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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

11.19%

YTD Return

(as of 02/24/2021)

$30.02

Price

(as of 02/24/2021)

$1.70 billion

Fund Assets

(as of 01/31/2021)

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 $1.70 billion (01/31/2021)
Currency USD
Ticker MCHFX
Cusip 577-130-701
Portfolio Turnover 68.93%
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 01/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund
MCHFX
8.26% 16.62% 8.26% 65.33% 12.69% 23.79% 8.89% 11.54% 02/19/1998
MSCI China Index
7.36% 13.40% 7.36% 46.24% 7.53% 20.12% 8.67% 6.08%
MSCI China All Shares Index
6.28% 15.05% 6.28% 46.92% 7.96% 17.35% n.a. n.a.
As of 12/31/2020
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund
MCHFX
5.40% 12.69% 43.05% 43.05% 14.79% 17.98% 8.05% 11.20% 02/19/1998
MSCI China Index
2.77% 11.21% 29.67% 29.67% 9.22% 15.25% 7.84% 5.78%
MSCI China All Shares Index
4.16% 13.38% 33.61% 33.61% 9.51% 11.38% 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 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.

Ratings

  • OVERALL
  • out of 79 funds
  • 3 YEAR
  • out of 79 funds
  • 5 YEAR
  • out of 70 funds
  • 10 YEAR
  • out of 50 funds
  • 1 YEAR
  • 2nd
  • 40 out of 94 funds
  • 3 YEAR
  • 2nd
  • 28 out of 73 funds
  • 5 YEAR
  • 2nd
  • 18 out of 63 funds
  • 10 YEAR
  • 2nd
  • 21 out of 43 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 12/31/2020)
20.2x
P/E using FY1 estimates
17.8x
P/E using FY2 estimates
$192.7 billion
Weighted Average Market Cap

Source: FactSet Research Systems

54
Number of Securities

Source: BNY Mellon Investment Servicing (US) Inc.

Top 10 Holdings

(as of 01/31/2021)
Name Sector % Net Assets
Tencent Holdings, Ltd. Communication Services 11.5
Alibaba Group Holding, Ltd. Consumer Discretionary 9.0
JD.com, Inc. Consumer Discretionary 5.2
China Merchants Bank Co., Ltd. Financials 4.5
Bilibili, Inc. Communication Services 3.5
Meituan Consumer Discretionary 3.2
China International Capital Corp., Ltd. Financials 2.8
CITIC Securities Co., Ltd. Financials 2.6
AIA Group, Ltd. Financials 2.4
China Construction Bank Corp. Financials 2.3
TOTAL 47.0

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
  • Market Cap Exposure
  • China Exposure
Sector Fund Benchmark Difference
Consumer Discretionary 25.8 35.2 -9.4
Financials 19.1 13.5 5.6
Communication Services 13.8 20.1 -6.3
Information Technology 12.5 6.7 5.8
Health Care 8.6 6.5 2.1
Industrials 6.2 4.5 1.7
Real Estate 4.6 3.6 1.0
Materials 4.2 2.1 2.1
Consumer Staples 3.5 4.5 -1.0
Utilities 1.0 1.8 -0.8
Energy 0.0 1.6 -1.6
Cash and Other Assets, Less Liabilities 0.6 0.0 0.6

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) 66.1 73.9 -7.8
Large Cap ($10B-$25B) 16.1 16.0 0.1
Mid Cap ($3B-$10B) 14.9 9.2 5.7
Small Cap (under $3B) 2.3 1.0 1.3
Cash and Other Assets, Less Liabilities 0.6 0.0 0.6
China Exposure Portfolio Weight
SAR (Hong Kong) 44.0
A Shares 37.5
Overseas Listed Companies (OL) 8.8
H Shares 8.4
China-affiliated corporations (CAC) 0.8
Cash and Other Assets, Less Liabilities 0.6

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 December 31, 2020

For the year ending December 31, 2020, the Matthews China Fund returned 43.05% (Investor Class) and 43.23% (Institutional Class), while its benchmark, the MSCI China Index, returned 29.67%. For the fourth quarter, the Fund returned 12.69% (Investor Class) and 12.69% (Institutional Class) versus 11.21% for the Index.

Market Environment:

Chinese equities were stand-out performers among global peers in 2020. Following some early missteps in addressing the pandemic, Chinese authorities shifted gears quickly, acting decisively to limit travel and controlling its borders while working with world health organizations to control the outbreak. In addition, policy actions meant to assist small and medium-size enterprises were implemented including an increase in loan quotas, lowering of borrowing rates, a delay in loan repayments and tax relief. The result was an early 2020 outperformance of Chinese equities. The second quarter of 2020 was lackluster for equity prices, even though anecdotes from our local offices and official economic data implied that recovery was well under way as factory workers reported back to the assembly line, local shops and restaurants accepted walk-in customers and some travel restrictions were lifted.

Chinese equities posted strong returns in the third quarter but most of those gains were registered in the first two weeks of the quarter—reflecting increased tensions between the U.S. and China. Chinese manufacturing data pointed to a continued V-shaped recovery and a bright spot within the data suggested that small, private businesses were beginning to participate in the rebound. In the final quarter of the calendar year, Chinese equity returns were strong again, but lagged other markets in the region. Some growth stocks within the communication services, health care and discretionary sectors took a breather while valued-oriented names within materials, energy and financials outperformed. With the coronavirus pandemic held in check across China, cities, governments, businesses and schools remained open for regular, daily activities. Government micro-reforms in areas such as health care, education and housing continue to support sustainable growth in economic activity.

Performance Contributors and Detractors:

Stock selection in information technology, industrials and financials contributed to performance for the full year. A contributor among individual stocks was e-commerce company JD.com, which experienced increased demand for its services during the pandemic. As the second largest e-commerce company in China, JD.com has a broad reach and its profitability is improving. Logistics-oriented businesses tend to be very capital intensive in their early years, but with much of JD.com’s logistic infrastructure already in place, we expect that the business may be less capital intensive going forward. China has many metropolitan densities and the complexity of making deliveries to most households is high, creating a competitive moat for an e-commerce player such as JD.com.

On the other hand, stock selection in health care and materials, as well as an overweight to real estate, detracted from performance for the full year. A detractor among individual stocks was Sinopharm, China’s largest pharmaceutical distributor and one of the few distributors with a meaningful nationwide presence. The company saw weak results in the first half of 2020 owing to negative economic impact from the COVID-19 outbreak. Hospital visitation during the pandemic fell, which reduced pharmaceutical distribution needs. At the same time, the company saw increased operational expenses associated with the prevention and containment of the virus situation. Sinopharm trades at attractive valuations and commands a still large and dominant presence in China’s healthcare distribution industry. We continue to monitor this position for updates and operational improvements.

Notable Portfolio Changes:

During the fourth quarter, we initiated new positions in Kingsoft Corp. and Wuxi Lead Intelligent Equipment Co. Kingsoft is a technology company with three main businesses: online gaming, cloud services and software services. The company’s online gaming business provides a stable and growing source of cash flow. Its cloud services business supports companies with growing data and storage needs, including major clients in the social media and entertainment industries. Kingsoft’s software services business is growing beyond its traditional presence in enterprise operating systems into consumer facing software services where penetration of paying users is currently very low with room to grow. In our view, Kingsoft trades at a deep discount to the sum of the parts valuations for each of the individual businesses. Wuxi Lead Intelligent Equipment is a full-service battery equipment provider with strong ties to China’s largest battery manufacturer, CATL. We believe that on-going growth in electric vehicle (EV) sales will spur capacity growth for batteries. Such increased CapEx investments drives the need for equipment investments. The company also has an opportunity to expand its customer base from mainly Chinese domestic customers to global clients as well.

Outlook:

Going forward, China seems well positioned for continued stability as monetary aggregates have been balanced for several months while China’s rebounding economy and solid mid-teens consensus earnings growth should support current valuations. The newly released five-year plan could support businesses benefiting from the ‘”dual-circulation” announcement focused on domestic demand and self-sufficiency in key areas of technology, innovation, health care and the digitalization of the economy.

Market participants believe a Biden administration could potentially focus less on trade-related issues, in favor of a multi-lateral approach on topics related to market access, climate change and human rights. Investors expect more predictability and less headline risk associated with U.S. – China relations going forward. On the domestic front, the latest Chinese economic data points to continued recovery led by consumption, manufacturing activity and investment. In addition, analysts expect upside earnings momentum to carry through 2021 driven by robust economic activity.

 

As of 12/31/2020, the securities mentioned comprised the Matthews China Fund in the following percentages: JD.com, Inc. A Shares, 2.9%; JD.com, Inc. ADR, 2.9%; Sinopharm Group Co., Ltd. H Shares, 0.1%; Kingsoft Corp., Ltd., 1.4%; Wuxi Lead Intelligent Equipment Co., Ltd. A Shares, 1.1%. The fund held no position in Contemporary Amperex Technology Co., Limited (CATL). Current and future holdings are subject to change and risk.

Average Annual Total Returns - MCHFX as of 12/31/2020
1YR 3YR 5YR 10YR Since Inception Inception Date
43.05% 14.79% 17.98% 8.05% 11.20% 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%
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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.