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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

-15.38%

YTD Return

(as of 05/31/2023)

$12.27

NAV

(as of 05/31/2023)

-0.15

1 Day NAV Change

(as of 05/31/2023)

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 $740.90 million (04/30/2023)
Currency USD
Ticker MCHFX
Cusip 577-130-701
Portfolio Turnover 49.4%
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 1.12%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 04/30/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund - MCHFX
02/19/1998
MCHFX
-6.25% -17.32% -5.86% -3.00% -3.12% -1.92% 4.39% 8.07%
MSCI China Index
-5.16% -11.16% -0.69% -5.64% -6.15% -4.88% 2.91% 3.17%
MSCI China All Shares Index
-3.87% -9.11% 0.94% -3.87% -2.15% -2.20% n.a. n.a.
As of 03/31/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund - MCHFX
02/19/1998
MCHFX
0.35% 0.41% 0.41% -4.80% 1.44% -1.04% 5.08% 8.38%
MSCI China Index
4.52% 4.71% 4.71% -4.57% -2.51% -3.87% 3.57% 3.40%
MSCI China All Shares Index
2.58% 5.01% 5.01% -6.27% 1.28% -1.79% 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 03/31/2023)

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 103 funds
  • 3 YEAR
  • out of 103 funds
  • 5 YEAR
  • out of 79 funds
  • 10 YEAR
  • out of 53 funds
  • 1 YEAR
  • 1st
  • 25 out of 108 funds
  • 3 YEAR
  • 3rd
  • 50 out of 93 funds
  • 5 YEAR
  • 2nd
  • 33 out of 74 funds
  • 10 YEAR
  • 2nd
  • 16 out of 48 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 03/31/2023)
Fund Benchmark
Number of Positions 52 716
Weighted Average Market Cap $92.7 billion $134.5 billion
Active Share 70.0 n.a.
P/E using FY1 estimates 14.7x 10.9x
P/E using FY2 estimates 12.0x 9.7x
Price/Cash Flow 9.2 6.0
Price/Book 1.8 1.5
Return On Equity 12.3 11.9
EPS Growth (3 Yr) 15.7% 13.9%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 03/31/2023)
4.54%
Alpha
1.02
Beta
113.78%
Upside Capture
99.24%
Downside Capture
0.02
Sharpe Ratio
0.44
Information Ratio
8.94%
Tracking Error
92.08

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 04/30/2023)
Name Sector % Net Assets
Alibaba Group Holding, Ltd. Consumer Discretionary 7.7
Tencent Holdings, Ltd. Communication Services 6.6
Meituan Consumer Discretionary 5.2
PDD Holdings, Inc. Consumer Discretionary 4.9
JD.com, Inc. Consumer Discretionary 4.5
China Merchants Bank Co., Ltd. Financials 4.4
China International Capital Corp., Ltd. Financials 4.0
KE Holdings, Inc. Real Estate 3.1
CITIC Securities Co., Ltd. Financials 2.9
Contemporary Amperex Technology Co., Ltd. Industrials 2.9
TOTAL 46.2

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 03/31/2023)
  • Sector Allocation
  • Market Cap Exposure
  • China Exposure
Sector Fund Benchmark Difference
Consumer Discretionary 36.7 28.9 7.8
Financials 17.3 15.3 2.0
Information Technology 10.4 6.0 4.4
Communication Services 8.8 20.4 -11.6
Industrials 8.5 5.4 3.1
Real Estate 6.8 3.3 3.5
Consumer Staples 4.6 6.1 -1.5
Health Care 2.5 5.7 -3.2
Materials 1.9 3.5 -1.6
Utilities 1.5 2.4 -0.9
Energy 0.0 2.8 -2.8
Cash and Other Assets, Less Liabilities 1.2 0.0 1.2

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) 58.6 64.9 -6.3
Large Cap ($10B-$25B) 22.9 18.8 4.1
Mid Cap ($3B-$10B) 14.6 15.1 -0.5
Small Cap (under $3B) 2.7 1.2 1.5
Cash and Other Assets, Less Liabilities 1.2 0.0 1.2
China Exposure Portfolio Weight
SAR (Hong Kong) 37.9
A Shares 36.5
Overseas Listed Companies (OL) 11.8
H Shares 10.9
Unassigned 1.7
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)
12/13/2022 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 March 31, 2023

For the quarter ending March 31, 2023, the Matthews China Fund returned 0.41% (Investor Class) and 0.48% (Institutional Class), while its benchmark, the MSCI China Index, returned 4.71%. 

Market Environment:

Chinese equities grinded higher, albeit with considerable volatility, even after posting some of the strongest results within global markets in the final quarter of 2022. The country’s lifting of its long-standing COVID restrictions allowed for a ‘more normal’ Lunar New Year celebration helping to boost consumption indicators, especially those focused on domestic tourism, local services and entertainment. However, spy balloons, bilateral tensions and a spike in U.S. interest rates spurred profit taking in Chinese equities in February which relinquished almost the entire year-to-date gains. In March, cross-strait tensions seemed to fade, and the Chinese government showed strong support for gaming and internet sectors along with announcing state-owned enterprise (SOE) reforms and additional fiscal stimulus which combined improved local sentiment causing A-share small-cap equities and large Hong Kong-based platform companies to bounce higher.

In the first quarter, large-cap platform companies within the information technology and communication services sectors lead the MSCI China Index higher while health care and real estate—especially smaller caps lagged.

Performance Contributors and Detractors:

The portfolio’s overweight and stock selection within the information technology and an underweight and stock selection within the consumer staples contributed to relative performance. On the other hand, the portfolio’s allocation and stock selection within the communication services detracted from performance. An overweight and stock selection within the consumer discretionary sector also detracted as some of the holdings announced weaker-than-expected numbers in their most recent earnings and hindered performance.

Among individual securities, KE Holdings—China’s leading online real estate platform—was a top contributor to both absolute and relative performance. The company has been benefiting from expectations of recovering real estate sales in China as the country’s reopening unfolds. KE Holdings is also continuing to benefit from existing home sales (which are more secular in nature driven by household formation and upgrading trends) rather than new home sales (which could be more speculative in nature). We continue to see this holding as one that would benefit from increased real estate trends this year.

On the other hand, JD.com—China’s leading e-Commerce platform company known for its authentic products as well as fast and efficient product delivery—was among the weakest performers. The company announced weaker-than-expected numbers in its most recent earnings and provided a conservative outlook for the first half of the year. JD.com’s announcement of additional investments it may make in order to fend off e-Commerce competition in the country also caused market worries. However, we continue to find the company’s value proposition compelling in China’s e-Commerce industry. JD.com has built a moat around product quality and logistics network, which are hard to replicate and may continue to benefit the company as the business moves into other areas, such as online pharmaceutical distribution.

Notable Portfolio Changes:

During the first quarter, we took the opportunity to consolidate the portfolio from 64 names at the end of Dec 2022 to 52 at the end of March 2023.  We consolidated many small A-share names that were under 50 basis points (0.50%) in position, including Anjoy Food Group, Beijing Huafeng Test and Control Technology, Cambricon Technologies and Gigadevice Semiconductor. Many of these A-share positions continue to be relatively more expensive and operate in a landscape where competition continues to be rather intense.

We also added a few holdings including Ping An—the leading financial conglomerate in China with businesses in life insurance and banking and Zhejiang Supcon Technology, an industrial automation leader managing large scale factory automation projects. Ping An’s aggressive cost cutting during the pandemic resulted in a much healthier cost base. We believe China’s reopening will help with the company’s business operations and activity as life agents are able to regain mobility and sell to clients.  Zhejiang Supcon has been steadily gaining both domestic and international market shares and is actively growing from selling hardware to also selling software to help digitize the next generation of factories.

Outlook:

China’s reopening continues to be bumpy with some sectors such as consumer discretionary and communication services (advertising) recovering ahead of others. We continue to monitor China’s property market developments as this is key in ensuring growth stability within the country. So far, a gradual, slightly better-than-expected property sector recovery has been seen on the ground. Industrial recovery has been weighed down by underperformance in the renewables sectors (EV/solar/wind) so far. We feel that investor sentiment has been overly bearish on concerns about slowing demand and oversupply. This continues to be a secular opportunity for growth and is key in China’s carbon neutrality transition. Platform companies in China continue to experience market sentiment volatility given varying geopolitical reactions. However, valuations are cheap, and any signs of warmer sentiment benefits a recovery in the stock prices of these platform companies more meaningfully.

 

Top 10 holdings as of March 31, 2023. Current and future holdings are subject to change and risk.

Average Annual Total Returns - MCHFX as of 03/31/2023
1YR 3YR 5YR 10YR Since Inception Inception Date
-4.80% 1.44% -1.04% 5.08% 8.38% 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 1.12%

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.