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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

-5.37%

YTD Return

(as of 09/17/2021)

$25.55

Price

(as of 09/17/2021)

$1.62 billion

Fund Assets

(as of 08/31/2021)

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.

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

Fund Facts
Inception Date 02/19/1998
Fund Assets $1.62 billion (08/31/2021)
Currency USD
Ticker MCHFX
Cusip 577-130-701
Portfolio Turnover 52.6%
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 1.09%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 08/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund
MCHFX
-0.42% -8.31% -2.33% 7.11% 17.40% 18.11% 8.76% 10.75% 02/19/1998
MSCI China Index
0.01% -13.69% -12.18% -5.00% 7.42% 10.97% 7.47% 5.03%
MSCI China All Shares Index
0.23% -11.28% -8.06% 0.66% 11.80% 10.21% n.a. n.a.
As of 06/30/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund
MCHFX
0.45% 4.33% 7.00% 36.31% 17.46% 22.71% 8.81% 11.27% 02/19/1998
MSCI China Index
0.13% 2.32% 1.89% 27.54% 10.53% 16.75% 7.93% 5.74%
MSCI China All Shares Index
-0.44% 4.73% 3.17% 32.40% 13.49% 14.75% n.a. n.a.
For the years ended December 31st
Name 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011
Matthews China Fund
MCHFX
43.05% 34.56% -21.42% 59.37% -5.18% 2.41% -4.42% 6.84% 11.96% -18.93%
MSCI China Index
29.67% 23.66% -18.75% 54.33% 1.11% -7.62% 8.26% 3.96% 23.10% -18.24%
MSCI China All Shares Index
33.61% 27.87% -23.15% 41.43% -7.69% -2.88% 23.64% 1.39% 19.53% -17.76%

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 06/30/2021)

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 84 funds
  • 3 YEAR
  • out of 84 funds
  • 5 YEAR
  • out of 72 funds
  • 10 YEAR
  • out of 53 funds
  • 1 YEAR
  • 3rd
  • 52 out of 101 funds
  • 3 YEAR
  • 2nd
  • 32 out of 78 funds
  • 5 YEAR
  • 1st
  • 4 out of 64 funds
  • 10 YEAR
  • 2nd
  • 20 out of 46 funds
  • SINCE INCEPTION
  • 2nd
  • 4 out of 14 funds

Ratings agency calculation methodology

Portfolio Managers

Andrew  Mattock, CFA photo
Andrew Mattock, CFA

Lead Manager

Winnie  Chwang photo
Winnie Chwang

Co-Manager

Portfolio Characteristics

(as of 06/30/2021)
Fund Benchmark
Number of Positions 59 736
Weighted Average Market Cap $175.1 billion $236.6 billion
Active Share 67.9 n.a.
P/E using FY1 estimates 16.3x 14.4x
P/E using FY2 estimates 14.5x 13.4x
Price/Cash Flow 14.7 10.6
Price/Book 3.1 2.2
Return On Equity 15.2 12.5
EPS Growth (3 Yr) 39.3% 41.3%

Sources: BNY Mellon Investment Servicing (US) Inc., Factset Research Systems, Inc., Zephyr StyleADVISOR, Matthews Asia

Top 10 Holdings

(as of 08/31/2021)
Name Sector % Net Assets
Tencent Holdings, Ltd. Communication Services 9.9
Alibaba Group Holding, Ltd. Consumer Discretionary 8.2
JD.com, Inc. Consumer Discretionary 6.9
China Merchants Bank Co., Ltd. Financials 4.2
Meituan Consumer Discretionary 4.0
China International Capital Corp., Ltd. Financials 3.2
CITIC Securities Co., Ltd. Financials 2.9
AIA Group, Ltd. Financials 2.3
Pharmaron Beijing Co., Ltd. Health Care 2.1
Sungrow Power Supply Co., Ltd. Industrials 2.1
TOTAL 45.8

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 06/30/2021)
  • Sector Allocation
  • Market Cap Exposure
  • China Exposure

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

China Exposure Portfolio Weight
SAR (Hong Kong) 41.5
A Shares 36.8
H Shares 12.0
Overseas Listed Companies (OL) 6.8
China-affiliated corporations (CAC) 1.0
Cash and Other Assets, Less Liabilities 1.9

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 $0.06025 $0.17213 $0.10568 $0.33806 1.3% 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 June 30, 2021

For the first half of 2021, the Matthews China Fund returned 7.00% (Investor Class) and 7.13% (Institutional Class), while its benchmark, the MSCI China Index, returned 1.89% over the same period. For the quarter ending June 30, 2021, the Matthews China Fund returned 4.33% (Investor Class) and 4.38% (Institutional Class), while the benchmark returned 2.32%.

Market Environment:

China equity markets recovered in the second quarter post a volatile first quarter, driven by resilient first quarter results coming out of the A-shares. Investors used the opportunity of the correction seen in the first quarter of 2021 to buy back into areas of secular growth including that of health care, consumer discretionary and information technology sectors. On the other hand, real estate in China saw weakness on continued policy tightness. The financials sector also saw a pullback over the second quarter as investors continued their focus on growth opportunities in China.

China’s macro environment remained relatively stable and the central bank's monetary policy remained largely unchanged. Consumption industries in China largely remain on a recovery track although consumption patterns have not entirely recovered to pre-COVID levels. Industrial industries continue to face worries of raw material cost inflation but we note that this is a manageable risk. A slower pace of increase is expected in the second half of the year and a still strong consumer demand will facilitate the ability of companies to pass on costs through higher prices in our view. Valuations in China remain attractive at mid-teens price-to-earnings multiple coupled with low teens earning per share (EPS) growth given that the quality of earnings growth continues to become more secular and higher quality in nature.

Contributors and Detractors:

Strong stock selection drove the Fund’s outperformance in the first half. From a sector perspective, stock selection in financials and information technology contributed to relative performance. Among the portfolio’s financials holdings, our holding in China’s premiere banking franchise, China Merchants Bank Co., did well given attractive valuations and the bank’s ability to continue to provide financial solutions to high net worth individuals. Elsewhere in financials, our holdings in brokerages also did well. Our overweight in brokerages stems from cheap valuations and still strong fundamentals and earnings growth given the brokerages’ ability to expand service offerings as China’s capital markets deepen.

On the other hand, stock selection in the consumer discretionary and real estate sectors detracted from relative performance. The portfolio’s holding Midea Group Co., a domestic demand-oriented  consumer discretionary company, , suffered from weaker performance given concerns about rising raw material prices compressing margins. However, we believe that consumer demand still remains resilient in China, which will likely facilitate the ability to pass on prices in the near future. In real estate, a continued tighter policy environment resulted in the weak performance of Times China Holdings, a southern China focused developer. We believe that this presents the opportunity for market consolidation over the longer term, and that leading regional players such as Times China should be able to grow market share under these conditions given their strong balance sheets.  Real estate opportunities in China are also attractively valued and may offer high dividend yields making the risk reward still favorable in our view.

Portfolio Changes:

Chinese growth stocks recovered in the second quarter after a healthy correction in the first quarter of 2021. During the second quarter, we continued to take the opportunity to reallocate capital into areas of reasonable valuations and high-quality growth opportunities. We consolidated our smaller positions and added positions in financials, information technology, materials and industrials. Taking an all-shares approach to investing in Chinese equities, we continue to find interesting opportunities in the Hong Kong (H-shares) market in terms of both valuation and quality. We continue to find opportunities in domestic A-shares and added some holdings over the quarter which increased the Strategy’s overall exposures in A-shares.

Outlook:

First quarter earnings in China point to a continued recovery in China’s economy. Encouragingly, China’s economy continues to benefit from growth coming from a broad range of different sectors and industries. As a result, cheaper parts of the market have also seen performance recovery given continued earnings delivery. Looking ahead to the rest of the year, we continue to expect corporate earnings to remain on track. While market concerns of increased regulatory scrutiny may persist over the near term, we remain focused on the longer-term fundamentals of the domestic growth engine. Among the most attractive themes from a secular growth perspective include technology upgrades, health and wellness trends, and services that enhance quality of life and premium consumer goods.

As of 6/30/21, the securities mentioned comprised the Matthews China Fund in the following percentages: China Merchants Bank Co., Ltd. A Shares, 4.1%; Midea Group Co., Ltd. A Shares, 1.5; and Times China Holdings, Ltd., 1.2%; Current and future holdings are subject to change and risk.

Earnings growth is not representative of the fund’s future performance.

 

Average Annual Total Returns - MCHFX as of 06/30/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
36.31% 17.46% 22.71% 8.81% 11.27% 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 1.09%

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.