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Asia Small Company

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

1.81%

YTD Return

(as of 04/09/2021)

$20.22

Price

(as of 04/09/2021)

$467.34 million

Fund Assets

(as of 03/31/2021)

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.

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.

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

Fund Facts
Inception Date 05/31/2011
Fund Assets $467.34 million (03/31/2021)
Currency USD
Ticker MCSMX
Cusip 577-125-404
Portfolio Turnover 152.9%
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 1.62%
Net Expense Ratio 1.38%

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 China Small Companies Fund
MCSMX
-4.16% 1.01% 1.01% 66.82% 24.51% 26.87% n.a. 12.26% 05/31/2011
MSCI China Small Cap Index
-6.34% 12.34% 12.34% 64.63% 6.03% 9.56% n.a. 3.53%
As of 03/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund
MCSMX
-4.16% 1.01% 1.01% 66.82% 24.51% 26.87% n.a. 12.26% 05/31/2011
MSCI China Small Cap Index
-6.34% 12.34% 12.34% 64.63% 6.03% 9.56% n.a. 3.53%
For the years ended December 31st
Name 2020 2019 2018 2017 2016 2015 2014 2013 2012
Matthews China Small Companies Fund
MCSMX
82.52% 35.41% -17.68% 53.88% -2.35% 4.07% -3.33% 28.85% 10.53%
MSCI China Small Cap Index
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 12/31/2020)

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 82 funds
  • 3 YEAR
  • out of 82 funds
  • 5 YEAR
  • out of 71 funds
  • 1 YEAR
  • 1st
  • 5 out of 94 funds
  • 3 YEAR
  • 1st
  • 2 out of 73 funds
  • 5 YEAR
  • 1st
  • 1 out of 63 funds
  • SINCE INCEPTION
  • 1st
  • 1 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 12/31/2020)
58
Number of Securities

Source: BNY Mellon Investment Servicing (US) Inc.

17.9x
P/E using FY1 estimates
15.3x
P/E using FY2 estimates
$6.0 billion
Weighted Average Market Cap

Source: FactSet Research Systems

Top 10 Holdings

(as of 03/31/2021)
Name Sector % Net Assets
KWG Group Holdings, Ltd. Real Estate 4.0
360 DigiTech, Inc. Financials 3.7
KWG Living Group Holdings, Ltd. Real Estate 3.6
SITC International Holdings Co., Ltd. Industrials 3.5
China Yongda Automobiles Services Holdings, Ltd. Consumer Discretionary 3.4
ENN Natural Gas Co., Ltd. Materials 3.1
Times China Holdings, Ltd. Real Estate 3.1
Alchip Technologies, Ltd. Information Technology 3.1
China Meidong Auto Holdings, Ltd. Consumer Discretionary 2.8
Kingsoft Corp., Ltd. Information Technology 2.5
TOTAL 32.8

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
  • Market Cap Exposure
  • China Exposure
Sector Fund Benchmark Difference
Information Technology 25.4 18.4 7.0
Industrials 22.8 12.0 10.8
Health Care 11.8 9.0 2.8
Consumer Discretionary 11.7 19.6 -7.9
Real Estate 8.1 17.9 -9.8
Materials 6.3 7.7 -1.4
Consumer Staples 4.4 2.3 2.1
Financials 3.6 3.7 -0.1
Communication Services 3.3 4.4 -1.1
Utilities 0.0 3.5 -3.5
Energy 0.0 1.5 -1.5
Cash and Other Assets, Less Liabilities 2.6 0.0 2.6

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

Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 3.3 0.0 3.3
Large Cap ($10B-$25B) 10.8 0.0 10.8
Mid Cap ($3B-$10B) 58.9 18.3 40.6
Small Cap (under $3B) 24.4 81.7 -57.3
Cash and Other Assets, Less Liabilities 2.6 0.0 2.6

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.

China Exposure Portfolio Weight
SAR (Hong Kong) 44.6
A Shares 27.5
Overseas Listed Companies (OL) 10.6
H Shares 8.0
China-affiliated corporations (CAC) 0.9
Unassigned 5.8
Cash and Other Assets, Less Liabilities 2.6

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)
12/15/2020 12/16/2020 $0.13338 $1.96280 $1.27532 $3.37150 18.0% 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 December 31, 2020

For the year ending December 31, 2020, the Matthews China Small Companies Fund returned 82.52% (Investor Class) and 82.89% (Institutional Class), outperforming its benchmark, the MSCI China Small Cap Index, which returned 27.21% over the same period. For the fourth quarter of the year, the Fund returned 13.65% (Investor Class) and 13.73% (Institutional Class), versus 16.86% for the Index.

Market Environment:

From a global perspective, small companies generally faced greater challenges amid the pandemic than their larger peers, as larger companies tend to have more access to liquidity and resources during periods of economic strain. Nonetheless, small companies in China were strong performers in 2020, providing global investors with meaningful diversification and attractive equity price returns. One reason that China small companies stood out in the year was their focus on domestic demand and opportunities. China’s effective handling of the pandemic meant that its domestic economy re-opened much more quickly than other large economies globally. With the coronavirus pandemic held in check across China, cities, governments, businesses and schools remain open for regular, daily activities. Government micro-reforms in areas such as health care, education and housing continue to support sustainable growth in economic activity.

In addition, as domestic Chinese investors’ sentiment continued to improve throughout the year, the recovery in equity prices quickly broadened to include small and mid-size businesses. The rapid changes brought about by the pandemic created opportunities for innovative businesses to grow and consolidate market share. Trends accelerated by the pandemic included increased e-commerce sales, as well as higher demand for streaming and digital content and entertainment. The pandemic also underscored the need for greater workforce productivity and flexibility, as well as demand for more flexible and scalable health care solutions for a population of over a billion people. While the year began with a great deal of economic uncertainty, it ended on a strong note of optimism by an economy that has experience adapting to rapid change.

Performance Contributors and Detractors:

Stock selection in industrials and information technology were notable contributors in the full year. The only sector that was a slight detractor was materials, were stock selection was negative for the year.

Among individual securities, a contributor was Ginlong Technology Co., a company that manufactures solar inverters for solar energy production. China is very close to achieving grid parity, where the price of renewable energy becomes more competitive with the price of energy produced through fossil fuels. The trajectory of renewable energy expansion in China is very clear in our view and we expect continued solar growth in China given the government’s supportive policies, such as a goal of carbon neutrality by 2060. The solar inverters are a critical component in solar modules and may have more pricing protection when compared to other solar module components given a more consolidated market structure.

On the other hand, a slight detractor was Times China, which focuses on developments in the Greater Bay Area in Guangdong province. China’s policymakers have earmarked the region 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 added a position to Estun Automation Co., China’s leading robot manufacturer with strong technical capabilities and an 80% overall rate in component self-sufficiency. Amid recovery in the industrial automation industry in China, the company has seen a rebound in orders, creating positive sentiment and leading to stock prices gains in the month. We believe local companies, through price competitiveness and improving quality, stand to gain market share against foreign competitors in this industry, where foreigners still hold the lion’s share of the market.

We also initiated a position in China Yongda Automobiles Services Holdings, a luxury auto dealer carrying brands such as BMW and Porsche. Yongda is also seeking to expand and broaden its product portfolio to include other strong performing luxury brands such as Mercedes and Lexus. Overall luxury brands are still growing strongly in China, and the company continues to have the opportunity to deliver more aftermarket sales to a growing base of luxury cars. Yongda also trades at an attractive valuation in our view.

Outlook:

Looking ahead, we expect domestic consumption and services to continue driving China’s economic growth. Expansion of consumer buying power in lower-tier cities will remain a key theme we are following. With the coronavirus pandemic held in check across China, cities, governments, businesses and schools remain open for regular, daily activities. Government micro-reforms in areas such as health care, education and housing continue to support sustainable growth in economic activity. Regardless of the potential for U.S. – China trade tensions to ease under the incoming Biden administration, we expect that the local information technology ecosystem and supply chain within China will continue to develop under its own momentum. While some sectors of China’s equity markets are starting to look expensive, there is still a lot of untapped value that can be uncovered through an active approach to security selection. China is not immune from the potential impact of a slowdown in the global economy, but it may be better positioned to weather any such slowdown by drawing on domestic growth drivers.

As of 12/31/2020, the securities mentioned comprised the Matthews China Small Companies Fund in the following percentages: Ginlong Technologies Co., Ltd. A Shares, 2.4%; Times China Holdings, Ltd., 2.5%; Estun Automation Co., Ltd. A Shares, 1.1%; China Yongda Automobiles Services Holdings, Ltd., 1.9%. The Fund held no positions in BMW Group, The Volkswagen Group (parent of Porsche), Daimler AG (parent of Mercedes) or Toyota (parent of Lexus). Current and future portfolio holdings are subject to change and risk.

Average Annual Total Returns - MCSMX as of 03/31/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
66.82% 24.51% 26.87% N.A. 12.26% 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 1.62%
Net Expense Ratio 1.38%

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 feeds) 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 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.