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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

-3.44%

YTD Return

(as of 03/01/2024)

$11.22

NAV

(as of 03/01/2024)

+0.19

1 Day NAV Change

(as of 03/01/2024)

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 $397.24 million (01/31/2024)
Currency USD
Ticker MCHFX
Cusip 577-130-701
Portfolio Turnover 49.6%
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 01/31/2024
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund - MCHFX
02/19/1998
MCHFX
-11.27% -10.95% -11.27% -37.05% -23.99% -3.92% 1.35% 6.70%
MSCI China Index
-10.61% -10.56% -10.61% -28.86% -23.15% -6.79% 0.60% 2.20%
MSCI China All Shares Index
-9.94% -9.95% -9.94% -28.11% -20.56% -3.75% n.a. n.a.
As of 12/31/2023
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund - MCHFX
02/19/1998
MCHFX
-2.15% -5.16% -19.22% -19.22% -18.78% 0.62% 1.83% 7.22%
MSCI China Index
-2.40% -4.21% -11.04% -11.04% -18.31% -2.65% 1.03% 2.65%
MSCI China All Shares Index
-1.97% -3.81% -11.35% -11.35% -16.05% 0.21% n.a. n.a.
For the years ended December 31st
Name 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014
Matthews China Fund - MCHFX
MCHFX
-19.22% -24.40% -12.26% 43.05% 34.56% -21.42% 59.37% -5.18% 2.41% -4.42%
MSCI China Index
-11.04% -21.80% -21.64% 29.67% 23.66% -18.75% 54.33% 1.11% -7.62% 8.26%
MSCI China All Shares Index
-11.35% -23.47% -12.80% 33.61% 27.87% -23.15% 41.43% -7.69% -2.88% 23.64%

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 12/31/2023)

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 84 funds
  • 10 YEAR
  • out of 54 funds
  • 1 YEAR
  • 4th
  • 80 out of 105 funds
  • 3 YEAR
  • 3rd
  • 64 out of 92 funds
  • 5 YEAR
  • 2nd
  • 32 out of 75 funds
  • 10 YEAR
  • 2nd
  • 16 out of 49 funds
  • SINCE INCEPTION
  • 1st
  • 3 out of 14 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 12/31/2023)
Fund Benchmark
Number of Positions 51 766
Weighted Average Market Cap $100.0 billion $112.9 billion
Active Share 63.2 n.a.
P/E using FY1 estimates 11.7x 9.7x
P/E using FY2 estimates 10.2x 8.7x
Price/Cash Flow 8.2 5.3
Price/Book 1.4 1.2
Return On Equity 12.2 12.0
EPS Growth (3 Yr) 14.5% 13.3%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 12/31/2023)
0.42%
Alpha
1.03
Beta
110.25%
Upside Capture
103.38%
Downside Capture
-0.66
Sharpe Ratio
-0.05
Information Ratio
8.78%
Tracking Error
92.37

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 01/31/2024)
Name Sector % Net Assets
Tencent Holdings, Ltd. Communication Services 8.9
Alibaba Group Holding, Ltd. Consumer Discretionary 8.2
China Merchants Bank Co., Ltd. Financials 4.9
PDD Holdings, Inc. Consumer Discretionary 4.6
Meituan Class B Consumer Discretionary 4.3
JD.com, Inc. Consumer Discretionary 3.6
CITIC Securities Co., Ltd. Financials 3.6
KE Holdings, Inc. Real Estate 3.5
China International Capital Corp., Ltd. Financials 3.2
PetroChina Co., Ltd. Energy 3.1
TOTAL 47.9

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 12/31/2023)
  • Sector Allocation
  • Market Cap Exposure
  • China Exposure
Sector Fund Benchmark Difference
Consumer Discretionary 36.5 30.2 6.3
Financials 18.0 15.7 2.3
Communication Services 15.3 19.7 -4.4
Consumer Staples 7.1 5.4 1.7
Industrials 6.7 5.1 1.6
Real Estate 6.0 2.6 3.4
Information Technology 5.2 6.7 -1.5
Health Care 4.9 5.7 -0.8
Energy 1.9 3.2 -1.3
Utilities 0.7 2.4 -1.7
Materials 0.0 3.2 -3.2
Liabilities in Excess of Cash and Other Assets -2.3 0.0 -2.3

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) 64.8 63.8 1.0
Large Cap ($10B-$25B) 24.6 18.2 6.4
Mid Cap ($3B-$10B) 7.7 15.6 -7.9
Small Cap (under $3B) 5.1 2.4 2.7
Liabilities in Excess of Cash and Other Assets -2.3 0.0 -2.3
China Exposure Portfolio Weight
Hong Kong Listed Companies 58.4
Mainland China Listed Companies 27.6
ADR/GDR 14.9
Other 1.4
Liabilities in Excess of Cash and Other Assets -2.3

Mainland China listed companies includes A Share and B Shares. 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. B Shares are mainland Chinese companies listed on the Shanghai and Shenzhen stock exchanges, available to both Chinese and non-Chinese investors. ADRs are American Depositary Receipts and GDRs are Global Depositary Receipts. Hong Kong Listed Companies include SAR (Hong Kong) companies, China-affiliated corporations, and H Shares. SAR 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. H Shares are mainland Chinese companies listed on the Hong Kong exchange but incorporated in mainland China. Other represents Chinese companies listed in other countries or non-China companies with a majority of revenue coming from China such as Japan, Singapore, Taiwan and the United States or other non-China companies.

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)
12/13/2023 12/14/2023 $0.09054 $0.00000 $0.00000 $0.09054 0.8% N.A.
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

December 31, 2023

For the year ending December 31, 2023, the Matthews China Fund returned -19.22% (Investor Class) and -19.11% (Institutional Class), while its benchmark, the MSCI China Index, returned -11.04% over the same period. For the fourth quarter, the Fund returned -5.16% (Investor Class) and -5.16% (Institutional Class), while the benchmark returned -4.21%.

Market Environment

2023 was a disappointing year for Chinese equities and the Chinese economy overall. It’s disappointing, in our view, not just in the sense of the underwhelming recovery of Chinese consumer spending post-COVID lockdowns but also due to the lack of any significant stimulus measures by the government. While the government started to gradually loosen nearly all property purchase-restrictions across most cities in China, the expectations of potential home buyers regarding future house prices and their own income levels have changed. As a result, these policy changes have barely helped to arrest the slump in the real estate market. As the year progressed, investors gradually gave up on the idea that the Chinese central government would step in to engineer a stronger consumption rebound. 

The challenging real estate market and the soft consumption environment create a potential formula for deflation, in our view. From what we can see, many entrepreneurs, whose animal spirits were curbed during the COVID period, are now hesitating to start any new investments in this environment. From a geopolitical standpoint, the highly anticipated Biden-Xi summit in San Francsico in November didn’t curb the ongoing concerns of international investors.  

In terms of markets, quarterly results of leading Chinese companies, especially large-cap technology firms, seem to be hinting toward upward surprises in terms of topline revenue and earnings. During the last quarter of the year, information technology (IT) and utilities were the only positive sectors while real estate was weakest followed by consumer staples and communication services. Chinese small and mid caps ended lower but outperformed weak large and mega caps during the quarter.

Performance Contributors and Detractors 

From a sector perspective, our lack of exposure to materials and stock selection within IT and consumer staples contributed the most to relative performance in 2023. Among individual holdings, the top stock performer was Pinduoduo (PDD), one of China’s largest e-commerce platforms that started its businesses with a focus on lower-tier city, price sensitive consumers directly through its interactive shopping experience. PDD delivered strong results during the year in what has been a weaker e-commerce market in China. Gross merchandize value (GMV) growth and monetization for PDD has remained on track. PDD’s strong execution continues to make it a standout in its peer group. 

Tencent Music Entertainment Group, the largest music streaming service entity in China, was another outperformer. We think the market is coming to terms with the steady decline of its social entertainment business being offset by what is a growing willingness of consumers to pay for music streaming services. Music services in China have an opportunity to realize higher profitability than global peers such as Spotify, in our view, because the top labels in China account for a smaller share of music streaming traffic and therefore don’t have as much bargaining power in China as they do in the West.        

On the other hand, stock selection in real estate, consumer discretionary and financials detracted from performance for the year. Turning to individual holdings, property developer CIFI Holdings was among the biggest detractors to relative performance. CIFI’s stock only resumed trading at the end of September after a long suspension and its negative share price performance had an accumulated impact over the time it was suspended. China’s largest food delivery service and internet platform company Meituan, a well-held name in global portfolios, also detracted as a risk-off appetite toward China led to a selloff. JD.com was the biggest detractor during the year. The e-commerce platform has generated concerns overs its growth prospects and has been weighed down by China’s muted recovery. While internet platform companies’ valuations have pulled back considerably, we believe they largely remain profitable and scale-oriented businesses. We continue to be overweight in consumer discretionary, led by an exposure in platform companies which we feel are very cheap and continue to deliver earnings improvement. 

Notable Portfolio Changes

We streamlined the number of positions in the portfolio from 64 to 51 over the course of the year.  Our overall exposure in mainland-listed companies has been reduced from around 38% in Dec. 2022 to 28% at the end of the year. Many smaller A-shares positions that were more expensive were exited from the portfolio as cheaper valuations, given the pull back, enabled us to build more into better quality holdings. In the more recent quarters, we have incrementally added to our positions in certain communication services names such as Tencent Music and social platform company Kuaishou Technology (driven by low valuations as well as increased willingness among consumers to spend and pay for online services). We’ve also added to consumer names such as Yum China and Tsingtao Brewery (driven by the pull back of these names leading to attractive valuations for what are still renowned brands in China). 

Outlook

2023 has been generally a challenging year for China. Despite the lifting of COVID restrictions in the country, the government’s lack of stimulus generally led to weakening economic support. At the same time, property market woes continued, impacting sentiment and business confidence in the country. While more supportive measures have been rolled out later in the year to address property market concerns, a meaningful inflection remains to be seen. 

Looking ahead, we are cautiously looking for a stabilization of the deterioration in property markets. While we do not expect a significant warming of geo-politics, the ongoing current status quo of a more constructive post-APEC posturing would be welcomed by the market. Valuations continued to trend down in 2023, and the broader China market hovers around similar levels as 2009 despite better quality businesses and earnings profile. We continue to believe that patience is needed in these market environments and, that it could ultimately pay off if the market turns. We intend to stick to our knitting and aim to deliver consistent growth-at-a reasonable price strategy for our clients. 

View the Fund’s Top 10 holdings as of December 31, 2023. Current and future holdings are subject to change and risk.

Average Annual Total Returns - MCHFX as of 12/31/2023
1YR 3YR 5YR 10YR Since Inception Inception Date
-19.22% -18.78% 0.62% 1.83% 7.22% 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.