TOP
Asia Growth

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

2.16%

YTD Return

(as of 11/30/2021)

$20.29

Price

(as of 11/30/2021)

$442.37 million

Fund Assets

(as of 10/31/2021)

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.

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

Fund Facts
Inception Date 05/31/2011
Fund Assets $442.37 million (10/31/2021)
Currency USD
Ticker MCSMX
Cusip 577-125-404
Portfolio Turnover 152.9%
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 1.52%
Net Expense Ratio 1.43%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
  • data_graph_selected Created with Sketch.
  • bar_graph_selected Created with Sketch.
As of 10/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund
MCSMX
1.86% -2.73% 2.11% 17.48% 38.05% 24.81% 15.30% 11.65% 05/31/2011
MSCI China Small Cap Index
-1.53% -4.68% 0.84% 17.14% 10.52% 5.82% 5.58% 2.26%
As of 09/30/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund
MCSMX
-3.96% -11.12% 0.25% 13.94% 29.84% 23.52% 16.47% 11.55% 05/31/2011
MSCI China Small Cap Index
-6.37% -13.15% 2.41% 19.68% 7.23% 5.84% 7.17% 2.43%
For the years ended December 31st
Name 2020 2019 2018 2017 2016 2015 2014 2013 2012
Matthews China Small Companies Fund
MCSMX
82.52% 35.41% -17.68% 53.88% -2.35% 4.07% -3.33% 28.85% 10.53%
MSCI China Small Cap Index
27.21% 6.63% -19.53% 24.62% -5.95% 3.48% -0.34% 18.68% 22.98%
 

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 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
  • 2nd
  • 29 out of 103 funds
  • 3 YEAR
  • 1st
  • 3 out of 81 funds
  • 5 YEAR
  • 1st
  • 1 out of 64 funds
  • 10 YEAR
  • 1st
  • 1 out of 46 funds
  • SINCE INCEPTION
  • 1st
  • 1 out of 46 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 09/30/2021)
Fund Benchmark
Number of Positions 73 254
Weighted Average Market Cap $5.2 billion $1.6 billion
Active Share 89.4 n.a.
P/E using FY1 estimates 12.4x 7.9x
P/E using FY2 estimates 10.5x 6.9x
Price/Cash Flow 13.2 6.5
Price/Book 2.4 0.9
Return On Equity 13.0 6.5
EPS Growth (3 Yr) 47.7% 18.3%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 09/30/2021)
24.43%
Alpha
0.68
Beta
115.48%
Upside Capture
51.90%
Downside Capture
1.31
Sharpe Ratio
1.28
Information Ratio
17.69%
Tracking Error
44.80

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 10/31/2021)
Name Sector % Net Assets
Alchip Technologies, Ltd. Information Technology 4.9
Pan Jit International, Inc. Information Technology 3.1
China Yongda Automobiles Services Holdings, Ltd. Consumer Discretionary 3.1
ACM Research, Inc. Information Technology 2.9
Zhejiang HangKe Technology, Inc., Co. Industrials 2.9
Chailease Holding Co., Ltd. Financials 2.6
KWG Living Group Holdings, Ltd. Real Estate 2.3
Kingsoft Corp., Ltd. Communication Services 2.3
KWG Group Holdings, Ltd. Real Estate 2.3
Silergy Corp. Information Technology 2.2
TOTAL 28.6

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.

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
SAR (Hong Kong) 36.2
A Shares 27.0
H Shares 8.3
Overseas Listed Companies (OL) 6.2
China-affiliated corporations (CAC) 4.5
Unassigned 17.1
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 $0.13338 $1.96280 $1.27532 $3.37150 18.0% 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 Small Companies Fund returned -11.12% (Investor Class) and -11.04% (Institutional Class), while its primary benchmark, the MSCI China Index, returned -13.15% 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 more insulated from downside pressure.

Performance Contributors and Detractors: 

The Fund’s outperformance during the third quarter was driven by both stock selection and sector allocation effects. From a sector perspective, stock selection in information technology, industrials and financials contributed to relative performance. The information technology sector continued to contribute positively to performance year to date, buoyed by software design firm Alchip Technologies. Alchip has been benefiting from larger demand from increased outsourcing needs related to chip-design services and the establishment of more ASIC (Application-Specific Integrated Circuit) chip companies, especially in China. Among industrials, a contributor was Ginlong Technologies Co., a company that manufactures solar inverters for solar energy production. The solar inverters are a critical component in solar modules and may have more pricing protection when compared to other solar module components given a more consolidated market structure. The trajectory of renewable energy expansion in China is very clear in our view and we expect continued solar growth in China given the government’s supportive policies, such as a goal of carbon neutrality by 2060. In the financials sector, Chailease Holdings, which provides financing services such as leasing, installment sale, import/export factoring and direct financing, did well as it has a combination of growing assets, rising loan spreads and benign asset growth along with strong earnings growth.

On the other hand, the real estate, energy and utilities sectors detracted from relative performance. The portfolio’s real estate holding KWG Living Group Holdings, a property management services 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 quarter was Zhejiang Shuanghuan which makes both electric drives used in electric vehicles (EVs) and rotate vector (RV) reducers, a type of speed reducer used in robotics. Zhejiang has been benefiting from growth in both industries as the company has been gaining market shares. We closed out of our position in Asia Cement due to the moderating cement volume outlook given the clamp down of the real estate industry in China and reallocated capital elsewhere.

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.

Looking ahead, there are many reasons why we think small companies will remain resilient. Not only are they at the front and center of China’s economy across metrics such as contribution to GDP, percentage of patents and innovation, but they are more insulated from trade and geopolitical affairs. Small companies are highly driven by domestic demand, and they tend to be asset-light and capital-efficient. As such, small companies are often nimble companies that can react quickly to a changing market environment.

 

As of September 30, 2021, the securities mentioned comprised the Matthews China Fund in the following percentages: Alchip Technologies, 4.4%; Ginlong Technologies Co., 1.2%;  Chailease Holdings Co., 2.4%; KWG Living Group Holdings, 2.5%; and Zhejiang Shuanghuan Driveline Co., 1.0%. The Fund held no positions in China Evergrande Group and Asia Cement China Holdings.

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 - MCSMX as of 09/30/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
13.94% 29.84% 23.52% 16.47% 11.55% 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 1.52%
Net Expense Ratio 1.43%

Matthews has contractually agreed to waive fees and reimburse expenses to limit the Total Annual Fund Operating Expenses until April 30, 2022. 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.