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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

-25.80%

YTD Return

(as of 12/01/2022)

$15.27

NAV

(as of 12/01/2022)

+0.02

1 Day NAV Change

(as of 12/01/2022)

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 $618.90 million (10/31/2022)
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 10/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund - MCHFX
02/19/1998
MCHFX
-12.63% -25.70% -43.54% -48.44% -7.72% -4.84% 2.38% 7.23%
MSCI China Index
-16.81% -28.75% -42.70% -47.82% -13.73% -9.55% 0.13% 1.97%
MSCI China All Shares Index
-13.52% -25.33% -39.35% -42.48% -8.32% -6.68% n.a. n.a.
As of 09/30/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund - MCHFX
02/19/1998
MCHFX
-13.75% -25.57% -35.37% -39.03% -1.85% -1.23% 3.98% 7.85%
MSCI China Index
-14.54% -22.44% -31.12% -35.29% -7.06% -5.42% 2.56% 2.75%
MSCI China All Shares Index
-12.25% -20.57% -29.86% -31.63% -2.60% -3.21% 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
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% n.a. n.a. n.a.

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 09/30/2022)

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 91 funds
  • 3 YEAR
  • out of 91 funds
  • 5 YEAR
  • out of 72 funds
  • 10 YEAR
  • out of 51 funds
  • 1 YEAR
  • 3rd
  • 83 out of 110 funds
  • 3 YEAR
  • 2nd
  • 33 out of 81 funds
  • 5 YEAR
  • 2nd
  • 29 out of 67 funds
  • 10 YEAR
  • 2nd
  • 20 out of 46 funds
  • SINCE INCEPTION
  • 1st
  • 4 out of 15 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 09/30/2022)
Fund Benchmark
Number of Positions 62 721
Weighted Average Market Cap $70.4 billion $99.3 billion
Active Share 75.3 n.a.
P/E using FY1 estimates 12.6x 9.0x
P/E using FY2 estimates 11.1x 8.3x
Price/Cash Flow 10.4 5.1
Price/Book 1.9 1.2
Return On Equity 12.1 11.6
EPS Growth (3 Yr) -10.7% 6.7%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 09/30/2022)
6.85%
Alpha
1.09
Beta
137.82%
Upside Capture
103.49%
Downside Capture
-0.10
Sharpe Ratio
0.61
Information Ratio
8.49%
Tracking Error
88.25

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 10/31/2022)
Name Sector % Net Assets
Pinduoduo, Inc. Consumer Discretionary 8.2
Meituan Consumer Discretionary 6.2
Alibaba Group Holding, Ltd. Consumer Discretionary 6.2
JD.com, Inc. Consumer Discretionary 4.6
China Merchants Bank Co., Ltd. Financials 4.3
China International Capital Corp., Ltd. Financials 4.3
CITIC Securities Co., Ltd. Financials 2.9
Sungrow Power Supply Co., Ltd. Industrials 2.5
Shenzhen Inovance Technology Co., Ltd. Industrials 2.5
Shanghai Baosight Software Co., Ltd. Information Technology 2.5
TOTAL 44.2

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 09/30/2022)
  • Sector Allocation
  • Market Cap Exposure
  • China Exposure
Sector Fund Benchmark Difference
Consumer Discretionary 36.6 30.6 6.0
Financials 15.0 15.7 -0.7
Information Technology 13.6 5.3 8.3
Industrials 11.5 5.8 5.7
Communication Services 6.1 17.5 -11.4
Health Care 5.5 5.7 -0.2
Real Estate 5.0 3.9 1.1
Consumer Staples 4.3 6.3 -2.0
Materials 3.9 3.6 0.3
Energy 0.0 2.9 -2.9
Utilities 0.0 2.7 -2.7
Liabilities in Excess of Cash and Other Assets -1.5 0.0 -1.5

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) 54.0 61.7 -7.7
Large Cap ($10B-$25B) 27.3 19.3 8.0
Mid Cap ($3B-$10B) 17.6 14.6 3.0
Small Cap (under $3B) 2.7 4.4 -1.7
Liabilities in Excess of Cash and Other Assets -1.5 0.0 -1.5
China Exposure Portfolio Weight
A Shares 49.7
SAR (Hong Kong) 28.8
Overseas Listed Companies (OL) 13.3
H Shares 9.7
Liabilities in Excess of Cash and Other Assets -1.5

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 September 30, 2022

For the quarter ending September 30, 2022, the Matthews China Fund returned -25.57% (Investor Class) and -25.58% (Institutional Class), while its benchmark, the MSCI China Index returned -22.44%.

Market Environment:

Chinese equities were extremely weak in the third quarter as a confluence of negative headlines including worries about a spillover of China’s real estate woes into its broader economy, lingering COVID restrictions and geopolitical tensions weighed on its economy. China’s property market sentiment has been hit hard and continued to struggle as potential buyers and local government cast doubts on whether some financially distressed developers can finish and deliver their pre-sold homes on time. COVID-related worries reappeared as cases jumped in the mega city of Chengdu, with a population of over 20 million, spurring a city-wide multi-day lockdown and mass testing—a protocol which has been discouraged since May of this year. In addition, in late July, a group of four companies were added to the SEC’s listed of potential de-listings from U.S. exchanges, and news that U.S. House Speaker Nancy Pelosi may visit Taiwan added to investor nervousness.

The People’s Bank of China (PBOC) announced a series of monetary and fiscal support measures during the quarter, including another cut to its 1-year policy rate and a lowering of its longer-term loan prime.

Performance Contributors and Detractors:

The portfolio’s overweight to A shares detracted from performance in the quarter. The A-share markets experienced a pull back on weak consumer sentiment given the Chinese government’s zero-COVID policy which has impacted the domestic market much more so than the Hong Kong market in our portfolio. From a sector perspective, allocation and stock selection within the real estate sector detracted the most from relative performance. The portfolio’s real estate holdings including CIFI, a property developer focused on building houses near the outer perimeter of tier-one cities, fell amid deepening market concerns about the outlook of the overall property market in China.

On the other hand, stock selection within consumer discretionary and a higher weighting to the industrials sector contributed the most to relative performance. Among the portfolio’s industrial holdings, Shanghai International Airport, one of China’s major airports, was among the top contributors to relative performance.  Although international travelers provide more revenue for the airport, it has benefited from pent up demand in domestic travel. And while international outbound tourism may be a few quarters away pending a more pragmatic approach to China’s zero-COVID policy, we expect Shanghai International Airport and duty-free operators to stand to beneficiaries of an eventual reopening of tourism activities.

Notable Portfolio Changes:

During the quarter, we added to existing positions within the consumer discretionary sector, and information technology sector exposure was decreased given the pull back in technology related stock prices on increased concerns global semiconductor cycle weakness. We also rotated capital within the real estate sector and sold KWG Living, a property management services provider and added Country Garden Services which we believe is a higher-quality property management company with a larger market capitalization. We also added to our position in KE Holdings, a housing transactions platform provider. The real estate segment in China overall has also corrected down quite massively from the valuation standpoint and we believe there is more opportunity to recover from a very weak sentiment. The property sector is a very meaningful part of China’s overall economy, and we are continuing to monitor the health of this market very closely.

Outlook:

China’s second quarter results released in July continued to reflect a weak economy dealing with COVID lockdown issues. At the same time, the overhang from a weak property sector and geopolitical tensions continue to plague China’s equity market performance. While the property market continues to be weak, there are signs that the government is increasingly looking to loosen the very tight conditions, including supporting banks to provide financing to developers, and allowing certain developers to issue renminbi-denominated bonds. The larger unknown is geopolitics, including the how U.S. – China relations will pan out. But there have been signs of pragmatism in Beijing. In August, China resolved a long-running dispute with the U.S. Public Company Accounting Oversight Board (PACOB), and PACOB inspectors are now checking the accounting workbooks for Chinese companies listed in the U.S. As for China’s zero COVID policy, while it is difficult to predict an actual point in time where we might see the end of current strict COVID measures, we are cautiously optimistic that the Chinese government will return to a more pragmatic approach, which strikes a better balance between public health and the economy.

Top 10 holdings as of September 30, 2022. Current and future holdings are subject to change and risk.

Average Annual Total Returns - MCHFX as of 09/30/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-39.03% -1.85% -1.23% 3.98% 7.85% 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.