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Asia Small Company

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

10.83%

YTD Return

(as of 01/19/2021)

$22.01

Price

(as of 01/19/2021)

$383.77 million

Fund Assets

(as of 12/31/2020)

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 $383.77 million (12/31/2020)
Currency USD
Ticker MCSMX
Cusip 577-125-404
Portfolio Turnover 68.17%
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 1.62%
Net Expense Ratio 1.38%

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 China Small Companies Fund
MCSMX
11.33% 13.65% 82.52% 82.52% 26.71% 25.05% n.a. 12.48% 05/31/2011
MSCI China Small Cap Index
5.01% 16.86% 27.21% 27.21% 2.96% 5.05% n.a. 2.37%
As of 12/31/2020
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund
MCSMX
11.33% 13.65% 82.52% 82.52% 26.71% 25.05% n.a. 12.48% 05/31/2011
MSCI China Small Cap Index
5.01% 16.86% 27.21% 27.21% 2.96% 5.05% n.a. 2.37%
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 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
  • 1 YEAR
  • 1st
  • 5 out of 94 funds
  • 3 YEAR
  • 1st
  • 2 out of 73 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 12/31/2020)
58
Number of Securities

Source: BNY Mellon Investment Servicing (US) Inc.

17.9x
P/E using FY1 estimates
15.3x
P/E using FY2 estimates
$6.0 billion
Weighted Average Market Cap

Source: FactSet Research Systems

Top 10 Holdings

(as of 12/31/2020)
Name Sector % Net Assets
SITC International Holdings Co., Ltd. Industrials 4.7
Weimob, Inc. Information Technology 3.8
Bilibili, Inc. Communication Services 3.3
Silergy Corp. Information Technology 3.0
Ever Sunshine Lifestyle Services Group, Ltd. Industrials 2.9
Flat Glass Group Co., Ltd. Information Technology 2.9
Jiumaojiu International Holdings, Ltd. Consumer Discretionary 2.7
Asia Cement China Holdings Corp. Materials 2.6
China Meidong Auto Holdings, Ltd. Consumer Discretionary 2.6
Times China Holdings, Ltd. Real Estate 2.5
TOTAL 31.0

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
Information Technology 25.4 18.4 7.0
Industrials 22.8 12.0 10.8
Health Care 11.8 9.0 2.8
Consumer Discretionary 11.7 19.6 -7.9
Real Estate 8.1 17.9 -9.8
Materials 6.3 7.7 -1.4
Consumer Staples 4.4 2.3 2.1
Financials 3.6 3.7 -0.1
Communication Services 3.3 4.4 -1.1
Utilities 0.0 3.5 -3.5
Energy 0.0 1.5 -1.5
Cash and Other Assets, Less Liabilities 2.6 0.0 2.6

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) 3.3 0.0 3.3
Large Cap ($10B-$25B) 10.8 0.0 10.8
Mid Cap ($3B-$10B) 58.9 18.3 40.6
Small Cap (under $3B) 24.4 81.7 -57.3
Cash and Other Assets, Less Liabilities 2.6 0.0 2.6

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) 44.6
A Shares 27.5
Overseas Listed Companies (OL) 10.6
H Shares 8.0
China-affiliated corporations (CAC) 0.9
Unassigned 5.8
Cash and Other Assets, Less Liabilities 2.6

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.
12/16/2019 12/17/2019 $0.13223 $0.00000 $0.00000 $0.13223 1.0% 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, 2020

For the quarter ending September 30, 2020, the Matthews China Small Companies Fund returned 1.88% (Investor Class) and 1.97% (Institutional Class), while its benchmark, the MSCI China Small Cap Index, returned 10.79% over the same period.

Market Environment:

Chinese monthly economic data continues to show signs of recovery as reflected in the latest manufacturing and service purchasing managers’ index (PMI) data as well as business recovery statistics. Domestic recovery is occurring alongside a stabilizing export sector and improving labor market, both of which should support better earnings prospects going forward.

COVID-19 remains a risk for economies globally, including China. While small pockets of coronavirus infections still occasionally emerge, China remains successful at flattening its curve of COVID-19 infections. Vigilant about testing, quarantining known cases and contact tracing, China has had the most success among large economies in our view in combatting the virus.

Small- and mid-cap equities in China—companies with market capitalization between US$1 billion and $10 billion—generated attractive stock price gains calendar year to date. Much of these gains occurred within the information technology, health care and the consumer staples sectors. At the same time, the strong stock price performance of these sectors has largely been driven by expansions in price-to-earnings multiples, resulting in higher valuations.

Performance Contributors and Detractors:

Flat Glass, which manufactures solar glass that goes into the solar panel module, was a notable contributor. China is very close to achieving grid parity, where the price of renewable energy becomes more competitive with the price of energy produced through fossil fuels. 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. We believe Flat Glass is well-positioned within the competitive landscape of China’s solar industry, where scale matters and there are only a few key players in the space.

On the other hand, a detractor in the quarter was Times China, which focuses on developments in the Greater Bay Area in Guangdong province. China’s policymakers have earmarked the region for further development in high-value-adding sectors such as the technology and financial industries, and is likely to see growth in infrastructure connectivity over time. Times China has an ample land bank in this region, allowing it to continue to grow its footprint. The real estate industry has been sluggish as the pandemic has disrupted sales in China, but we continue to like the company’s long-term prospects in land banking, as well as its attractive valuations.

From a sector perspective, stock selection and an overweight in health care detracted from relative returns in the quarter. Health care names generally saw a pull back over the quarter, and investors became more valuation conscious and took profit off names that did very well in the earlier half of the year. Many biotech related names also saw a correction given less of a risk appetite. Turning to sectors that were contributors, stock selection in industrials contributed to relative performance.

Notable Portfolio Changes:

Given the strong run-up in the market earlier in the calendar year, we trimmed or exited some holdings in the quarter where valuations had significantly increased since the start of year. For example, we took profits in sectors such as information technology, health care and consumer staples, reallocating the proceeds into other areas where valuations look more attractive. In areas where we’ve trimmed back, such as the information technology, health care and consumer staples sectors, we expect to re-invest and maintain meaningful exposure of these sectors over time.

Many of our closed positions in the quarter were in the biotech industry, reflecting rising valuations, as well as the difficulty of assessing which product pipelines may yield game-changing new drugs and treatments. Biotech holdings we exited in the quarter include Genscript Biotech Corp., Cansino Biologics and Burning Rock Biotech. With a keen interest in the health care sector, we rotated the capital into other health care area that we believe have more visible earnings growth profiles. New positions in the quarter include independent clinical laboratory service provider Dian Diagnostics Group.

Dian Diagnostics is an independent clinical laboratory services provider that has just gone through an expansion phase. The company’s heavy investment period has just come to an end, and in the next few years, the company will begin to ramp up the operations of its new laboratories, and will likely see an expanding margin profile as utilization increases. We remain convinced that outsourced clinical laboratory services will be a secular trend as hospitals become more budget and efficiency conscious and look to outsource services to scaled providers such as Dian, who are able to perform required services at lower fees.

Outlook:

Schools have reopened in Wuhan, the first city to be hit by the pandemic earlier in the year. China’s effective health care response has played an important role in reopening school, businesses and government offices across China. Keeping the coronavirus under control is key to maintaining China’s economic recovery, and the portfolio team continues to see reasons for optimism on the public health front. Positive sentiment among domestic Chinese consumers is spurring increased economic activity. Fiscal stimulus in China has been incremental in scope and highly targeted, a trend the portfolio team expects may continue. Interest rates in China have moved higher, reflecting China’s economic resilience amid the pandemic.

Chinese manufacturing data points to a continued V-shaped recovery and a bright spot within the data suggests that small, private businesses are beginning to participate within the rebound. Even the slow-to-recover consumer-oriented sectors are starting to show improvement including restaurant sales, cinema box office receipts and domestic travel. Domestic recovery is occurring alongside a stabilizing export sector and improving labor market, both of which should support better earnings prospects going forward.

 

Purchasing Managers Index (PMI) is a benchmark indicating the direction of economic trends in the manufacturing and service sectors.

As of 9/30/2020, the securities mentioned comprised the Matthews China Small Companies Fund in the following percentages: Flat Glass Group Co., Ltd. H Shares, 2.9%; Times China Holdings, Ltd., 2.4%; Dian Diagnostics Group Co., Ltd. A Shares, 1.6%. The Fund held no positions in Genscript Biotech Corp., Cansino Biologics and Burning Rock Biotech. Current and future portfolio holdings are subject to change and risk.

Average Annual Total Returns - MCSMX as of 12/31/2020
1YR 3YR 5YR 10YR Since Inception Inception Date
82.52% 26.71% 25.05% N.A. 12.48% 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 1.62%
Net Expense Ratio 1.38%

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 feeds) 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.

Related Funds

MCHFX

Matthews China Fund
 

MCDFX

Matthews China Dividend Fund

MSMLX

Matthews Asia Small Companies Fund

 

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.