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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

-23.42%

YTD Return

(as of 08/12/2022)

$15.76

NAV

(as of 08/12/2022)

+0.04

1 Day NAV Change

(as of 08/12/2022)

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 $926.84 million (07/31/2022)
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 07/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund - MCHFX
02/19/1998
MCHFX
-12.48% 3.58% -24.00% -32.01% 2.08% 2.91% 6.15% 8.62%
MSCI China Index
-9.44% -2.29% -19.58% -28.23% -3.52% -1.42% 4.50% 3.42%
MSCI China All Shares Index
-8.01% 1.07% -18.77% -22.78% 0.97% 0.63% n.a. n.a.
As of 06/30/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Fund - MCHFX
02/19/1998
MCHFX
14.92% 8.90% -13.17% -28.80% 6.25% 7.14% 7.17% 9.25%
MSCI China Index
6.63% 3.50% -11.19% -31.70% -0.44% 2.29% 5.69% 3.85%
MSCI China All Shares Index
7.90% 2.99% -11.70% -25.36% 3.78% 3.67% n.a. n.a.
For the years ended December 31st
Name 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
Matthews China Fund - MCHFX
MCHFX
-12.26% 43.05% 34.56% -21.42% 59.37% -5.18% 2.41% -4.42% 6.84% 11.96%
MSCI China Index
-21.64% 29.67% 23.66% -18.75% 54.33% 1.11% -7.62% 8.26% 3.96% 23.10%
MSCI China All Shares Index
-12.80% 33.61% 27.87% -23.15% 41.43% -7.69% -2.88% 23.64% 1.39% 19.53%

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 06/30/2022)

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 72 funds
  • 10 YEAR
  • out of 50 funds
  • 1 YEAR
  • 2nd
  • 52 out of 106 funds
  • 3 YEAR
  • 2nd
  • 31 out of 81 funds
  • 5 YEAR
  • 1st
  • 16 out of 66 funds
  • 10 YEAR
  • 2nd
  • 18 out of 45 funds
  • SINCE INCEPTION
  • 1st
  • 2 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 06/30/2022)
Fund Benchmark
Number of Positions 65 717
Weighted Average Market Cap $85.5 billion $131.9 billion
Active Share 74.5 n.a.
P/E using FY1 estimates 15.2x 11.0x
P/E using FY2 estimates 13.2x 9.8x
Price/Cash Flow 14.6 6.5
Price/Book 2.6 1.5
Return On Equity 12.9 11.7
EPS Growth (3 Yr) -1.0% 5.8%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 06/30/2022)
7.27%
Alpha
1.08
Beta
141.63%
Upside Capture
103.48%
Downside Capture
0.26
Sharpe Ratio
0.81
Information Ratio
8.24%
Tracking Error
85.85

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 07/31/2022)
Name Sector % Net Assets
Alibaba Group Holding, Ltd. Consumer Discretionary 7.3
Meituan Consumer Discretionary 5.7
Pinduoduo, Inc. Consumer Discretionary 5.3
JD.com, Inc. Consumer Discretionary 5.2
China Merchants Bank Co., Ltd. Financials 3.8
China International Capital Corp., Ltd. Financials 3.8
Tencent Holdings, Ltd. Communication Services 3.4
CITIC Securities Co., Ltd. Financials 3.1
Shenzhen Inovance Technology Co., Ltd. Industrials 2.5
Estun Automation Co., Ltd. Industrials 2.3
TOTAL 42.4

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 06/30/2022)
  • Sector Allocation
  • Market Cap Exposure
  • China Exposure
Sector Fund Benchmark Difference
Consumer Discretionary 32.2 30.8 1.4
Information Technology 15.2 5.9 9.3
Financials 13.8 15.5 -1.7
Industrials 11.5 5.6 5.9
Communication Services 7.1 18.1 -11.0
Real Estate 5.9 3.9 2.0
Health Care 5.5 5.9 -0.4
Consumer Staples 4.1 5.9 -1.8
Materials 4.0 3.5 0.5
Utilities 0.0 2.6 -2.6
Energy 0.0 2.3 -2.3
Cash and Other Assets, Less Liabilities 0.7 0.0 0.7

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) 50.5 66.1 -15.6
Large Cap ($10B-$25B) 30.6 19.7 10.9
Mid Cap ($3B-$10B) 15.8 13.2 2.6
Small Cap (under $3B) 2.5 0.9 1.6
Cash and Other Assets, Less Liabilities 0.7 0.0 0.7
China Exposure Portfolio Weight
A Shares 49.4
SAR (Hong Kong) 30.3
Overseas Listed Companies (OL) 9.8
H Shares 9.8
Cash and Other Assets, Less Liabilities 0.7

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)
12/14/2021 12/15/2021 $0.05000 $1.52705 $1.62473 $3.20178 12.9% 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, 2022

For the first half of 2022, the Matthews China Fund returned -13.17% (Investor Class) and -13.15% (Institutional Class), while its benchmark, the MSCI China Index, returned -11.19% over the same period. For the quarter ending June 30, 2022, the Fund returned 8.90% (Investor Class) and 8.92% (Institutional Class), while the benchmark returned 3.50%.

Market Environment:

The first half of the year was negative and choppy for Chinese markets led down by the confluence of COVID-19 case spikes resulting in policy-enforced lockdowns in tier one cities, ADR delisting pricing pressures and investor worries that Russia-like sanctions could be implemented upon select Chinese companies. However, Chinese equities rebounded in the second quarter of the year following three consecutive negative quarters amid less restrictive regulatory pressure on Chinese platforms and internet giants, accommodative monetary and fiscal policy combined with positive changes to COVID lock-down protocols.

Quarantine restrictions for in-bound foreign visitors were reduced and late quarter weakness in imported commodity prices could support China’s current account while reducing inflationary pressures. Although the government’s announced 2022 GDP growth-rate target of “around 5.5%” may not be fully achieved, we believe the government will largely succeed in supporting its economy and that corporate earnings will remain some of the highest globally in 2022-23.

Performance Contributors and Detractors:

From a sector perspective, stock selection and allocation within consumer discretionary, real estate and consumer staples contributed to relative performance during the first half of the year. Among the portfolio’s consumer discretionary holdings, Pinduoduo, China’s largest agriculture-focused technology platform that connects farmers and distributors with consumers directly through its interactive shopping experience, contributed the most to the Fund’s absolute and relative performance. In light of the regulatory impact seen in the second half of 2021, more internet platform companies in China have begun to adapt to new regulations, including trying to set a path to profitability. We see more encouraging signs of monetization efforts and this, coupled with attractive valuations can potentially help the stocks to continue to recover.

On the other hand, the portfolio’s overweight in information technology and stock selection in industrials and financials sectors detracted from relative performance. Sungrow Power Supply Co., a solar component manufacturer, detracted from performance. The A-Shares market experienced a sharp correction in growth sectors including that of the renewable sector given a general risk off appetite, coupled with COVID concerns. We continue to believe that the solar industry will continue to be a secular opportunity. Most recently, the industry is seeing strong demand from Europe given escalating energy prices in the region. Valuations for Sungrow have also corrected down to more reasonable levels and thus we remain comfortable in holding this stock in the portfolio.

Notable Portfolio Changes:

During the second quarter, we increased our exposure to the real estate sector given overall policy improvements in the sector, including progress on re-financing roadblocks and lower mortgage rates. We believe that these eased measures will start to drive contracted sales growth when COVID lockdown restrictions are eased. Property developers and management companies still trade at attractive valuations and there remains an opportunity for market consolidation for the larger and better run players. We also reduced some exposure from holdings in communication services sector, including Tencent. Tencent continues to be one of China’s most dominant internet platforms and gaming remains the largest part of its exposure. However, with a broad-base revenue moderation in gaming, coupled with weaker outlook on its advertising business, we have trimmed from this exposure to fund other opportunities.

Outlook:

The A-Shares market has recovered meaningfully since the end of April lows. It is uncertain if second quarter results (which will be weak given it will bake in the worst of the COVID lockdowns) might derail this recovery.  However, we are cautiously optimistic that in the second half of this year, the conditions in China will continue to improve.

Large scale lockdowns seem a lot less probable as the government continues to become more pragmatic. Further, the party will likely do what they can to improve economic conditions ahead of the party meeting at the end of the year which may make it more likely that monetary and fiscal stimulus will be unleashed in the second half. Sentiment towards growth globally remains tepid but we believe the significantly lower valuations might warrant a re-interest in this category as well.

 

View the Fund’s Top 10 holdings as of June 30, 2022. Current and future holdings are subject to change and risk.

Average Annual Total Returns - MCHFX as of 06/30/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-28.80% 6.25% 7.14% 7.17% 9.25% 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.