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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

-8.89%

YTD Return

(as of 11/30/2021)

$24.60

Price

(as of 11/30/2021)

$1.55 billion

Fund Assets

(as of 10/31/2021)

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 $1.55 billion (10/31/2021)
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 10/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund
MCHFX
3.31% -2.04% -3.93% 3.49% 22.95% 17.33% 9.20% 10.60% 02/19/1998
MSCI China Index
3.16% -2.01% -13.95% -9.12% 11.64% 10.39% 7.71% 4.90%
MSCI China All Shares Index
2.79% 0.24% -8.06% -0.47% 16.23% 10.29% n.a. n.a.
As of 09/30/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund
MCHFX
-4.78% -13.08% -7.00% 4.80% 16.13% 16.04% 10.21% 10.48% 02/19/1998
MSCI China Index
-5.01% -18.13% -16.59% -7.24% 6.09% 9.28% 8.90% 4.78%
MSCI China All Shares Index
-2.70% -13.29% -10.55% 1.42% 10.81% 9.53% 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 09/30/2021)

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 87 funds
  • 3 YEAR
  • out of 87 funds
  • 5 YEAR
  • out of 72 funds
  • 10 YEAR
  • out of 53 funds
  • 1 YEAR
  • 3rd
  • 54 out of 103 funds
  • 3 YEAR
  • 2nd
  • 23 out of 81 funds
  • 5 YEAR
  • 1st
  • 9 out of 64 funds
  • 10 YEAR
  • 2nd
  • 18 out of 46 funds
  • SINCE INCEPTION
  • 1st
  • 2 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 09/30/2021)
Fund Benchmark
Number of Positions 62 740
Weighted Average Market Cap $133.5 billion $165.0 billion
Active Share 70.2 n.a.
P/E using FY1 estimates 15.0x 12.0x
P/E using FY2 estimates 12.8x 10.8x
Price/Cash Flow 13.9 8.8
Price/Book 2.7 1.8
Return On Equity 17.2 12.8
EPS Growth (3 Yr) 27.0% -4.5%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 09/30/2021)
9.69%
Alpha
0.99
Beta
127.99%
Upside Capture
93.59%
Downside Capture
0.67
Sharpe Ratio
1.72
Information Ratio
5.82%
Tracking Error
93.15

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 10/31/2021)
Name Sector % Net Assets
Tencent Holdings, Ltd. Communication Services 9.9
Alibaba Group Holding, Ltd. Consumer Discretionary 7.3
JD.com, Inc. Consumer Discretionary 7.0
China Merchants Bank Co., Ltd. Financials 4.8
Meituan Consumer Discretionary 4.4
China International Capital Corp., Ltd. Financials 3.6
CITIC Securities Co., Ltd. Financials 3.0
Sungrow Power Supply Co., Ltd. Industrials 2.4
China Merchants Securities Co., Ltd. Financials 2.1
Wuxi Lead Intelligent Equipment Co., Ltd. Information Technology 2.1
TOTAL 46.6

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 09/30/2021)
  • 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) 44.0
A Shares 39.3
H Shares 12.6
Overseas Listed Companies (OL) 2.9
China-affiliated corporations (CAC) 1.1
Cash and Other Assets, Less Liabilities 0.1

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 September 30, 2021

For the quarter ending September 30, 2021, the Matthews China Fund returned -13.08% (Investor Class) and -13.03% (Institutional Class), while its primary benchmark, the MSCI China Index, returned -18.13% over the same period.

Market Environment:

Chinese equities experienced a large sell-off following recent regulatory announcements created on technology and for-profit education and were the weakest performing in the region in the third quarter. In addition, recent economic data has pointed to a slowdown of economic growth which has been compounded by worries of a weaker real estate sector, as China Evergrande Group, one of the country’s largest real estate developers, has run into financial stress. Fears of systemic financial market contagion and the publicized electricity shortages after the government pressed for restrictions of energy production to reduce carbon output contributed to ongoing headwinds. Real estate, consumer discretionary and communication services sectors were weak during the quarter, while cyclical sectors like energy and materials were among the best performers. Mega caps underperformed while mid- and small-cap equities were the most insulated from downside pressure.

Performance Contributors and Detractors: 

The Fund’s outperformance during the third quarter was driven by both strong stock selection and sector allocation effects. From a sector perspective, stock selection in financials, consumer discretionary and information technology contributed to relative performance. Among the Fund’s consumer discretionary holdings, Zhongsheng Group Holdings, a luxury auto dealership, contributed to relative performance, given attractive valuations and the continued growth experienced in China’s luxury auto market. In the financials sector, our holdings in brokerages, including CITIC Securities Co. and China Merchants Securities Co., did well. The Fund’s significant allocation to brokerages stems from cheap valuations and still strong fundamentals and earnings growth given their ability to expand service offerings as China’s capital markets deepen. The information technology sector continued to contribute positively to performance year to date, buoyed by Wuxi Lead Intelligent Equipment Co. and Naura Technology Group Co.—electronic equipment companies in the semiconductor and electric vehicle space which continued to benefit from ongoing capital expenditures within these industries as they execute their capacity expansion plans.

On the other hand, the real estate, energy and utilities sectors detracted from relative performance. The portfolio’s real estate holdings KWG Living Group Holdings, a property management services provider, and KE Holdings, a housing transactions platform provider, continued to experience weakness on an ever tightening policy environment—deepening market concerns about the outlook of the overall property market in China in the third quarter. However, given the sharp pull back in valuations, we continue to believe real estate opportunities in China are attractively valued and may offer high dividend yields, making the risk/reward prospects even more favorable. In both the energy and utility sectors, the Fund underperformed given a lack of sector exposure in these areas of the market which have rallied on the back of higher energy prices and efforts to grow renewable energy contributions within the earnings mix of traditional utility companies. We are still assessing the opportunities, but believe that direct opportunities in renewable energy growth can be captured elsewhere in the portfolio, e.g., in industrials and materials.

Notable Portfolio Changes:

During the third quarter, China equities continued to be volatile as real estate concerns weighed on an already fragile market sentiment. We continued to take the opportunity to reallocate capital into growth areas that have experienced a considerable pull back in valuations. We have reduced the Fund’s financials exposure slightly and added positions to sectors such as information technology, materials and consumer discretionary, given still strong secular growth opportunities. One addition during the third quarter was Shanghai Baosight, an IT solutions provider that caters mostly to the IT needs of the steel industry. Its parent and largest customer is China’s leading steel company, Baoshan Iron and Steel, which has been leading the industry in digitizing its operations. We see an attractive growth potential for the company, as the steel industry continues to digitize manufacturing processes in its effort to maximize efficiency and optimize operations to facilitate growth within a more emissions-controlled world. We closed out our small position in Luxshare Precision Industry, an electronics manufacturing services (“EMS”) vendor that supplies leading smartphone companies around the world. We exited Luxshare due to our more cautious view of a moderate outlook on smartphone growth. Taking an all-shares approach to investing in Chinese equities, we have continued to add to the overall A-share exposure of the portfolio, with the overall A-share exposure increasing from around 30% to 39% over the past six months.

Outlook:

First half earnings results announced in the third quarter in China showed continued COVID recovery and were generally encouraging across the board, except for a weaker recovery in some parts of consumption, e.g., consumer staples, which we continue to monitor closely. The first half results also shed some light on potential government directives over the next year, which we believe will be positively directed toward China’s efforts at increased domestic self-sufficiency across a myriad of supply chains (e.g., technology and health care) and environmental efforts to further promote green energy developments in China. We believe there are many opportunities in China that stand to benefit positively from these developments and expect to see meaningful volume expansions, which should help drive positive earnings growth across these supported industries.

 

As of September 30, 2021, the securities mentioned comprised the Matthews China Fund in the following percentages: Zhongsheng Group Holdings, Ltd., 1.7%; CITIC Securities Co., 3.2%; China Merchants Securities Co., 2.2%; Wuxi Lead Intelligent Equipment Co., 1.8%; Naura Technology Group Co., 0.6%; KWG Living Group Holdings Ltd., 0.4%; KE Holdings, Inc., 0.9%; Shanghai Baosight Software Co., 1.5%. The Fund held no positions in China Evergrande Group, Baoshan Iron and Steel and Luxshare Precision Industry.

Current and future portfolio 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 09/30/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
4.80% 16.13% 16.04% 10.21% 10.48% 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.