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Asia Small Company

Matthews Asia Small Companies Fund MSMLX

The Fund is expected to be renamed the Matthews Emerging Markets Small Companies Fund on or about April 30, 2021. Please read the Supplement dated February 17, 2021 to the Matthews Asia Funds Prospectus dated April 29, 2020.

Snapshot
  • Seeks alpha in innovative, capital efficient entrepreneurial companies in Asia ex Japan
  • Focus on firms that have a strong competitive advantage through pricing power, distribution capability, and/or differentiated technologies and services
  • Bias toward businesses that cater to rising domestic consumer demand

09/15/2008

Inception Date

2.93%

YTD Return

(as of 04/09/2021)

$26.69

Price

(as of 04/09/2021)

$232.75 million

Fund Assets

(as of 03/31/2021)

Objective

Long-term capital appreciation

Strategy

Under normal circumstances, the Matthews Asia Small Companies 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 Asia Ex Japan. 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.

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 and frontier markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. 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.

The risks associated with investing in the Fund can be found in the prospectus.

Fund Facts
Inception Date 09/15/2008
Fund Assets $232.75 million (03/31/2021)
Currency USD
Ticker MSMLX
Cusip 577-125-206
Portfolio Turnover 111.9%
Benchmark MSCI All Country Asia ex Japan Small Cap Index
Geographic Focus Asia ex Japan - Consists of all countries and markets in Asia, including developed, emerging, and frontier countries and markets in the Asian region, excluding Japan
Fees & Expenses
Gross Expense Ratio 1.60%
Net Expense Ratio 1.41%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 03/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Small Companies Fund
MSMLX
-4.16% 0.35% 0.35% 79.73% 10.81% 12.55% 6.96% 12.03% 09/15/2008
MSCI All Country Asia ex Japan Small Cap Index
1.24% 9.56% 9.56% 87.24% 6.84% 10.09% 4.58% 8.50%
As of 03/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Small Companies Fund
MSMLX
-4.16% 0.35% 0.35% 79.73% 10.81% 12.55% 6.96% 12.03% 09/15/2008
MSCI All Country Asia ex Japan Small Cap Index
1.24% 9.56% 9.56% 87.24% 6.84% 10.09% 4.58% 8.50%
For the years ended December 31st
Name 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011
Matthews Asia Small Companies Fund
MSMLX
43.68% 17.38% -18.05% 30.59% -1.44% -9.43% 11.39% 7.19% 23.92% -20.03%
MSCI All Country Asia ex Japan Small Cap Index
26.60% 7.58% -18.63% 33.84% -2.05% -3.28% 2.56% 7.16% 22.76% -26.66%

MSCI AC Asia ex Japan Small Cap Index since inception value calculated from 9/15/08.

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 12/31/2020)

MSCI AC Asia ex Japan Small Cap Index since inception value calculated from 9/15/08.

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 56 funds
  • 3 YEAR
  • out of 56 funds
  • 5 YEAR
  • out of 50 funds
  • 10 YEAR
  • out of 29 funds
  • 1 YEAR
  • 1st
  • 8 out of 46 funds
  • 3 YEAR
  • 2nd
  • 18 out of 43 funds
  • 5 YEAR
  • 3rd
  • 27 out of 39 funds
  • 10 YEAR
  • 3rd
  • 16 out of 26 funds
  • SINCE INCEPTION
  • 1st
  • 2 out of 21 funds

Ratings agency calculation methodology

Portfolio Managers

Vivek  Tanneeru photo
Vivek Tanneeru

Lead Manager

Portfolio Characteristics

(as of 12/31/2020)
70
Number of Securities

Source: BNY Mellon Investment Servicing (US) Inc.

30.2x
P/E using FY1 estimates
22.7x
P/E using FY2 estimates
$5.0 billion
Weighted Average Market Cap

Source: FactSet Research Systems

Top 10 Holdings

(as of 03/31/2021)
Name Sector Country % Net Assets
Shriram City Union Finance, Ltd. Financials India 4.8
Silergy Corp. Information Technology China/Hong Kong 3.9
Andes Technology Corp. Information Technology Taiwan 3.4
Phoenix Mills, Ltd. Real Estate India 3.3
SITC International Holdings Co., Ltd. Industrials China/Hong Kong 3.1
Hugel, Inc. Health Care South Korea 2.7
Innovent Biologics, Inc. Health Care China/Hong Kong 2.6
Ginlong Technologies Co., Ltd. Industrials China/Hong Kong 2.6
Airtac International Group Industrials China/Hong Kong 2.5
Dr. Lal PathLabs, Ltd. Health Care India 2.3
TOTAL 31.2

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 12/31/2020)
  • Sector Allocation
  • Country Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Information Technology 32.7 20.9 11.8
Health Care 21.0 10.1 10.9
Industrials 16.9 15.0 1.9
Consumer Discretionary 10.6 12.0 -1.4
Real Estate 6.0 10.6 -4.6
Consumer Staples 5.5 4.7 0.8
Financials 4.6 8.0 -3.4
Materials 1.5 10.4 -8.9
Communication Services 0.9 4.1 -3.2
Utilities 0.0 2.4 -2.4
Energy 0.0 1.7 -1.7
Cash and Other Assets, Less Liabilities 0.2 0.0 0.2

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

Country Fund Benchmark Difference
China/Hong Kong 48.5 19.5 29.0
India 20.6 17.6 3.0
Taiwan 14.5 24.0 -9.5
South Korea 8.7 21.2 -12.5
Vietnam 2.2 0.0 2.2
Indonesia 1.5 2.4 -0.9
Philippines 1.4 1.0 0.4
Thailand 1.3 3.9 -2.6
Singapore 0.9 6.1 -5.2
Malaysia 0.3 3.8 -3.5
Pakistan 0.0 0.5 -0.5
Cash and Other Assets, Less Liabilities 0.2 0.0 0.2

Not all countries are included in the benchmark index(es).

Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 0.0 0.0 0.0
Large Cap ($10B-$25B) 15.2 0.0 15.2
Mid Cap ($3B-$10B) 38.5 14.4 24.1
Small Cap (under $3B) 46.1 85.6 -39.5
Cash and Other Assets, Less Liabilities 0.2 0.0 0.2

The Fund defines Small Companies as companies with market capitalization generally between $100 million and $5 billion or the largest company included in the Fund’s primary benchmark. The Portfolio’s market cap exposure breakdown presented is used for comparison purposes and the definition of the capitalization breakdown is from MSCI.

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)
12/15/2020 12/16/2020 $0.05487 $0.00000 $0.01710 $0.07197 0.3% 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, 2020

For the year ending December 31, 2020, the Matthews Asia Small Companies Fund returned 43.68% (Investor Class) and 43.90% (Institutional Class), while its benchmark, the MSCI All Country Asia ex Japan Small Cap Index, returned 26.60%. For the fourth quarter, the Fund returned 22.90% (Investor Class) and 22.94% (Institutional Class), while its benchmark returned 19.72%.

Market Environment:

Equities across Asia were volatile in the year, but broad market indexes tracking the region ultimately generated attractive returns. Global markets fell in the first quarter, as worries surrounding the spread of COVID-19 moved from China throughout Europe to the U.S. and then back to South Asia, including India. Fears of a global growth slowdown turned into reality as governments worldwide began to implement different versions of “shelter in place” to contain the movement of the virus. But central banks globally, led by the U.S. Federal Reserve, unleashed powerful, and largely effective, monetary stimulus. Many governments also unveiled meaningful fiscal stimulus. Both those actions helped ease worries about a crippling and sustained global recession. They also provided cover for many emerging markets (EM) to undertake their own monetary and fiscal stimuli thereby supporting their economies.

In the third quarter, economic recovery and improved sentiment began to take hold as major economies continued to relax COVID-19 lockdown restrictions even further. China’s V-shaped recovery in manufacturing along with a steady recovery in domestic consumption brought some normalcy to daily life. EM currencies rallied slightly against the U.S. dollar in the third quarter, acting as a slight tailwind for EM equities. Growth stocks outpaced value and small caps outperformed large caps. The fourth quarter saw further economic strengthening. Cyclical stocks in beaten-up or export-driven markets such as Indonesia and South Korea rallied most in the fourth quarter, while markets that experienced early recovery like China, Japan and India lagged slightly. Market strength gained momentum following the U.S. Presidential elections in November as markets hoped for less confrontational U.S. – China relations, combined with an announcement of several approved COVID-19 vaccines that were due for distribution early in 2021.

Performance Contributors and Detractors:

Stock selection in China/Hong Kong was a notable contributor to performance for the year. As the economic recovery continued to broaden in the year, small companies, especially in the health care and technology space, did well. On the other hand, stock selection and an underweight to South Korea was a detractor. South Korea’s broader markets, led by cyclical sectors such as materials, shipping and shipbuilding rallied late in the year on improving sentiment toward global exports and trade. Our underweight worked against us in this environment.

From a sector perspective, stock selection in information technology was a notable contributor. The expansion of China’s local supply chain development especially in areas such as semiconductors and industrial automation has aided stock performance. Smaller companies are well positioned to participate in this growth, bringing innovative new approaches to existing customer needs. On the other hand, stock selection in health care was a detractor, even though our overweight to the sector was a contributor. While our health care holdings generated attractive total returns in aggregate, they trailed the returns of the benchmark constituents within the sector. We continue to like the long-term prospects of our health care holdings.

Among indivdual stocks, Silergy Corp was a notable contributor. While listed in Taiwan, Silergy is a truly global company with an edge in China. The company designs mixed-signal and analog power management integrated circuits that are used in industrial, consumer, computing and communications. On the other hand, a detractor was property developer Times China, which focuses on developments in the Greater Bay Area in Guangdong province. This area has been earmarked for further development in high-value-adding sectors such as the technology and financial industries, and is likely to see growth in infrastructure connectivity over time. The real estate industry has been sluggish as the pandemic has disrupted sales in China, but we continue to like the company’s long-term prospects in land banking, as well as its attractive valuations.

Notable Portfolio Changes:

During the fourth quarter we have initiated a new position in Formosa Sumco Technology Corporation, a Taiwanese semiconductor wafer manufacturing company. The company derives the majority of its revenues from 12-inch wafers while also having meaningful exposure to the 8-inch wafers. Its main customers include foundry and memory companies operating in Taiwan and China. The demand for wafers is expected to continue to recover in 2021 and beyond, providing support to top and bottom line growth. At the same time the industry is also consolidating, thereby potentially bringing in capacity addition and pricing discipline. We find the company reasonably valued.

We also initiated a position in Malaysian home improvement retailer Mr. DIY through the IPO process. Mr. DIY is the largest player in the industry with about 30% market share in an end market that is growing. The company’s value proposition is that it has an offering that is attractively priced at convenient locations in a store format that has a large number of items per store. The company continues to drive sales growth through both new store openings as well as by delivering good like-for-like sales growth, which translates into attractive profit growth driven by its efficient operations. Two new formats—the discount retail format, MR DOLLAR and value-for-money toy store, MR. TOY—offer further growth options.

Outlook:

Looking ahead, uncertainty remains in terms of the pace of Asia’s economic recovery. Given the uncertainty of how quickly vaccines can be distributed, how quickly daily patterns may return to normal remain unknown and the strength of the economic recovery in different markets where we invest may not be immediately evident. Valuations for Asia ex-Japan equities are above their historic averages and in some areas of the market, we believe investors have already priced in a high level of anticipated future growth. All of these emphasize the importance of investing with a long-term view.

At the same time, we see many reasons for optimism. There are three important drivers for equity prices—growth, valuation and liquidity. From a growth perspective, Asia is on a path to economic recovery and the sheer size of the consumer base in Asia works in its favor. Valuations for Asia ex-Japan equities rose in 2020, so there is less valuation support for the broader market, but we continue to see pockets of opportunity. Finally, turning to market liquidity, we find good liquidity across Asia. We believe the confluence of these drivers will support medium to long-term growth across many parts of Asia.

 

As of 12/31/2020, the securities mentioned comprised the Matthews Asia Small Companies Fund in the following percentages: Silergy Corp., 4.5%; Times China Holdings, Ltd., 0.8%; Formosa Sumco Technology Corp., 1.5%; MR DIY Group M BHD, 0.3%. Current and future portfolio holdings are subject to change and risk.

Average Annual Total Returns - MSMLX as of 03/31/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
79.73% 10.81% 12.55% 6.96% 12.03% 09/15/2008

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 1.60%
Net Expense Ratio 1.41%

Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class (which is offered through a separate prospectus to eligible investors) to 1.20%, first by waiving class specific expenses (e.g., shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non-class specific expenses (e.g., custody fees) of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 1.20% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 1.20%. If the operating expenses fall below the expense limitation in a year within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment. This agreement will remain in place until April 30, 2021 and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

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 and frontier markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. 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.