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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

4.98%

YTD Return

(as of 07/30/2021)

$20.85

Price

(as of 07/30/2021)

$499.87 million

Fund Assets

(as of 06/30/2021)

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.

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 $499.87 million (06/30/2021)
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
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As of 06/30/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund
MCSMX
7.28% 11.66% 12.79% 30.59% 28.17% 29.66% 13.75% 13.17% 05/31/2011
MSCI China Small Cap Index
0.05% 4.96% 17.92% 52.68% 8.45% 11.05% 4.58% 3.94%
As of 06/30/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund
MCSMX
7.28% 11.66% 12.79% 30.59% 28.17% 29.66% 13.75% 13.17% 05/31/2011
MSCI China Small Cap Index
0.05% 4.96% 17.92% 52.68% 8.45% 11.05% 4.58% 3.94%
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 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
  • 4th
  • 79 out of 101 funds
  • 3 YEAR
  • 1st
  • 3 out of 78 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 06/30/2021)
Fund Benchmark
Number of Positions 66 257
Weighted Average Market Cap $6.2 billion $2.0 billion
Active Share 85.1 n.a.
P/E using FY1 estimates 14.0x 8.8x
P/E using FY2 estimates 12.1x 7.5x
Price/Cash Flow 14.8 7.9
Price/Book 2.9 1.2
Return On Equity 10.8 5.8
EPS Growth (3 Yr) 46.2% 16.1%

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

Top 10 Holdings

(as of 06/30/2021)
Name Sector % Net Assets
KWG Living Group Holdings, Ltd. Real Estate 4.0
360 DigiTech, Inc. Financials 3.5
Ginlong Technologies Co., Ltd. Industrials 2.9
Alchip Technologies, Ltd. Information Technology 2.8
KWG Group Holdings, Ltd. Real Estate 2.7
Estun Automation Co., Ltd. Industrials 2.6
China Meidong Auto Holdings, Ltd. Consumer Discretionary 2.6
Pharmaron Beijing Co., Ltd. Health Care 2.5
China Yongda Automobiles Services Holdings, Ltd. Consumer Discretionary 2.5
Pan Jit International, Inc. Information Technology 2.4
TOTAL 28.5

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.

The Portfolio’s market cap exposure breakdown presented is used for comparison purposes and the definition of the capitalization breakdown is from MSCI.

China Exposure Portfolio Weight
SAR (Hong Kong) 40.4
A Shares 23.3
Overseas Listed Companies (OL) 13.5
H Shares 7.0
China-affiliated corporations (CAC) 3.9
Unassigned 10.2
Cash and Other Assets, Less Liabilities 1.8

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 June 30, 2021

For the first half of 2021, the Matthews China Small Companies Fund returned 12.79% (Investor Class) and 12.91% (Institutional Class), while its benchmark, the MSCI China Small Cap Index, returned 17.92% over the same period. For the quarter ending June 30, 2021, the Fund returned 11.66% (Investor Class) and 11.74% (Institutional Class), while the benchmark returned 4.96%.

Market Environment:

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.

China equity markets recovered in the second quarter post a volatile first quarter, driven by resilient first quarter results coming out of A-shares. Small caps rallied strongly while many of the larger internet companies had a hard quarter as regulatory concerns continued to weigh on sentiment. 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 and continued to favor cheaper areas such as the materials sectors. On the other hand, real estate in China saw weakness on continued policy tightness.

Performance Contributors and Detractors:

During the first half of the year, our stock selection within the consumer discretionary and industrials sector contributed to the Fund’s relative performance. Among individual securities, contributors to performance included Estun Automation Co. and Ginlong Technologies. Estun is China’s leading robot manufacturer with strong technical capabilities and an 80% overall rate in component self-sufficiency. Amid recovery in the industrial automation industry in China, the company has seen a rebound in orders, creating positive sentiment and leading to stock price gains in the month. We believe local companies, through price competitiveness and improving quality, stand to gain market share against foreign competitors in this industry, where foreigners still hold the lion’s share of the market. Chinese solar inverter manufacturer Ginlong Technologies specializes in string inverters that are predominantly used in distributed solar panel applications globally. The fast growing underlying market for solar panel installations, potential for market share gains and market share growth in ground-mounted solar power stations have helped drive the stock price higher.

On the other hand, our overweight to, and stock selection within, the information technology sector, as well as stock selection in the consumer staples sector, detracted from the Fund’s relative performance in the first half of the year. One notable detractor within the information technology sector was Alchip Technologies. Alchip is an integrated circuit (“IC”) design service firm that provides high performance chip designs to global customers. One of Alchip’s largest customers is China’s up-and-coming chip manufacturer, Phytium Technology. Unfortunately, Phytium was placed on the U.S. Department of Commerce’s entity list, which may restrict Alchip’s ability to continue to supply services and goods to this customer. Unless this issue resolves, Alchip will see a loss of revenue from this client. We continue to see the opportunity for a growing design service business for Alchip however, given more IC design activity in chips that require larger computing capabilities. This potential loss of revenue in our view will likely be offset by growing revenues from other customers.

Notable Portfolio Changes:

Chinese growth stocks recovered in the second quarter of 2021, after a healthy correction in the first quarter. During the second quarter, we continued to take the opportunity to reallocate capital into areas where we see some of the most attractive investment prospects from a secular growth perspective, including in the information technology and health care sectors. Within this theme, we recently added Burning Rock Biotech to the portfolio. Burning Rock is a leading provider of next-generation sequencing (“NGS”)-based diagnostic tools, and is in the process of launching NGS cancer screening tools. We believe that disease preventative tools will proliferate in China’s healthcare industry over the next decade and that Burning Rock will benefit from increased adoption and use of their screening products.

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.

Looking ahead, we expect China small companies to remain engines of growth for China’s broader economy. Among the most attractive themes from a secular growth perspective include technology upgrades, health and wellness trends, premium consumer goods and services that enhance quality of life.

We continue to focus on innovative, efficient and sustainable growth companies, with an emphasis on businesses oriented toward domestic demand and rising income levels.

As of June 30, 2021, the securities mentioned comprised the Matthews China Small Companies Fund in the following percentages: Estun Automation Co., Ltd., 2.6%; Ginlong Technologies Co., Ltd., 2.9%; Alchip Technologies, Ltd., 2.8%; and Burning Rock Biotech, Ltd., 0.8%. The Fund held no position in Phytium Technology Co., Ltd.

Current and future portfolio holdings are subject to change and risk.

 

Average Annual Total Returns - MCSMX as of 06/30/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
30.59% 28.17% 29.66% 13.75% 13.17% 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.