEPTION
  • 1st
  • 2 out of 46 funds

Ratings agency calculation methodology

Portfolio Managers

Andrew  Mattock, CFA photo
Andrew Mattock, CFA

Lead Manager

Winnie  Chwang photo
Winnie Chwang

Lead Manager

Portfolio Characteristics

(as of 03/31/2022)
Fund Benchmark
Number of Positions 64 254
Weighted Average Market Cap $4.6 billion $1.4 billion
Active Share 95.5 n.a.
P/E using FY1 estimates 11.2x 6.3x
P/E using FY2 estimates 9.9x 5.4x
Price/Cash Flow 11.1 5.2
Price/Book 2.0 0.7
Return On Equity 17.4 8.5
EPS Growth (3 Yr) 43.4% 15.7%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 03/31/2022)
20.06%
Alpha
0.67
Beta
105.24%
Upside Capture
51.06%
Downside Capture
0.78
Sharpe Ratio
1.13
Information Ratio
17.63%
Tracking Error
43.37

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 05/31/2022)
Name Sector % Net Assets
China Overseas Property Holdings, Ltd. Real Estate 3.9
Airtac International Group Industrials 3.0
ENN Natural Gas Co., Ltd. Utilities 2.9
Zhejiang Shuanghuan Driveline Co., Ltd. Consumer Discretionary 2.9
Alchip Technologies, Ltd. Information Technology 2.8
China State Construction International Holdings, Ltd. Industrials 2.7
Pan Jit International, Inc. Information Technology 2.6
China Testing & Certification International Group Co., Ltd. Industrials 2.4
Longshine Technology Group Co., Ltd. Information Technology 2.4
Pharmaron Beijing Co., Ltd. Health Care 2.3
TOTAL 27.9

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.

The Portfolio’s market cap exposure breakdown presented is used for comparison purposes and the definition of the capitalization breakdown is from MSCI.

The Fund defines Small Companies as companies with market capitalization no higher than the greater of US$5 billion or the market capitalization of the largest company included in the Fund's primary benchmark, the MSCI China Small Cap Index.

China Exposure Portfolio Weight
A Shares 37.3
SAR (Hong Kong) 27.2
China-affiliated corporations (CAC) 6.5
H Shares 6.4
Overseas Listed Companies (OL) 3.6
Unassigned 16.7
Cash and Other Assets, Less Liabilities 2.2

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 $0.11673 $1.77913 $0.81209 $2.70795 14.0% 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 Small Companies Fund returned -19.95% (Investor Class) and -19.86% (Institutional Class), while its benchmark, the MSCI China Cap Index, returned -16.33% 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 in 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. However, the worsening COVID-19 lockdown environment in China may increasingly make it difficult for China to reach these goals. We continue to 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 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. In addition, our A-shares holdings are in the growthier part of the A-share markets such as information technology and industrials. These sectors have performed well over 2020 and 2021, and growth sectors, which have become expensive, are undergoing a healthy correction. However, longer term, these are still secularly growing areas in our view. They are also very aligned with the China’s intent to become more self-reliant in areas such as semiconductors and automation.

From a sector perspective, materials and industrials detracted the most from relative performance. The industrials holding’ underperformance was led by battery equipment manufacturer Zhejiang Hangke Technology and building material testing agency China Testing & Certification International Group. Materials sector underperformance was led by fiber glass and wind turbine manufacturer Sinoma Science & Technology and building materials manufacturer Keshun Waterproof Technologies. Common thread among these holdings is that they are all A-shares and are either in renewables sector where there has been profit taking or building materials which is linked to property weakness.

On the other hand, allocation and stock section within utilities and the portfolio’s underweight in consumer discretionary and communications services contributed to relative performance. Among individual holdings, China Overseas Property, a property management company affiliated to large state-owned enterprise (SOE) developer China Overseas Land and Development, contributed to performance. SOE developers have stronger balance sheets we believe they will benefit from the ability to buy attractively priced assets as the consolidation of the real estate continues. We also believe property market will likely recover this year given the already very weak conditions and more monetary easing that is happening, including the lowering of mortgage rates, and the faster approvals of mortgages, etc. 

Notable Portfolio Changes:

Over the quarter, we made a few changes as part of our efforts to position the portfolio for exposure to the most innovatively growing parts of China driven by domestic demand. We initiated a new position in frozen food manufacturer Anjoy Food. The company has a strong business-to-business (B2B) and a growing business-to-consumer (B2C) lines of business. Anjoy continues to roll out new product categories that include that of frozen convenience meals, but its stock suffered a sizable correction given market conditions. We took the opportunity to add to this name given longer-term growth opportunity of convenience foods in both the B2B and B2C markets. We also exited a few holdings including camera module manufacturer Q Tech. The company disappointed in its delivery of margins amid a weak smartphone sales environment.

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 - MCSMX as of 03/31/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-23.59% 17.45% 16.09% 11.95% 8.34% 05/31/2011

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 1.48%
Net Expense Ratio 1.43%

Matthews has contractually agreed to waive fees and reimburse expenses to limit the Total Annual Fund Operating Expenses until April 30, 2023. Please see the Fund’s prospectus for additional details.

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. The Fund is non-diversified as it concentrates its investments in small sized companies. Investing in small- and mid-size companies is more risky and volatile than investing in large companies as they may be more volatile and less liquid than larger companies.

 

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.