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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

5.44%

YTD Return

(as of 06/17/2021)

$20.94

Price

(as of 06/17/2021)

$464.03 million

Fund Assets

(as of 05/31/2021)

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.

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 $464.03 million (05/31/2021)
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
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As of 05/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund
MCSMX
-1.04% -0.24% 5.14% 40.07% 23.57% 27.31% 12.50% 12.50% 05/31/2011
MSCI China Small Cap Index
1.62% -1.74% 17.86% 69.58% 5.52% 10.82% 3.96% 3.96%
As of 03/31/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund
MCSMX
-4.16% 1.01% 1.01% 66.82% 24.51% 26.87% n.a. 12.26% 05/31/2011
MSCI China Small Cap Index
-6.34% 12.34% 12.34% 64.63% 6.03% 9.56% n.a. 3.53%
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 03/31/2021)

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 82 funds
  • 3 YEAR
  • out of 82 funds
  • 5 YEAR
  • out of 71 funds
  • 1 YEAR
  • 2nd
  • 32 out of 101 funds
  • 3 YEAR
  • 1st
  • 2 out of 75 funds
  • 5 YEAR
  • 1st
  • 1 out of 63 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 03/31/2021)
63
Number of Securities

Source: BNY Mellon Investment Servicing (US) Inc.

12.6x
P/E using FY1 estimates
10.5x
P/E using FY2 estimates
$5.5 billion
Weighted Average Market Cap

Source: FactSet Research Systems

Top 10 Holdings

(as of 05/31/2021)
Name Sector % Net Assets
KWG Living Group Holdings, Ltd. Real Estate 3.4
KWG Group Holdings, Ltd. Real Estate 3.3
Times China Holdings, Ltd. Real Estate 2.9
ENN Natural Gas Co., Ltd. Materials 2.9
China Yuhua Education Corp., Ltd. Consumer Discretionary 2.8
360 DigiTech, Inc. Financials 2.7
China Meidong Auto Holdings, Ltd. Consumer Discretionary 2.7
China Yongda Automobiles Services Holdings, Ltd. Consumer Discretionary 2.6
Pharmaron Beijing Co., Ltd. Health Care 2.4
Estun Automation Co., Ltd. Industrials 2.4
TOTAL 28.1

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 03/31/2021)
  • 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 Fund defines Small Companies as companies with market capitalization generally between $100 million and $5 billion or the largest company included in the Fund’s primary benchmark. 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) 44.1
A Shares 19.2
Overseas Listed Companies (OL) 14.6
H Shares 6.3
China-affiliated corporations (CAC) 5.2
Unassigned 9.3
Cash and Other Assets, Less Liabilities 1.2

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 March 31, 2021

For the quarter ending March 31, 2021, the Matthews China Small Companies Fund returned 1.01% (Investor Class) and 1.06% (Institutional Class), while its benchmark, the MSCI China Small Cap Index, which returned 12.34%.

Market Environment:

Stocks in the MSCI China Small Cap Index rose in the quarter, generating attractive gains. Notably, the Index contains only 230 stocks, listed exclusively in Hong Kong and New York. The Index does not contain any domestically listed stocks, known as A-shares. In contrast, the broader universe of Chinese small-cap stocks includes more than 5,000 companies, with strong representation among domestically listed shares. Strong Index performance was driven by a lower-quality stock rally, fueled by money from mainland Chinese investors who were investing in Hong Kong and New York listed stocks. Gains among domestically listed small-cap stocks were most modest in the quarter.

Chinese economic growth prospects and data points illustrate robust recovery, but not enough to spur central bank policy tightening beyond what markets have already experienced. Small companies remain driven by domestic demand. As investors take a closer look at company fundamentals, the share prices of domestically listed companies may gain more traction. While there was a bit of a “junk” rally in the first quarter among lower-quality stocks, that trend could reverse as investors become more attuned to long-term growth prospects.

Performance Contributors and Detractors:

Stock selection in information technology was a detractor from relative performance. The benchmark has a heavy concentration among two information technology companies focused on solar energy that the Fund does not own. These particular benchmark constituents each experienced a major run-up in stock prices in the quarter, despite no clear catalyst for the jump. The Fund owns other solar energy companies that we find more attractive over the long term based on fundamentals and valuations. On the other hand, stock selection in the real estate sector was a contributor. Property management services is a growing industry in China, as homeowners look for more convenience and more professionals services for condominiums and HOAs.

Among individual securities, SITC International was a contributor. SITC is a very efficient intra-Asia logistics provider. With a superior management team who is very knowledgeable about the region, the company has executed very well in past years. SITC has done well amid rising shipping rates given tighter supply. On the other hand, Flat Glass, a photovoltaic (PV) glass manufacturer, was a detractor. The company benefits from the roll out of more alternative energy investments in China. However, there is more concern about elevated pricing about PV glass and with a potential reduction of solar farm subsidies, more parts of the solar value chain are experiencing reduction in prices, albeit with the offset of still strong volume growth. Valuations for Flat Glass have also corrected down to more attractive levels.

Notable Portfolio Changes:

During the quarter, we continued to rebalance the portfolio, taking profit from expensive areas such as information technology, health care and consumer staples and repositioning into either more attractively valued opportunities. The portfolio’s exposure to materials and financials have increased over the past couple of quarters. New positions include Pan Jit International, a Taiwanese company that manufactures key components for semiconductors. Despite being a Taiwanese company, Pan Jit derives the bulk of its revenues from China and benefits from China’s push to use more locally made semiconductor components. The company also is able to commercialize on its Insulated Gate Bipolar Transistor (IGBT) product, a three-terminal semiconductor-switching device, after going through several years of certification with auto manufacturers. We believe that its growth momentum will continue to accelerate on new product launches and product mix upgrades. The addition of the company to the portfolio is a good example where we have repositioned from more expensive tech names into more attractively valued tech names. Another new position is Sinoma Science and Technology, which produces advanced, specialty materials for the automotive industry as well as for wind blades used in wind energy generation. The company has benefitted from the growth in alternative energy installations for its wind blades business. Its fiberglass business is one where the industry dynamics are a lot more concentrated and attractive for future pricing improvements.

Outlook:

Looking ahead, we expect China small companies to remain engines of growth for China’s broader economy. Keeping the coronavirus under control is key to maintaining China’s V-shaped economic recovery. While China is only in the very early stages of its vaccination program, its strict border controls and data-driven approach to minimizing outbreaks remains highly successful. China’s approach to combatting the virus has been more effective than any other large economy. Because COVID is largely under control in China, people have been able to resume a normal life. Consumption is rising, auto sales are growing, restaurants have long lines and consumers are feeling comfortable gathering indoors. The depth and diversity of the opportunity set among small companies in China continues to expand. Key themes the portfolio management team is following include technology upgrades, health and wellness trends, services that enhance quality of life and premium consumer goods. As always, we continue to look for attractive long-term growth opportunities driven by the Chinese consumer.

As of March 31, 2021, the securities mentioned comprised the Matthews China Small Companies Fund in the following percentages: SITC International Holdings Co., Ltd., 3.5%; Flat Glass Group Co., Ltd. H Shares, 1.0%; Pan Jit International, Inc., 1.6%; Sinoma Science & Technology Co., Ltd. A Shares, 2.0%. Current and future portfolio holdings are subject to change and risk.

Average Annual Total Returns - MCSMX as of 03/31/2021
1YR 3YR 5YR 10YR Since Inception Inception Date
66.82% 24.51% 26.87% N.A. 12.26% 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.