Under normal circumstances, the Matthews Asia Growth 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 Asia. The Fund may also invest in the convertible securities, of any duration or quality, of Asian companies. 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 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 risks associated with investing in the Fund can be found in the
prospectus.
Asia - Consists of all countries and markets in Asia, including developed, emerging, and frontier countries and markets in the Asian region
Fees & Expenses
Gross Expense Ratio
1.09%
Performance
Monthly
Quarterly
Calendar Year
As of 12/31/2020
Average Annual Total Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews Asia Growth Fund
MPACX
9.45%
26.54%
46.76%
46.76%
15.75%
16.88%
10.48%
11.15%
10/31/2003
MSCI All Country Asia Pacific Index
5.84%
17.88%
20.07%
20.07%
7.64%
11.62%
6.68%
7.93%
As of 12/31/2020
Average Annual Total Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews Asia Growth Fund
MPACX
9.45%
26.54%
46.76%
46.76%
15.75%
16.88%
10.48%
11.15%
10/31/2003
MSCI All Country Asia Pacific Index
5.84%
17.88%
20.07%
20.07%
7.64%
11.62%
6.68%
7.93%
For the years ended December 31st
Name
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
Matthews Asia Growth Fund
MPACX
46.76%
26.18%
-16.25%
39.39%
0.92%
-0.05%
1.49%
19.35%
17.47%
-12.70%
MSCI All Country Asia Pacific Index
20.07%
19.74%
-13.25%
32.04%
5.21%
-1.68%
0.29%
12.19%
17.05%
-14.92%
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.
Past performance is no guarantee of future results. High ratings and rankings does not assure favorable performance.
The Overall Morningstar® Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and (if applicable) ten-year ratings.
Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.
Lipper Analytical Services, Inc., rankings are based on total return, including reinvestment of dividends and capital gains for the stated periods. Funds are assigned a rank within a universe of funds similar in investment objective as determined by Lipper. For the absolute rankings shown the lower the number rank, the better the Fund performed compared to other funds in the classification group. Lipper also calculates a quartile ranking which divides the peer group into quartiles to identify funds of similar quality. Funds in the 1st or 2nd quartile had outperformed the average fund in the peer group while funds in the 3rd or 4th quartile had underperformed.
Taizo Ishida is a Portfolio Manager at Matthews Asia. He manages the firm's Asia Growth, Emerging Asia, and Japan Strategies. Prior to joining Matthews Asia in 2006, Taizo spent six years on the global and international teams at Wellington Management Company as a Vice President and Portfolio Manager. From 1997 to 2000, he was a Senior Securities Analyst and a member of the international investment team at USAA Investment Management Company. From 1990 to 1997, he was a Principal and Senior Research Analyst at Sanford Bernstein & Co. Prior to beginning his investment career at Yamaichi International (America), Inc. as a Research Analyst, he spent two years in Dhaka, Bangladesh as a Program Officer with the United Nations Development Program. Taizo received a B.A. in Social Science from International Christian University in Tokyo and an M.A. in International Relations from The City College of New York. He is fluent in Japanese.
Michael Oh is a Portfolio Manager at Matthews Asia. He manages the firm's Asia Innovators and Korea Strategies and co-manages the Asia Growth Strategy. Michael joined Matthews Asia in 2000 as a Research Analyst and has built his investment career at the firm. Michael was promoted from Research Analyst to Assistant Portfolio Manager in 2003. In 2006 and 2007, he was promoted to Lead Manager of the Matthews Asia Innovators Strategy and the Matthews Korea Strategy, respectively. From 2000-2003, Michael's research focused on the technology sector supporting multiple strategies managed by the founders of the firm. As a research analyst, he contributed investment ideas to the broader Matthews Asia investment teams. Michael received a B.A. in Political Economy of Industrial Societies from the University of California, Berkeley. He is fluent in Korean.
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
Health Care
38.5
7.8
30.7
Consumer Discretionary
15.0
17.6
-2.6
Communication Services
11.3
10.1
1.2
Information Technology
10.0
18.2
-8.2
Financials
7.8
16.0
-8.2
Industrials
4.7
10.3
-5.6
Energy
2.5
2.1
0.4
Consumer Staples
2.2
6.0
-3.8
Real Estate
2.0
4.0
-2.0
Materials
0.0
6.0
-6.0
Utilities
0.0
1.9
-1.9
Cash and Other Assets, Less Liabilities
5.9
0.0
5.9
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
46.7
29.6
17.1
Japan
28.1
33.0
-4.9
India
4.6
6.0
-1.4
Indonesia
3.5
0.9
2.6
Australia
2.8
9.2
-6.4
United States
2.6
0.0
2.6
Taiwan
1.9
8.2
-6.3
Bangladesh
1.4
0.0
1.4
Singapore
0.9
1.4
-0.5
Vietnam
0.9
0.0
0.9
Sri Lanka
0.5
0.0
0.5
Switzerland
0.4
0.0
0.4
South Korea
0.0
8.7
-8.7
Thailand
0.0
1.2
-1.2
Malaysia
0.0
1.0
-1.0
Philippines
0.0
0.5
-0.5
New Zealand
0.0
0.4
-0.4
Cash and Other Assets, Less Liabilities
5.9
0.0
5.9
Not all countries are included in the benchmark index(es).
Equity market cap of issuer
Fund
Benchmark
Difference
Mega Cap (over $25B)
51.9
62.2
-10.3
Large Cap ($10B-$25B)
11.7
20.2
-8.5
Mid Cap ($3B-$10B)
12.7
16.7
-4.0
Small Cap (under $3B)
17.8
0.9
16.9
Cash and Other Assets, Less Liabilities
5.9
0.0
5.9
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.
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.
For the year ending December 31, 2020, the Matthews Asia Growth Fund returned 46.76% (Investor Class) and 47.01% (Institutional Class), while its benchmark, the MSCI All Country Asia Pacific Index, returned 20.07%. For the fourth quarter, the Fund returned 26.54% (Investor Class) and 26.64% (Institutional Class) versus 17.88% for the Index.
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. Early in the year, cyclically sensitive sectors like energy, materials, industrials and financials suffered most while companies related to communication services and technology performed better. In the second quarter, most global financial markets, including Asia’s, began to rise as major economies began to relax prior pandemic-related restrictions. The gradual reopening of businesses—especially those focused on services and consumption— helped bolster sentiment and bring a floor to stock prices globally.
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 in the third quarter. 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:
From a regional perspective, stock selection in China/Hong Kong was a notable contributor to performance. China’s economy went into lockdown and emerged from lockdown earlier than other major economies, boosting local sentiment and asset prices. From a sector perspective, stock selection and our overweight in health care was a notable contributor to performance. Health care stocks occupy an interesting spot in the risk-reward continuum in our view, because they offer the potential for both attractive growth and steady growth.
On the other hand, our underweight to Taiwan and South Korea detracted slightly from relative performance. Our underweight to the information technology sector was also a slight detractor from relative performance, even though stock selection in information technology was a contributor. Large-cap information technology companies, which have a strong presence in Taiwan and South Korea, generated strong gains in the year. The Fund’s underweights are result of our bottom-up stock selection process.
Turning to individual securities, the Chinese electric vehicle (EV) maker Xpeng, which we purchased during its IPO in the mid-August, generated strong gains in the reporting period. China continues to focus on cleaner energy and cleaner transit, fueling demand for EVs. On the other hand, the Chinese health care company Kangji Medical Holdings was a detractor. We exited the company in the fourth quarter to redeploy the capital in higher conviction holdings.
By market capitalization, stock selection among mid-cap stocks (those with a market cap between $3 billion and $10 billion) was also a strong contributor in the period. In our view, mid-cap stocks offer attractive alpha generation potential because they are often in an earlier stage of growth with a longer trajectory for generating future returns. The spirit of a growth-oriented fund is to capture this early stage growth when possible. While the Fund skews towards large caps in aggregate, we continue to find compelling opportunities in mid caps. On the other hand, stock selection in small caps was a detractor in the period. While the economic recovery is starting to broaden out and include smaller companies, investors gravitated toward larger companies with larger balance sheets amid a year of economic disruption. Small caps remains a focus of our research efforts, particularly in Japan.
Notable Portfolio Changes:
A robust IPO market in China led to a busy fourth quarter in terms of new portfolio additions. We purchased China-based health care companies Jacobio Pharmaceuticals Group, JD Health International, JW Cayman Therapeutics and Remegen Co. In addition, we purchased Chinese real estate management company Shimao Services and Chinese cosmetics company Yatsen Holding. The surge of IPOs created some interesting buying opportunities. Elsewhere in the region, we initiated a small position in the Indian non-banking financials company Bajaj Finance. And in Singapore, we initiated a position in Sea, Ltd.
Outlook:
Looking ahead, we expect China and Japan to remain compelling markets from a bottom-up perspective. U.S. – China trade tensions may linger to some degree, even as the incoming Biden administration appears likely to employ a more nuanced and diplomatic tone. For Japan, as the global economic outlook improves due to vaccine rollouts and lessening impacts of the pandemic, we expect the country’s macro conditions to improve as well. We especially see opportunities among small-cap names in Japan. In both markets, active security selection will remain key in our view. Turning to South and Southeast Asian economies such as India, the outlook is improving in many parts of the region and we continue to look for opportunities in these markets as well.
From a sector perspective, continued prospects for growth in the health care sector remains sound in our view, with attractive compounding potential for bottom-up equity investors. What’s more we find a broader universe of opportunity among health care companies. Whereas a sector such as communication services tends to be dominated by a few large players, we can more easily diversify our exposure within the health care sector because of the breadth and depth of the universe. Parts of the health care sector have seen a rise in valuations, but opportunities remain and we expect the sector to become a much larger part of the indexes and broader universe of stocks in Asia over time. From a bottom-up perspective, we are also finding opportunities in sectors such as real estate and information technology that have been less represented in the portfolio in the past. The core of our process remains in identifying opportunities on a company-by-company basis with strong top-line growth, strong management teams and an ability to grow its market share.
As of 12/31/2020, the securities mentioned comprised the Matthews Asia Growth Fund in the following percentages: XPeng, Inc. ADR, 2.2%; Jacobio Pharmaceuticals Group Co., Ltd., 0.7%; JD Health International, Inc., 1.4%; JW Cayman Therapeutics Co., Ltd., 0.4%; RemeGen Co., Ltd. H Shares, 0.8%.Shimao Services Holdings, Ltd., 1.2%; Yatsen Holding, Ltd. ADR, 0.9%; Bajaj Finance, Ltd., 1.0%; and Sea, Ltd. ADR, 0.9%. The fund held no positions in Kangji Medical Holdings. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MPACX as of 12/31/2020
1YR
3YR
5YR
10YR
Since Inception
Inception Date
46.76%
15.75%
16.88%
10.48%
11.15%
10/31/2003
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.
The Markit iBoxx Asian Local Bond Index tracks the total return performance of a bond portfolio consisting of local-currency denominated, high quality and liquid bonds in Asia ex-Japan. The Markit iBoxx Asian Local Bond Index includes bonds from the following countries: China (on- and offshore markets), Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand.
The J.P. Morgan Asia Credit Index (JACI) tracks the total return performance of the Asia fixed-rate dollar bond market. JACI is a market cap-weighted index comprising sovereign, quasi-sovereign and corporate bonds and is partitioned by country, sector and credit rating. JACI includes bonds from the following countries: China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea and Thailand.
The MSCI All Country Asia ex Japan Index is a free float–adjusted market capitalization–weighted index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI All Country Asia Pacific Index is a free float–adjusted market capitalization–weighted index of the stock markets of Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Index is a free float-adjusted market capitalization-weighted index of Chinese equities that includes H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges, Hong Kong-listed securities known as Red chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China) and foreign listings (e.g. ADRs).
The MSCI China All Shares Index captures large and mid-cap representation across China A shares, B shares, H shares, Red chips (issued by entities owned by national or local governments in China), P chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g. ADRs). The index aims to reflect the opportunity set of China share classes listed in Hong Kong,Shanghai, Shenzhen and outside of China.
The MSCI Emerging Markets (EM) Asia Index is a free float-adjusted market capitalization weighted index of the stock markets of China, India, Indonesia, Malaysia, Pakistan, Philippines, South Korea, Taiwan and Thailand. The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and United Arab Emirates.
The S&P Bombay Stock Exchange 100 (S&P BSE 100) Index is a free float–adjusted market capitalization–weighted index of 100 stocks listed on the Bombay Stock Exchange.
The MSCI Japan Index is a free float–adjusted market capitalization–weighted index of Japanese equities listed in Japan.
The Korea Composite Stock Price Index (KOSPI) is a market capitalization–weighted index of all common stocks listed on the Korea Stock Exchange.
The MSCI All Country Asia ex Japan Small Cap Index is a free float–adjusted market capitalization–weighted small cap index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Small Cap Index is a free float-adjusted market capitalization-weighted small cap index of the Chinese equity securities markets, including H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges,Hong Kong-listed securities known as Red Chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g., ADRs).
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.
Commentary
Period ended December 31, 2020
For the year ending December 31, 2020, the Matthews Asia Growth Fund returned 46.76% (Investor Class) and 47.01% (Institutional Class), while its benchmark, the MSCI All Country Asia Pacific Index, returned 20.07%. For the fourth quarter, the Fund returned 26.54% (Investor Class) and 26.64% (Institutional Class) versus 17.88% for the Index.
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. Early in the year, cyclically sensitive sectors like energy, materials, industrials and financials suffered most while companies related to communication services and technology performed better. In the second quarter, most global financial markets, including Asia’s, began to rise as major economies began to relax prior pandemic-related restrictions. The gradual reopening of businesses—especially those focused on services and consumption— helped bolster sentiment and bring a floor to stock prices globally.
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 in the third quarter. 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:
From a regional perspective, stock selection in China/Hong Kong was a notable contributor to performance. China’s economy went into lockdown and emerged from lockdown earlier than other major economies, boosting local sentiment and asset prices. From a sector perspective, stock selection and our overweight in health care was a notable contributor to performance. Health care stocks occupy an interesting spot in the risk-reward continuum in our view, because they offer the potential for both attractive growth and steady growth.
On the other hand, our underweight to Taiwan and South Korea detracted slightly from relative performance. Our underweight to the information technology sector was also a slight detractor from relative performance, even though stock selection in information technology was a contributor. Large-cap information technology companies, which have a strong presence in Taiwan and South Korea, generated strong gains in the year. The Fund’s underweights are result of our bottom-up stock selection process.
Turning to individual securities, the Chinese electric vehicle (EV) maker Xpeng, which we purchased during its IPO in the mid-August, generated strong gains in the reporting period. China continues to focus on cleaner energy and cleaner transit, fueling demand for EVs. On the other hand, the Chinese health care company Kangji Medical Holdings was a detractor. We exited the company in the fourth quarter to redeploy the capital in higher conviction holdings.
By market capitalization, stock selection among mid-cap stocks (those with a market cap between $3 billion and $10 billion) was also a strong contributor in the period. In our view, mid-cap stocks offer attractive alpha generation potential because they are often in an earlier stage of growth with a longer trajectory for generating future returns. The spirit of a growth-oriented fund is to capture this early stage growth when possible. While the Fund skews towards large caps in aggregate, we continue to find compelling opportunities in mid caps. On the other hand, stock selection in small caps was a detractor in the period. While the economic recovery is starting to broaden out and include smaller companies, investors gravitated toward larger companies with larger balance sheets amid a year of economic disruption. Small caps remains a focus of our research efforts, particularly in Japan.
Notable Portfolio Changes:
A robust IPO market in China led to a busy fourth quarter in terms of new portfolio additions. We purchased China-based health care companies Jacobio Pharmaceuticals Group, JD Health International, JW Cayman Therapeutics and Remegen Co. In addition, we purchased Chinese real estate management company Shimao Services and Chinese cosmetics company Yatsen Holding. The surge of IPOs created some interesting buying opportunities. Elsewhere in the region, we initiated a small position in the Indian non-banking financials company Bajaj Finance. And in Singapore, we initiated a position in Sea, Ltd.
Outlook:
Looking ahead, we expect China and Japan to remain compelling markets from a bottom-up perspective. U.S. – China trade tensions may linger to some degree, even as the incoming Biden administration appears likely to employ a more nuanced and diplomatic tone. For Japan, as the global economic outlook improves due to vaccine rollouts and lessening impacts of the pandemic, we expect the country’s macro conditions to improve as well. We especially see opportunities among small-cap names in Japan. In both markets, active security selection will remain key in our view. Turning to South and Southeast Asian economies such as India, the outlook is improving in many parts of the region and we continue to look for opportunities in these markets as well.
From a sector perspective, continued prospects for growth in the health care sector remains sound in our view, with attractive compounding potential for bottom-up equity investors. What’s more we find a broader universe of opportunity among health care companies. Whereas a sector such as communication services tends to be dominated by a few large players, we can more easily diversify our exposure within the health care sector because of the breadth and depth of the universe. Parts of the health care sector have seen a rise in valuations, but opportunities remain and we expect the sector to become a much larger part of the indexes and broader universe of stocks in Asia over time. From a bottom-up perspective, we are also finding opportunities in sectors such as real estate and information technology that have been less represented in the portfolio in the past. The core of our process remains in identifying opportunities on a company-by-company basis with strong top-line growth, strong management teams and an ability to grow its market share.
As of 12/31/2020, the securities mentioned comprised the Matthews Asia Growth Fund in the following percentages: XPeng, Inc. ADR, 2.2%; Jacobio Pharmaceuticals Group Co., Ltd., 0.7%; JD Health International, Inc., 1.4%; JW Cayman Therapeutics Co., Ltd., 0.4%; RemeGen Co., Ltd. H Shares, 0.8%.Shimao Services Holdings, Ltd., 1.2%; Yatsen Holding, Ltd. ADR, 0.9%; Bajaj Finance, Ltd., 1.0%; and Sea, Ltd. ADR, 0.9%. The fund held no positions in Kangji Medical Holdings. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MPACX as of 12/31/2020
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