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Matthews China Small Companies Fund
MCSMX

Snapshot
  • Seeks alpha in China’s lesser known small entrepreneurial companies
  • Invests in industries that are leveraged to China’s increasingly innovative and dynamic economy driven by fast growing domestic consumer demand
  • Tilt towards higher value-added growth sectors benefiting from innovation and capital efficiency

05/31/2011

Inception Date

-36.68%

YTD Return

(as of 09/28/2022)

$10.41

NAV

(as of 09/28/2022)

-0.13

1 Day NAV Change

(as of 09/28/2022)

Objective

Long-term capital appreciation.

Strategy

Under normal circumstances, the 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 Small Companies located in China. China includes its administrative and other districts, such as Hong Kong. The Fund seeks to invest in smaller 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. The Fund defines Small Companies as companies with market capitalization no higher than the greater of US $5 billion or the market capitalization of the largest company included in the Fund's primary benchmark, the MSCI China Small Cap Index.

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. The Fund is non-diversified as it concentrates its investments in small sized companies. Investing in small- and mid-size companies is more risky and volatile than investing in large companies as they may be more volatile and less liquid than larger companies.

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

Fund Facts
Inception Date 05/31/2011
Fund Assets $226.44 million (08/31/2022)
Currency USD
Ticker MCSMX
Cusip 577-125-404
Portfolio Turnover 119.7%
Benchmark MSCI China Small Cap Index
Geographic Focus China - China includes its administrative and other districts, such as Hong Kong
Fees & Expenses
Gross Expense Ratio 1.48%
Net Expense Ratio 1.43%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 08/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund - MCSMX
05/31/2011
MCSMX
-6.70% -3.55% -28.83% -34.27% 13.03% 9.49% 11.97% 6.90%
MSCI China Small Cap Index
-3.22% -6.22% -27.00% -37.43% -2.31% -4.37% 3.05% -1.37%
As of 06/30/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund - MCSMX
05/31/2011
MCSMX
7.42% -0.99% -20.74% -32.25% 16.75% 14.21% 12.78% 8.05%
MSCI China Small Cap Index
7.40% -0.08% -16.39% -33.53% -0.52% -0.40% 4.07% -0.17%
For the years ended December 31st
Name 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
Matthews China Small Companies Fund - MCSMX
MCSMX
-3.59% 82.52% 35.41% -17.68% 53.88% -2.35% 4.07% -3.33% 28.85% 10.53%
MSCI China Small Cap Index
-6.26% 27.21% 6.63% -19.53% 24.62% -5.95% 3.48% -0.34% 18.68% 22.98%
 

Unusually high returns may not be sustainable. 

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

  • 1 YEAR
  • 3rd
  • 75 out of 106 funds
  • 3 YEAR
  • 1st
  • 4 out of 81 funds
  • 5 YEAR
  • 1st
  • 1 out of 66 funds
  • 10 YEAR
  • 1st
  • 1 out of 45 funds
  • SINCE INCEPTION
  • 1st
  • 2 out of 44 funds

Ratings agency calculation methodology

Portfolio Managers

Andrew  Mattock, CFA photo
Andrew Mattock, CFA

Lead Manager

Winnie  Chwang photo
Winnie Chwang

Lead Manager

Portfolio Characteristics

(as of 06/30/2022)
Fund Benchmark
Number of Positions 61 244
Weighted Average Market Cap $4.8 billion $1.4 billion
Active Share 96.3 n.a.
P/E using FY1 estimates 13.4x 6.6x
P/E using FY2 estimates 10.9x 5.7x
Price/Cash Flow 11.2 5.0
Price/Book 2.0 0.7
Return On Equity 13.7 3.0
EPS Growth (3 Yr) 45.6% 15.7%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 06/30/2022)
18.04%
Alpha
0.68
Beta
96.55%
Upside Capture
51.93%
Downside Capture
0.72
Sharpe Ratio
0.93
Information Ratio
18.49%
Tracking Error
41.23

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 08/31/2022)
Name Sector % Net Assets
China Overseas Property Holdings, Ltd. Real Estate 4.0
Morimatsu International Holdings Co., Ltd. Industrials 3.3
Alchip Technologies, Ltd. Information Technology 3.3
ENN Natural Gas Co., Ltd. Utilities 3.2
Yangzijiang Shipbuilding Holdings, Ltd. Industrials 3.0
Zhejiang HangKe Technology, Inc., Co. Industrials 2.7
Hainan Meilan International Airport Co., Ltd. Industrials 2.6
Anhui Yingjia Distillery Co., Ltd. Consumer Staples 2.5
Zhejiang Shuanghuan Driveline Co., Ltd. Consumer Discretionary 2.4
Yantai China Pet Foods Co., Ltd. Consumer Staples 2.4
TOTAL 29.4

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
Industrials 28.2 11.0 17.2
Information Technology 17.6 11.9 5.7
Consumer Discretionary 13.8 17.6 -3.8
Health Care 10.2 15.8 -5.6
Real Estate 7.9 16.3 -8.4
Materials 5.6 7.0 -1.4
Financials 5.4 6.1 -0.7
Consumer Staples 4.5 3.3 1.2
Communication Services 3.0 5.4 -2.4
Utilities 2.5 4.8 -2.3
Energy 0.0 0.7 -0.7
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) 0.0 0.0 0.0
Large Cap ($10B-$25B) 9.4 0.0 9.4
Mid Cap ($3B-$10B) 53.3 5.9 47.4
Small Cap (under $3B) 36.1 94.1 -58.0
Cash and Other Assets, Less Liabilities 1.2 0.0 1.2

The Portfolio’s market cap exposure breakdown presented is used for comparison purposes and the definition of the capitalization breakdown is from MSCI.

The Fund defines Small Companies as companies with market capitalization no higher than the greater of US$5 billion or the market capitalization of the largest company included in the Fund's primary benchmark, the MSCI China Small Cap Index.

China Exposure Portfolio Weight
A Shares 42.1
SAR (Hong Kong) 25.5
H Shares 8.7
China-affiliated corporations (CAC) 6.6
Overseas Listed Companies (OL) 5.4
Unassigned 10.4
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)
12/14/2021 12/15/2021 $0.11673 $1.77913 $0.81209 $2.70795 14.0% 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 Small Companies Fund returned -20.74% (Investor Class) and -20.64% (Institutional Class), while its benchmark, the MSCI China Small Cap Index, returned -16.39% over the same period. For the quarter ending June 30, 2022, the Fund returned -0.99% (Investor Class) and -0.98% (Institutional Class), while the benchmark returned -0.08%.

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 lockdown 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:

During the first half of the year, our stock selection within industrials and our underweight and stock selection within the utilities and communications services sectors contributed to the Fund’s relative performance. On the other hand, stock selection within information technology (IT) and materials sector detracted from performance.

Among individual securities, Zhejiang Shuanhuan Driveline, which makes both auto parts (electric drives) and robotics components (RV reducers), was the top contributor to the Fund’s absolute performance during the first half. The company benefited from increased content expansion in the autos space, and market share gains and increased robotics penetration in the robotics space. Zhejiang has done well on the back of a sentiment recovery in China’s industrials sector which was subject to a lot of profit taking in the earlier months of 2022. Conversely, Taiwanese chip-related companies such as Alchip Technologies and Pan Jit International were among the top detractors to the portfolio’s absolute and relative performance during the period. While the fundamentals of Alchip and Pan Jit remain resilient, with both companies benefiting from the semi-localization efforts in China, they have been affected by a negative sentiment towards semiconductor stocks globally and have thus de-rated meaningfully. It is difficult to gauge if sentiment can turn meaningfully in the short run but we still remain positive about the long-term secular growth opportunities for Alchip and Pan Jit.

Notable Portfolio Changes:

During the second quarter, we increased the portfolio’s exposure to the industrials sector. Most of our exposure in the sector are in A-Shares and with the market correction, we added to names that we have been following at much cheaper valuations. We also decreased our exposure to the IT sector. As noted earlier, market conditions resulted in a de-rating of many of the technology names we hold. Given Taiwan’s strong performance in 2021 and continued concerns about the global semi cycle, we have adjusted exposure down slightly. However, we continue to hold a long-term view of the sector with a refocused view on onshore A-Share tech opportunities, given the A-share correction seen in the earlier months of 2022.

Both the industrial and IT sectors continue to account for the most sizable exposures of the portfolio, amounting to close to half of the Fund’s sector allocations.

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 toward growth globally remains tepid but we believe the significantly lower valuations might warrant a re-interest in this category as well as the fundamentals of the many promising small cap growth companies in China that remain. While China won’t be immune to rising costs and a slowing world economy, its government is all in on a commitment to deliver strong and steady growth for its citizens.

 

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 - MCSMX as of 06/30/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-32.25% 16.75% 14.21% 12.78% 8.05% 05/31/2011

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 1.48%
Net Expense Ratio 1.43%

Matthews has contractually agreed to waive fees and reimburse expenses to limit the Total Annual Fund Operating Expenses until April 30, 2023. Please see the Fund’s prospectus for additional details.

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. The Fund is non-diversified as it concentrates its investments in small sized companies. Investing in small- and mid-size companies is more risky and volatile than investing in large companies as they may be more volatile and less liquid than larger companies.

 

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.