TOP

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

-16.97%

YTD Return

(as of 10/04/2023)

$12.04

NAV

(as of 10/04/2023)

-0.07

1 Day NAV Change

(as of 10/04/2023)

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 $637.18 million (08/31/2023)
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
  • data_graph_selected Created with Sketch.
  • bar_graph_selected Created with Sketch.
As of 08/31/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund - MCHFX
02/19/1998
MCHFX
-8.39% 5.87% -10.41% -9.61% -13.30% -0.31% 3.83% 7.75%
MSCI China Index
-8.95% 5.00% -4.51% -7.36% -14.14% -3.75% 2.66% 2.97%
MSCI China All Shares Index
-8.60% 1.62% -5.56% -9.57% -11.63% -0.86% n.a. n.a.
As of 06/30/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund - MCHFX
02/19/1998
MCHFX
3.18% -13.05% -12.69% -23.98% -9.64% -2.59% 4.32% 7.70%
MSCI China Index
4.02% -9.65% -5.39% -16.69% -10.13% -5.14% 3.22% 2.95%
MSCI China All Shares Index
1.92% -9.79% -5.27% -17.90% -6.73% -2.18% 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 06/30/2023)

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 101 funds
  • 3 YEAR
  • out of 101 funds
  • 5 YEAR
  • out of 78 funds
  • 10 YEAR
  • out of 54 funds
  • 1 YEAR
  • 3rd
  • 80 out of 110 funds
  • 3 YEAR
  • 3rd
  • 58 out of 91 funds
  • 5 YEAR
  • 2nd
  • 34 out of 73 funds
  • 10 YEAR
  • 2nd
  • 14 out of 49 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 06/30/2023)
Fund Benchmark
Number of Positions 49 758
Weighted Average Market Cap $95.1 billion $117.9 billion
Active Share 65.9 n.a.
P/E using FY1 estimates 12.1x 10.1x
P/E using FY2 estimates 10.5x 9.0x
Price/Cash Flow 9.3 5.9
Price/Book 1.8 1.3
Return On Equity 11.7 11.4
EPS Growth (3 Yr) 19.2% 14.2%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 06/30/2023)
1.20%
Alpha
1.02
Beta
109.73%
Upside Capture
102.46%
Downside Capture
-0.35
Sharpe Ratio
0.06
Information Ratio
8.78%
Tracking Error
92.28

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 08/31/2023)
Name Sector % Net Assets
Alibaba Group Holding, Ltd. Consumer Discretionary 8.4
PDD Holdings, Inc. Consumer Discretionary 7.5
Tencent Holdings, Ltd. Communication Services 7.1
Meituan Consumer Discretionary 5.5
JD.com, Inc. Consumer Discretionary 4.1
China Merchants Bank Co., Ltd. Financials 4.1
KE Holdings, Inc. Real Estate 3.7
China International Capital Corp., Ltd. Financials 3.7
Contemporary Amperex Technology Co., Ltd. Industrials 3.0
CITIC Securities Co., Ltd. Financials 2.8
TOTAL 49.9

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 06/30/2023)
  • Sector Allocation
  • Market Cap Exposure
  • China Exposure
Sector Fund Benchmark Difference
Consumer Discretionary 32.6 28.7 3.9
Financials 18.9 16.3 2.6
Communication Services 13.7 19.8 -6.1
Industrials 9.0 5.6 3.4
Real Estate 6.4 3.1 3.3
Information Technology 6.2 6.2 0.0
Consumer Staples 5.5 5.8 -0.3
Health Care 4.7 5.5 -0.8
Energy 1.8 3.0 -1.2
Utilities 0.9 2.6 -1.7
Materials 0.0 3.3 -3.3
Cash and Other Assets, Less Liabilities 0.4 0.0 0.4

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) 59.8 62.5 -2.7
Large Cap ($10B-$25B) 27.0 21.1 5.9
Mid Cap ($3B-$10B) 7.9 14.2 -6.3
Small Cap (under $3B) 5.0 2.3 2.7
Cash and Other Assets, Less Liabilities 0.4 0.0 0.4
China Exposure Portfolio Weight
SAR (Hong Kong) 39.1
A Shares 30.4
H Shares 17.0
Overseas Listed Companies (OL) 11.5
Unassigned 1.8
Cash and Other Assets, Less Liabilities 0.4

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 June 30, 2023

For the first half of 2023, the Matthews China Fund returned -12.69% (Investor Class) and -12.64% (Institutional Class), while its benchmark, the MSCI China Index, returned -5.39% over the same period. For the quarter ending June 30, 2023, the Fund returned -13.05% (Investor Class) and -13.06% (Institutional Class), while the benchmark returned -9.65%.

Market Environment:

The overall environment for China remained challenging during the first half of the year with continued negative headlines related to U.S. –  China relations, Taiwan – China tensions and an overall bumpy corporate earnings growth story. Financial results in the first quarter were uneven with some sectors and industries recovering faster than others. Given the disruption experienced with much of the population contracting COVID, first quarter earnings were generally still on the weaker side. In areas of faster earnings recovery, many questioned if growth trajectory would be sustainable, as a lack of supportive policies continued to weigh on market sentiment. Given this environment, investors continue to be in profit taking mode despite the fact that some companies have delivered on earnings estimates. At the same time, the property market recovery has been volatile with general market conditions remaining soft. This part of China’s economy continues to be important in determining the stability of the country’s recovery and more monitoring of on-the-ground conditions are required.

Performance Contributors and Detractors:

From a sector perspective, the portfolio’s allocation and stock selection in information technology and an underweight to the materials sector contributed to relative performance during the first half of the year. On the other hand, an overweight allocation and stock selection within the consumer discretionary sector and an underweight and stock selection within communication services detracted from performance.

Among individual holdings, Petrochina and Midea Group were among the top contributors to performance. Petrochina is one of China’s largest state-owned, oil and gas companies. State-own companies (SOEs) in China have seen re-ratings this year due to their defensive nature and cheap valuations. In addition, there has been increased government support to improve valuations of SOEs. Many SOEs are increasingly becoming more market-oriented, and profit driven. This positive change could help with cementing the corporate earnings story for these companies and drive valuation re-rating. Midea is a dominant white goods manufacturer in China. Shares of the company have been defensive year to date due to resilient recovery in the sales of Midea’s air conditioning units, buoyed by a low base, pent-up demand and increased appetite for premiumization. Both valuations and dividend yields of the company are attractive as well, and while Midea is no longer growing at a fast pace, its dominance in the market and strong execution offers investors a stable rate of return, which is appreciated in the more volatile market environment we are experiencing today.

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 the weakest contributor to performance. The company’s weaker-than-expected first quarter estimates and a conservative outlook caused market concerns in the first quarter. In addition, JD’s major shopping day, June 18, showed only moderate gross merchandise value (GMV) growth. However, shopping campaigns are year-round and consumers are also shopping year-round. While the company’s GMV growth continues to moderate, we find JD’s approach to focusing on optimizing various business units and providing best everyday prices to consumers to be balanced with its profitability goals and targets. The JD e-commerce platform continues to be an important one in China and market worries about competition is likely overdone. Meituan, China’s largest food delivery platform, also detracted from performance during the first half of the year. Meituan also has businesses catering to the promotional and advertising needs of restaurants, and travel and hotel booking services. The company’s shares have been under a lot of pressure given concerns about competition with ByteDance’s Douyin in both food delivery and in-store services. Given Douyin is a strong competitor, there could be some market share loss, but we feel that will be generally manageable. At the same time, Meituan could see operational improvements post COVID as food delivery might see less disruptions as more restaurants are up and running, and in-store dining and travel related services could see recovery.

Notable Portfolio Changes:

Overall, the number of names in the portfolio has decreased and there has generally been a consolidation of smaller, less than 1% positions in more expensive areas of the portfolio. Market correction has given us the opportunity to add to quality areas where valuations have come off meaningfully. The portfolio’s A-share exposure has trended down from the high thirties to low thirties percentage given more attractive valuations in the Hong Kong market and we have been adding to the portfolio’s Hong Kong-listed names.

During the year-to-date period, we added SOE names such as China Construction Bank and PetroChina as we believe good quality SOE names could be more defensive and see valuations re-rating. We also added Kuaishou Technology and JD Health over the first half of the year. Platform companies such as Kuaishou and JD Health have seen valuations correct meaningfully, but the nature of these business still benefit from economies of scale and as these platforms stand to benefit as they get more sizable. Further, many platform companies continue to be on track to delivering better quality earnings and monetization.

Outlook:

Looking ahead, the earnings story should benefit from easier comparables with the second half of 2022. We expect earnings to continue to be a catalyst. However, given weak sentiment, China needs to deliver a very strong set of earnings to re-rate in a meaningful way, and we remain more cautious on that front and expect only a gradual recovery ahead. Variables to be mindful of include whether there will be more stimulus ahead and whether China’s property market conditions continue to improve. Sentiment on the ground remains weak, which could call for more supportive policies. At the same time, we continue to see more companies delivering on monetization and increased room for shareholder return as more companies consider buybacks and dividends. Geopolitics remain a relevant concern, and unfortunately, does not offer much optimism at the moment, leading to continued volatile market conditions.

 

View the Fund’s Top 10 holdings as of June 30, 2023. Current and future holdings are subject to change and risk.

Gross Merchandise Value (GMV), also referred to as gross merchandise volume, is the total amount of sales a company makes over a specified period of time, typically measured quarterly or yearly.

Average Annual Total Returns - MCHFX as of 06/30/2023
1YR 3YR 5YR 10YR Since Inception Inception Date
-23.98% -9.64% -2.59% 4.32% 7.70% 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.