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Matthews China Fund
MCHFX

Snapshot
  • High-conviction equity portfolio seeks companies benefiting from China’s domestic consumption
  • All-cap fundamental GARP approach driven by on-the-ground, proprietary research
  • Combines long-term core holdings with more opportunistic ideas to provide consistency through cycles

02/19/1998

Inception Date

11.93%

YTD Return

(as of 02/03/2023)

$16.23

NAV

(as of 02/03/2023)

-0.40

1 Day NAV Change

(as of 02/03/2023)

Objective

Long-term capital appreciation

Strategy

Under normal circumstances, the Matthews China 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 companies located in China. The Fund seeks to invest in 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.

These and other risks associated with investing in the Fund can be found in the prospectus.

Fund Facts
Inception Date 02/19/1998
Fund Assets $745.79 million (12/31/2022)
Currency USD
Ticker MCHFX
Cusip 577-130-701
Portfolio Turnover 92.3%
Benchmark MSCI China Index MSCI China All Shares Index
Geographic Focus China - China includes its administrative and other districts, such as Hong Kong
Fees & Expenses
Gross Expense Ratio 1.06%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 12/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund - MCHFX
02/19/1998
MCHFX
2.02% 16.98% -24.40% -24.40% -1.74% 0.07% 4.72% 8.45%
MSCI China Index
5.21% 13.53% -21.80% -21.80% -7.38% -4.40% 2.62% 3.25%
MSCI China All Shares Index
4.03% 9.12% -23.47% -23.47% -3.75% -2.61% n.a. n.a.
As of 12/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund - MCHFX
02/19/1998
MCHFX
2.02% 16.98% -24.40% -24.40% -1.74% 0.07% 4.72% 8.45%
MSCI China Index
5.21% 13.53% -21.80% -21.80% -7.38% -4.40% 2.62% 3.25%
MSCI China All Shares Index
4.03% 9.12% -23.47% -23.47% -3.75% -2.61% n.a. n.a.
For the years ended December 31st
Name 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013
Matthews China Fund - MCHFX
MCHFX
-24.40% -12.26% 43.05% 34.56% -21.42% 59.37% -5.18% 2.41% -4.42% 6.84%
MSCI China Index
-21.80% -21.64% 29.67% 23.66% -18.75% 54.33% 1.11% -7.62% 8.26% 3.96%
MSCI China All Shares Index
-23.47% -12.80% 33.61% 27.87% -23.15% 41.43% -7.69% -2.88% n.a. n.a.

MSCI China Index since inception value calculated from 2/28/98.

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 12/31/2022)

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 91 funds
  • 3 YEAR
  • out of 91 funds
  • 5 YEAR
  • out of 77 funds
  • 10 YEAR
  • out of 52 funds
  • 1 YEAR
  • 2nd
  • 40 out of 107 funds
  • 3 YEAR
  • 2nd
  • 37 out of 85 funds
  • 5 YEAR
  • 2nd
  • 26 out of 72 funds
  • 10 YEAR
  • 2nd
  • 16 out of 47 funds
  • SINCE INCEPTION
  • 1st
  • 3 out of 15 funds

Ratings agency calculation methodology

Portfolio Managers

Andrew  Mattock, CFA photo
Andrew Mattock, CFA

Lead Manager

Winnie  Chwang photo
Winnie Chwang

Co-Manager

Sherwood  Zhang, CFA photo
Sherwood Zhang, CFA

Co-Manager

Portfolio Characteristics

(as of 12/31/2022)
Fund Benchmark
Number of Positions 64 714
Weighted Average Market Cap $79.6 billion $117.5 billion
Active Share 73.4 n.a.
P/E using FY1 estimates 14.3x 10.1x
P/E using FY2 estimates 12.4x 9.9x
Price/Cash Flow 10.5 5.8
Price/Book 1.9 1.4
Return On Equity 11.5 11.9
EPS Growth (3 Yr) -12.2% 4.1%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 12/31/2022)
6.76%
Alpha
1.03
Beta
127.11%
Upside Capture
100.10%
Downside Capture
-0.08
Sharpe Ratio
0.63
Information Ratio
9.01%
Tracking Error
91.44

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 12/31/2022)
Name Sector % Net Assets
Pinduoduo, Inc. Consumer Discretionary 7.9
Alibaba Group Holding, Ltd. Consumer Discretionary 7.3
Meituan Consumer Discretionary 6.5
JD.com, Inc. Consumer Discretionary 5.8
China Merchants Bank Co., Ltd. Financials 4.4
China International Capital Corp., Ltd. Financials 4.4
Tencent Holdings, Ltd. Communication Services 4.3
CITIC Securities Co., Ltd. Financials 3.0
KE Holdings, Inc. Real Estate 3.0
Focus Media Information Technology Co., Ltd. Communication Services 2.1
TOTAL 48.7

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 12/31/2022)
  • Sector Allocation
  • Market Cap Exposure
  • China Exposure
Sector Fund Benchmark Difference
Consumer Discretionary 38.0 30.3 7.7
Financials 15.6 15.7 -0.1
Information Technology 10.8 5.7 5.1
Industrials 8.8 5.6 3.2
Communication Services 8.1 18.6 -10.5
Real Estate 7.9 3.5 4.4
Health Care 4.8 6.2 -1.4
Consumer Staples 3.1 5.8 -2.7
Materials 2.6 3.5 -0.9
Utilities 0.0 2.6 -2.6
Energy 0.0 2.5 -2.5
Cash and Other Assets, Less Liabilities 0.3 0.0 0.3

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) 55.7 62.4 -6.7
Large Cap ($10B-$25B) 24.1 20.1 4.0
Mid Cap ($3B-$10B) 16.5 16.1 0.4
Small Cap (under $3B) 3.4 1.5 1.9
Cash and Other Assets, Less Liabilities 0.3 0.0 0.3
China Exposure Portfolio Weight
A Shares 38.2
SAR (Hong Kong) 36.9
Overseas Listed Companies (OL) 13.9
H Shares 10.6
Cash and Other Assets, Less Liabilities 0.3

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)
12/13/2022 12/14/2022 $0.00000 $0.00000 $1.09205 $1.09205 6.8% 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 December 31, 2022

For the year ending December 31, 2022, the Matthews China Fund returned -24.40% (Investor Class) and -24.31% (Institutional Class), while its benchmark, the MSCI China Index, returned -21.80% over the same period. For the fourth quarter, the Fund returned 16.98% (Investor Class) and 17.09% (Institutional Class), while the benchmark returned 13.53%.

Market Environment:

Chinese equities were weak and choppy most of the year with continued worry of an economic growth slowdown in the country, weighed down by COVID-19 and enforced lockdowns, ADR delisting pricing pressures and investor worries that Russia-like sanctions could be implemented upon select Chinese companies. Additionally, geopolitical headwinds combined with disappointing announcements post the 20th Party Congress weighed on markets. China’s property market sentiment continued to be negative, and the real estate sector has been hit hard as potential buyers and local government casted doubts on whether some financially distressed developers can finish and deliver their pre-sold homes on time.

However, the last quarter of the year saw a reversal as Chinese equities posted some of the strongest results within global markets with a rebound in sentiment stemming from the government’s statements and actions which support the easing of COVID-related restrictions in favor of ‘living with Covid’ policies. The roll-back of COVID restrictions gained momentum during the quarter spurring speculation of a forthcoming increase in consumer discretionary activity and overall mobility.

Performance Contributors and Detractors:

The portfolio’s allocation and stock selection within the consumer discretionary, consumer staples and health care sectors contributed the most to the Fund’s relative performance for the full year. Among individual securities, Pinduoduo, one of China’s largest ecommerce platforms that started its businesses with a focus on lower-tier city, price sensitive consumers directly through its interactive shopping experience, was the largest contributor to both absolute and relative performance for the year. Pinduoduo’s stronger-than-expected earnings results contributed to its stock appreciation. The company’s platform has been growing faster than peers and has also experienced continued strong momentum of delivering monetization of the business model. Additionally, Pinduoduo continues to execute its cost cutting efforts. Opportunities in localization plays such as Shenzhen New Industries Biomedical Engineering, an in vitro diagnostics (IVD) equipment and reagent provider, also did well amid rising geopolitical tensions. The company's products facilitate lab testing efforts in China's hospitals and pharmaceutical industries.

On the other hand, holdings in the information technology and real estate sectors were among the top detractors to relative performance for the year. Technology holdings, including Naura Technology, detracted amid regulatory policies and harsher new technology export controls introduced by the U.S., which prohibit high-end equipment to be exported to China. The country’s technology-related companies may slow their CapEx expansion and expenditures as they will not as easily move up the technology curve into more advanced processes. CIFI, a property developer focused on building houses near the outer perimeter of tier-one cities, was another detractor to performance. The stock fell amid deepening market concerns about the outlook of the overall property market in China. However, we remain constructive on CIFI’s long-term prospects as the company has an enviable nationwide footprint, giving it a strong base for future growth. On a long-term view, while we expect demand for real estate to moderate in growth, there is an opportunity for valuations to recover from current depressed levels.

Notable Portfolio Changes:

During the quarter, we initiated new positions—as well as added to existing positions—within the consumer discretionary sector that have seen significant valuation compression given policy uncertainties, as well as to positions that we view will benefit from China’s reopening as the country continues to relax its COVID policies. We also initiated positions in Galaxy Entertainment, a Macau casino operator, as we believe the company will benefit from the reopening. We also initiated positions in China Education Group, a vocational education provider in China, as it is becoming increasingly clear that the government is more supportive in the vocational education space and regulatory headwinds are easing.

Outlook:

Looking ahead, China’s reopening will unfortunately be messy and the road to recovery will not be a smooth one. However, the overall direction of recovery remains clear, and we expect much of the COVID-related disruptions endured in 2022 to be behind. Global economic outlook looks increasingly uncertain as the U.S. continues to slow, and Europe’s economic outlook continues to look fragile. In this environment, China will have to depend ever more on its internal growth engine for recovery. This could be a challenge pending more encouraging signs of recovery on the property, consumption and industrial output fronts, although we are cautiously optimistic that China will manage through these challenges given potential government support. Valuations wise, the Hong Kong market has rebounded, with positive stock performance in the fourth quarter of 2022, bolstered by end-of-COVID optimism. The A-share market, however, has not quite reacted to much of the good news surrounding COVID relaxation. Coupled with valuations that are now more attractive, the A-share market stands to benefit from positive catalysts this year and, in our views, is well positioned for an improvement in 2023.

Top 10 holdings as of December 31, 2022. Current and future holdings are subject to change and risk.

Average Annual Total Returns - MCHFX as of 12/31/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-24.40% -1.74% 0.07% 4.72% 8.45% 02/19/1998

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 1.06%

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.

 

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.