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Asia Small Company

Matthews Asia Small Companies Fund MSMLX

Snapshot
  • Seeks alpha in innovative, capital efficient entrepreneurial companies in Asia ex Japan
  • Focus on firms that have a strong competitive advantage through pricing power, distribution capability, and/or differentiated technologies and services
  • Bias toward businesses that cater to rising domestic consumer demand

09/15/2008

Inception Date

5.36%

YTD Return

(as of 01/19/2021)

$27.32

Price

(as of 01/19/2021)

$207.14 million

Fund Assets

(as of 12/31/2020)

Objective

Long-term capital appreciation

Strategy

Under normal circumstances, the Matthews Asia Small Companies 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 Asia Ex Japan. 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 and frontier markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. 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 09/15/2008
Fund Assets $207.14 million (12/31/2020)
Currency USD
Ticker MSMLX
Cusip 577-125-206
Portfolio Turnover 59.10%
Benchmark MSCI All Country Asia ex Japan Small Cap Index
Geographic Focus Asia ex Japan - Consists of all countries and markets in Asia, including developed, emerging, and frontier countries and markets in the Asian region, excluding Japan
Fees & Expenses
Gross Expense Ratio 1.60%
Net Expense Ratio 1.41%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 12/31/2020
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Small Companies Fund
MSMLX
14.36% 22.90% 43.68% 43.68% 11.39% 12.21% 6.66% 12.25% 09/15/2008
MSCI All Country Asia ex Japan Small Cap Index
6.44% 19.72% 26.60% 26.60% 3.49% 7.76% 3.35% 7.87%
As of 12/31/2020
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews Asia Small Companies Fund
MSMLX
14.36% 22.90% 43.68% 43.68% 11.39% 12.21% 6.66% 12.25% 09/15/2008
MSCI All Country Asia ex Japan Small Cap Index
6.44% 19.72% 26.60% 26.60% 3.49% 7.76% 3.35% 7.87%
For the years ended December 31st
Name 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011
Matthews Asia Small Companies Fund
MSMLX
43.68% 17.38% -18.05% 30.59% -1.44% -9.43% 11.39% 7.19% 23.92% -20.03%
MSCI All Country Asia ex Japan Small Cap Index
26.60% 7.58% -18.63% 33.84% -2.05% -3.28% 2.56% 7.16% 22.76% -26.66%

MSCI AC Asia ex Japan Small Cap Index since inception value calculated from 9/15/08.

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)

MSCI AC Asia ex Japan Small Cap Index since inception value calculated from 9/15/08.

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 58 funds
  • 3 YEAR
  • out of 58 funds
  • 5 YEAR
  • out of 55 funds
  • 10 YEAR
  • out of 31 funds
  • 1 YEAR
  • 1st
  • 8 out of 46 funds
  • 3 YEAR
  • 2nd
  • 18 out of 43 funds
  • 5 YEAR
  • 3rd
  • 27 out of 39 funds
  • 10 YEAR
  • 3rd
  • 16 out of 26 funds
  • SINCE INCEPTION
  • 1st
  • 2 out of 21 funds

Ratings agency calculation methodology

Portfolio Managers

Vivek  Tanneeru photo
Vivek Tanneeru

Lead Manager

Portfolio Characteristics

(as of 12/31/2020)
70
Number of Securities

Source: BNY Mellon Investment Servicing (US) Inc.

30.2x
P/E using FY1 estimates
22.7x
P/E using FY2 estimates
$5.0 billion
Weighted Average Market Cap

Source: FactSet Research Systems

Top 10 Holdings

(as of 12/31/2020)
Name Sector Country % Net Assets
Flat Glass Group Co., Ltd. Information Technology China/Hong Kong 4.5
Silergy Corp. Information Technology China/Hong Kong 4.5
Kingdee International Software Group Co., Ltd. Information Technology China/Hong Kong 3.1
Phoenix Mills, Ltd. Real Estate India 3.1
Innovent Biologics, Inc. Health Care China/Hong Kong 3.1
Shriram City Union Finance, Ltd. Financials India 2.6
Airtac International Group Industrials China/Hong Kong 2.5
Peijia Medical, Ltd. Health Care China/Hong Kong 2.4
Crompton Greaves Consumer Electricals, Ltd. Consumer Discretionary India 2.3
Andes Technology Corp. Information Technology Taiwan 2.2
TOTAL 30.3

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
  • Country Allocation
  • Market Cap Exposure
Sector Fund Benchmark Difference
Information Technology 32.7 20.9 11.8
Health Care 21.0 10.1 10.9
Industrials 16.9 15.0 1.9
Consumer Discretionary 10.6 12.0 -1.4
Real Estate 6.0 10.6 -4.6
Consumer Staples 5.5 4.7 0.8
Financials 4.6 8.0 -3.4
Materials 1.5 10.4 -8.9
Communication Services 0.9 4.1 -3.2
Utilities 0.0 2.4 -2.4
Energy 0.0 1.7 -1.7
Cash and Other Assets, Less Liabilities 0.2 0.0 0.2

Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.

Country Fund Benchmark Difference
China/Hong Kong 48.5 19.5 29.0
India 20.6 17.6 3.0
Taiwan 14.5 24.0 -9.5
South Korea 8.7 21.2 -12.5
Vietnam 2.2 0.0 2.2
Indonesia 1.5 2.4 -0.9
Philippines 1.4 1.0 0.4
Thailand 1.3 3.9 -2.6
Singapore 0.9 6.1 -5.2
Malaysia 0.3 3.8 -3.5
Pakistan 0.0 0.5 -0.5
Cash and Other Assets, Less Liabilities 0.2 0.0 0.2

Not all countries are included in the benchmark index(es).

Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 0.0 0.0 0.0
Large Cap ($10B-$25B) 15.2 0.0 15.2
Mid Cap ($3B-$10B) 38.5 14.4 24.1
Small Cap (under $3B) 46.1 85.6 -39.5
Cash and Other Assets, Less Liabilities 0.2 0.0 0.2

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.

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 $0.05487 $0.00000 $0.01710 $0.07197 0.3% N.A.
12/16/2019 12/17/2019 $0.09231 $0.00000 $0.00000 $0.09231 0.5% 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, 2020

For the quarter ending September 30, 2020, the Matthews Asia Small Companies Fund returned 6.17% (Investor Class) and 6.23% (Institutional Class), while its benchmark, the MSCI All Country Asia ex Japan Small Cap Index, returned 13.05%.

Market Environment:

Asia ex-Japan equities continued their upward trajectory in the third quarter. Many Asian equity markets and currencies rallied as economic activity slowly resumed, with earlier pandemic-related lockdowns easing. Malaysia, South Korea and India were the best performing markets during the quarter, while South East Asian countries like Indonesia and Thailand were laggards. The Chinese renminbi gained on the U.S. dollar, as did the South Korean won and the Indian rupee, while the Thailand baht and the Indonesian rupiah depreciated.

For the second quarter in a row, small caps outperformed large caps suggesting that investors are anticipating broader improvement in economic activity. With an eye toward mitigating the health care and economic impacts of the pandemic, North Asia countries have generally been more successful, coordinated and effective in their public health response. South and Southeast Asia have had a relatively tougher time combatting the virus with intermittent imposition of localized lockdowns. For global equity investors, exposure to Asia provided meaningful diversification in the quarter through access to more varied return drivers, including positive local interest rates, faster normalization of economic activity and rising domestic consumption.

Performance Contributors and Detractors:

Among individual securities, Flat Glass Group, which manufactures glass for solar panels in China, was a notable contributor in the quarter. The growth in solar energy is reaching an inflection point in China, as it has reached grid parity. Given China’s goal of carbon neutrality by 2060, we believe continued growth in solar is a long-term secular trend in China. The company may also benefit from a drive toward increased efficiency in solar module performance due to usage of bifacial panels.

ASMedia, a Taiwanese chip design company that specializes in high speed interface integrated circuits (ICs) was among detractors during the quarter. After a strong performance during the first part of the quarter the stock gave up some of its gains during the second half. The key reason was worries about a competitive threat at its main customer, a U.S.-based CPU company. Our channel checks had suggested otherwise. The company has strong intellectual property (IP) accumulated over a decade in this area and we believe it is poised to benefit as newer, higher speed interface products become more mainstream over the coming years. The company is also very well positioned in our view to benefit from China’s focus on diversifying its chip supply chain by winning new Chinese customers. Given our positive outlook we had added to our position during the quarter.

From a country perspective, our under allocation to South Korea and over allocation (and stock selection) to China/Hong Kong detracted from performance. From a sector perspective, stock selection in the health care and information technology sectors were detractors. On the other hand, stock selection in industrials and an underweight in real estate were contributors.

Notable Portfolio Changes:

We were active in the quarter, initiating several new positions and rotating capital to reflect secular growth trends we are following. As South Asia’s response to COVID-19 in general has been less effective and lagged North Asia’s, we have initiated positions in Indian consumer companies such as Marico that we believe stand to benefit from  potentially changed consumption patterns in a post-COVID world. As a well-run consumer staples company in India, Marico has benefited from increased demand for its cooking oil products due to COVID-19 induced work from home situation. Its core hair care products also benefit from customers’ renewed focus on value. Marico has also rolled out several new products to address the increased hygiene/sanitation needs as well as more emphasis on health and wellness as India gets through COVID-19.

Another new position is IFB Industries, a leading Indian consumer appliances manufacturer. Consumer durables like washing machines and dishwashers in India are very underpenetrated and we believe the company stands to benefit from increased demand tailwinds as people look to reduce reliance on domestic help as a way to reduce COVID-19 exposure risk. We have also selectively initiated position in cheaply valued consumer services companies (with leading market shares) in the region whose sales have been temporarily but severely depressed due to COVID-19 but that we believe will benefit from very attractive long-term growth opportunities.

Outlook:

Stepping back from some of the near-term issues in the region, we are encouraged by the progress of economic reforms in Asia. Amid the pandemic, many of Asia’s policymakers have accelerated efforts toward further opening capital markets to foreign investments, as well as toward reforming labor laws, giving employers greater flexibility in managing their workforces. While the nature of reforms varies among countries in different stages of economic development, the overall trend is unifying and positive for Asia’s capital markets. These economic reforms, combined with rising household incomes and growing domestic consumption, make Asia an attractive destination in our view for long-term equity investors.

Considering the outlook for small companies, the broadening of the economic recovery across Asia provides a potential tailwind for Asia’s smaller and more entrepreneurial businesses. Small companies remain a vibrant source of innovation and creativity in Asia. As always, we look for companies with strong management teams, healthy balance sheets and compelling growth prospects.

 

As of 9/30/2020, the securities mentioned comprised the Matthews Asia Small Companies Fund in the following percentages: Flat Glass Group Co., Ltd. H Shares, 3.0%; ASMedia Technology, Inc., 2.1%; Marico, Ltd., 1.5%; IFB Industries, Ltd., 1.2%. Current and future portfolio holdings are subject to change and risk.

Average Annual Total Returns - MSMLX as of 12/31/2020
1YR 3YR 5YR 10YR Since Inception Inception Date
43.68% 11.39% 12.21% 6.66% 12.25% 09/15/2008

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 1.60%
Net Expense Ratio 1.41%

Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class (which is offered through a separate prospectus to eligible investors) to 1.20%, first by waiving class specific expenses (e.g., shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non-class specific expenses (e.g., custody fees) of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 1.20% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 1.20%. If the operating expenses fall below the expense limitation in a year within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment. This agreement will remain in place until April 30, 2021 and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

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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.