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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

-12.60%

YTD Return

(as of 06/07/2023)

$9.71

NAV

(as of 06/07/2023)

+0.03

1 Day NAV Change

(as of 06/07/2023)

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 $124.10 million (05/31/2023)
Currency USD
Ticker MCSMX
Cusip 577-125-404
Portfolio Turnover 59.0%
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 1.55%
Net Expense Ratio 1.41%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 05/31/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund - MCSMX
05/31/2011
MCSMX
-10.91% -16.83% -15.48% -21.25% -9.29% 0.11% 6.77% 4.67%
MSCI China Small Cap Index
-12.84% -19.48% -18.02% -20.77% -5.95% -10.44% -2.21% -2.66%
As of 03/31/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund - MCSMX
05/31/2011
MCSMX
-1.33% 0.27% 0.27% -13.89% 3.15% 4.90% 9.34% 6.26%
MSCI China Small Cap Index
-5.82% -4.11% -4.11% -13.78% -0.30% -6.42% 0.01% -1.40%
For the years ended December 31st
Name 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
Matthews China Small Companies Fund - MCSMX
MCSMX
-31.26% -3.59% 82.52% 35.41% -17.68% 53.88% -2.35% 4.07% -3.33% 28.85%
MSCI China Small Cap Index
-24.77% -6.26% 27.21% 6.63% -19.53% 24.62% -5.95% 3.48% -0.34% 18.68%
 

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 03/31/2023)

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 103 funds
  • 3 YEAR
  • out of 103 funds
  • 5 YEAR
  • out of 79 funds
  • 10 YEAR
  • out of 53 funds
  • 1 YEAR
  • 4th
  • 94 out of 108 funds
  • 3 YEAR
  • 2nd
  • 46 out of 93 funds
  • 5 YEAR
  • 1st
  • 7 out of 74 funds
  • 10 YEAR
  • 1st
  • 2 out of 48 funds
  • SINCE INCEPTION
  • 1st
  • 5 out of 44 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 03/31/2023)
Fund Benchmark
Number of Positions 61 221
Weighted Average Market Cap $5.2 billion $1.4 billion
Active Share 94.7 n.a.
P/E using FY1 estimates 18.4x 7.6x
P/E using FY2 estimates 14.6x 6.4x
Price/Cash Flow 15.0 4.7
Price/Book 3.1 0.7
Return On Equity 11.8 0.0
EPS Growth (3 Yr) 13.4% 8.5%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 03/31/2023)
3.98%
Alpha
0.81
Beta
75.01%
Upside Capture
80.41%
Downside Capture
0.08
Sharpe Ratio
0.19
Information Ratio
17.79%
Tracking Error
65.95

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 05/31/2023)
Name Sector % Net Assets
China Overseas Property Holdings, Ltd. Real Estate 4.2
Alchip Technologies, Ltd. Information Technology 4.1
KE Holdings, Inc. Real Estate 3.7
ENN Natural Gas Co., Ltd. Utilities 3.4
Yangzijiang Shipbuilding Holdings, Ltd. Industrials 3.3
Jason Furniture Hangzhou Co., Ltd. Consumer Discretionary 3.1
Yadea Group Holdings, Ltd. Consumer Discretionary 3.0
Elite Material Co., Ltd. Information Technology 2.8
Chailease Holding Co., Ltd. Financials 2.8
Shenzhen Topband Co., Ltd. Information Technology 2.8
TOTAL 33.2

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 03/31/2023)
  • Sector Allocation
  • Market Cap Exposure
  • China Exposure
Sector Fund Benchmark Difference
Industrials 23.4 10.3 13.1
Information Technology 18.8 11.0 7.8
Consumer Discretionary 17.6 14.0 3.6
Health Care 12.8 19.7 -6.9
Real Estate 8.7 13.3 -4.6
Consumer Staples 6.2 5.0 1.2
Communication Services 3.0 7.5 -4.5
Utilities 3.0 3.9 -0.9
Financials 2.4 6.0 -3.6
Materials 2.1 7.9 -5.8
Energy 0.0 1.5 -1.5
Cash and Other Assets, Less Liabilities 2.0 0.0 2.0

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) 0.0 0.0 0.0
Large Cap ($10B-$25B) 7.4 0.0 7.4
Mid Cap ($3B-$10B) 54.8 1.6 53.2
Small Cap (under $3B) 35.8 98.4 -62.6
Cash and Other Assets, Less Liabilities 2.0 0.0 2.0

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 35.3
SAR (Hong Kong) 25.5
Overseas Listed Companies (OL) 11.5
H Shares 8.1
China-affiliated corporations (CAC) 6.6
Unassigned 11.0
Cash and Other Assets, Less Liabilities 2.0

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)
12/13/2022 12/14/2022 $0.19767 $0.00000 $0.00000 $0.19767 1.7% 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, 2023

For the year ending March 31, 2023, the Matthews China Small Companies Fund returned 0.27% (Investor Class) and 0.27% (Institutional Class), while its benchmark, the MSCI China Small Cap Index, returned -4.11% 

Market Environment:

Chinese equities grinded higher, albeit with considerable volatility, even after posting some of the strongest results within global markets in the final quarter of 2022. The country’s lifting of its long-standing COVID restrictions allowed for a ‘more normal’ Lunar New Year celebration helping to boost consumption indicators, especially those focused on domestic tourism, local services and entertainment. However, spy balloons, bilateral tensions and a spike in U.S. interest rates spurred profit taking in Chinese equities in February which relinquished almost the entire year-to-date gains. In March, cross-strait tensions seem to fade, and the Chinese government showed strong support for gaming and internet sectors along with announcing state-owned enterprise (SOE) reforms and additional fiscal stimulus which combined improved local sentiment causing A-share small-cap equities and large Hong Kong-based platform companies to bounce higher.

In the first quarter, Chinese small caps lagged large caps. Large-cap platform companies within the information technology and communication services sectors lead the MSCI China Index higher while health care and real estate—especially smaller caps lagged. The MSCI China Small Cap Index’s underperformance has been due to a large real estate exposure for the Index (13% of total Index) which did poorly.

Performance Contributors and Detractors:

During the quarter, stock selection within the consumer discretionary, information technology and real estate sectors contributed the most to relative performance. Among individual holdings, Alchip Technologies, an integrated circuit (IC) service design company, was the top contributor to the Fund’s absolute and relative performance. The company caters to increased IC outsourcing needs as more companies require customized chips. Alchip’s stock was under pressure last year given the market’s concerns about the company’s sizable exposure to Chinese clients and its weakening business outlook in China due to geopolitical tensions. Since then, Alchip has managed to add faster growing business opportunities in other regions. With less supply disruption this year, the company can also more successfully deliver new products to a tier-one client this year. Coupled with cheap valuations following the sell-off, the stock rebounded on an improving business outlook.

On the other hand, stock selection within the health care and industrials sectors detracted from relative performance. Among individual holdings, Hainan Meilan International Airport, an airport operator in the capital Haikou city of Hainan province, detracted from performance. Hainan continues to be zoned as the duty-free shopping destination in China. However, there have been near-term concerns of weaker Hainan sales as Chinese travelers spend more time traveling overseas with the lifting of COVID restrictions. We continue to view this asset as a unique one and that it will continue to benefit from growing duty-free revenues in Hainan. Development of Hainan as a duty-free shopping destination is also aligned with China’s goals to lower taxes and bring consumption and spending back to China.

Notable Portfolio Changes:

During the quarter, we increased the quality of the portfolio’s overall real estate exposure, reducing our small positions in real estate developers and exited KWG Group as well as Times China Holding. We added property management firm Hangzhou Binjiang Service Group Group (the top property management firm in Hangzhou market with good balance sheet) and project management firm Greentown Management Holdings. We also added Medlive Technology, a health care digital marketing firm that we believe will benefit from China’s reopening as well as further penetration of online marketing from drug makers’ marketing budgets. We added Beijing Capital International Airport (BCIA) as we believe the firm will also be a beneficiary of China’s boarder reopening and international flights resumption and is a preferred airport by high-spending business travelers due to its location advantage. We also exited harmonic drive component manufacturer Leader Harmonious on worries of market share losses in China given new competition. Leader Harmonious is also a more expensive stock and replaced it with OPT Machine Vision Technology, which is cheaper and is China’s equivalent of Keyence in Japan, thus benefitting from domestic localization opportunities in our view.

Outlook:

China’s reopening continues to be bumpy with some sectors such as consumer discretionary and communication services (advertising) recovering ahead of others. We continue to monitor China’s property market developments as this is key in ensuring growth stability within the country. So far, a gradual, slightly better-than-expected property sector recovery has been seen on the ground. Industrial recovery has been weighed down by underperformance in the renewables sectors (EV/solar/wind) so far. We feel that investor sentiment has been overly bearish on concerns about slowing demand and oversupply. This continues to be a secular opportunity for growth and is key in China’s carbon neutrality transition. Platform companies in China continue to experience market sentiment volatility given varying geopolitical reactions. However, valuations are cheap, and any signs of warmer sentiment benefits a recovery in the stock prices of these platform companies more meaningfully.

 

Top 10 holdings as of March 31, 2023. Current and future holdings are subject to change and risk.

Average Annual Total Returns - MCSMX as of 03/31/2023
1YR 3YR 5YR 10YR Since Inception Inception Date
-13.89% 3.15% 4.90% 9.34% 6.26% 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 1.55%
Net Expense Ratio 1.41%

Matthews has contractually agreed to waive fees and reimburse expenses to limit the Total Annual Fund Operating Expenses until April 30, 2024. 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.