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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

0.67%

YTD Return

(as of 06/18/2024)

$9.01

NAV

(as of 06/18/2024)

-0.03

1 Day NAV Change

(as of 06/18/2024)

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 $79.07 million (05/31/2024)
Currency USD
Ticker MCSMX
Cusip 577-125-404
Portfolio Turnover 59.1%
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 1.40%
Net Expense Ratio 1.26%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 05/31/2024
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
0.66% 2.01% 1.90% -0.55% -19.08% 4.43% 5.89% 4.26%
MSCI China Small Cap Index
3.33% 8.13% -0.35% -8.62% -23.47% -7.37% -3.39% -3.13%
As of 03/31/2024
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
-1.90% -2.01% -2.01% -19.39% -19.05% 2.38% 5.30% 4.00%
MSCI China Small Cap Index
0.27% -7.59% -7.59% -27.55% -24.16% -10.39% -4.25% -3.74%
For the years ended December 31st
Name 2023 2022 2021 2020 2019 2018 2017 2016 2015 2014
Matthews China Small Companies Fund - MCSMX
MCSMX
-17.51% -31.26% -3.59% 82.52% 35.41% -17.68% 53.88% -2.35% 4.07% -3.33%
MSCI China Small Cap Index
-24.82% -24.77% -6.26% 27.21% 6.63% -19.53% 24.62% -5.95% 3.48% -0.34%
 

Unusually high returns may not be sustainable. 

The Fund's primary benchmark index is the MSCI China Index on marketing materials that display performance

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 03/31/2024)

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 92 funds
  • 3 YEAR
  • out of 92 funds
  • 5 YEAR
  • out of 73 funds
  • 10 YEAR
  • out of 52 funds
  • 1 YEAR
  • 2nd
  • 44 out of 102 funds
  • 3 YEAR
  • 3rd
  • 54 out of 90 funds
  • 5 YEAR
  • 1st
  • 8 out of 73 funds
  • 10 YEAR
  • 1st
  • 4 out of 51 funds
  • SINCE INCEPTION
  • 1st
  • 7 out of 42 funds

Ratings agency calculation methodology

Portfolio Managers

Andrew  Mattock, CFA photo
Andrew Mattock, CFA

Lead Manager

Winnie  Chwang photo
Winnie Chwang

Lead Manager

Sherwood  Zhang, CFA photo
Sherwood Zhang, CFA

Co-Manager

Hardy  Zhu photo
Hardy Zhu

Co-Manager

Portfolio Characteristics

(as of 03/31/2024)
Fund Benchmark
Number of Positions 50 241
Weighted Average Market Cap $4.7 billion $1.4 billion
Active Share 92.0 n.a.
P/E using FY1 estimates 13.2x 7.4x
P/E using FY2 estimates 11.3x 6.4x
Price/Cash Flow 11.3 4.1
Price/Book 2.4 0.6
Return On Equity 16.7 5.1
EPS Growth (3 Yr) 23.8% 7.1%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 03/31/2024)
3.63%
Alpha
0.89
Beta
100.51%
Upside Capture
91.65%
Downside Capture
-0.77
Sharpe Ratio
0.39
Information Ratio
13.26%
Tracking Error
79.22

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 05/31/2024)
Name Sector % Net Assets
Yangzijiang Shipbuilding Holdings, Ltd. Industrials 4.1
Giant Biogene Holding Co., Ltd. Consumer Staples 3.8
China Overseas Property Holdings, Ltd. Real Estate 3.7
Kanzhun, Ltd. Communication Services 3.6
Tongcheng Travel Holdings, Ltd. Consumer Discretionary 3.1
ENN Natural Gas Co., Ltd. Utilities 3.1
Hisense Home Appliances Group Co., Ltd. Consumer Discretionary 3.0
Yantai Jereh Oilfield Services Group Co., Ltd. Energy 3.0
KE Holdings, Inc. Real Estate 3.0
Hongfa Technology Co., Ltd. Industrials 2.9
TOTAL 33.3

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 03/31/2024)
  • Sector Allocation
  • Market Cap Exposure
  • China Exposure
Sector Fund Benchmark Difference
Consumer Discretionary 22.5 11.6 10.9
Industrials 19.4 13.0 6.4
Information Technology 13.0 9.9 3.1
Health Care 10.3 22.2 -11.9
Consumer Staples 9.4 6.6 2.8
Communication Services 7.9 8.7 -0.8
Real Estate 5.3 7.9 -2.6
Utilities 3.4 3.8 -0.4
Materials 2.8 10.3 -7.5
Energy 2.5 1.5 1.0
Financials 2.3 4.5 -2.2
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) 4.3 0.0 4.3
Mid Cap ($3B-$10B) 59.6 2.8 56.8
Small Cap (under $3B) 34.9 97.2 -62.3
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
Hong Kong Listed Companies 44.6
Mainland China Listed Companies 24.6
Other 21.5
ADR/GDR 8.1
Cash and Other Assets, Less Liabilities 1.2

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 $0.21127 $0.00000 $0.00000 $0.21127 2.4% N.A.
12/13/2022 12/14/2022 $0.19767 $0.00000 $0.00000 $0.19767 1.7% N.A.
12/14/2021 12/15/2021 $0.11673 $1.77913 $0.81209 $2.70795 14.0% N.A.
12/15/2020 12/16/2020 $0.13338 $1.96280 $1.27532 $3.37150 18.0% N.A.
12/16/2019 12/17/2019 $0.13223 $0.00000 $0.00000 $0.13223 1.0% N.A.

 

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, 2024

Market Environment

  • Chinese stocks were volatile in the first quarter, and we saw steep falls particularly in some of the smaller indexes. Chinese equities continued to face pressure because of lingering, broad-based concerns including the implications surrounding the late year U.S. elections, deflationary pressures driven by excess capacity, the lack of large-scale policy support for the property sector and the sluggishness in the recovery in consumer demand.
  • Economic recovery has been much weaker than the market expected and there are only incremental signs that China’s property market is beginning to turn a corner. 
  • Some of the government’s efforts, however, have started to gain traction, such as initiatives to support the stock market by buying equities and restricting certain stock sales and short selling. These efforts helped stabilize the market in February and supported a short-lived rally.

Contributors and Detractors 

  • For the quarter ended March 31, 2024, the China Small Companies Fund returned -2.01%, (Investor Class) and -2.01% (Institutional Class) while its benchmark, the MSCI China Small Cap Index, returned -7.59% over the same period.
  • The top three contributors to relative performance, on a sector basis, were information technology (IT), consumer discretionary and industrials due to stock selection. The top three detractors to relative performance were materials due to an underweight allocation, communication services and financials due to stock selection.
  • The three largest contributors to absolute performance during the quarter included ACM Research, a semiconductor equipment company which provides a variety of equipment used in China’s foundries, Tongcheng Travel Holdings, an online travel agency, and Yangzijiang Shipbuilding, China’s largest private-owned shipyard or ship building company. The top three detractors to performance during the quarter included China Overseas Property Holdings, a property management firm, and Peijia Medical and AK Medical Holdings, two medical device and product manufacturers

Outlook

  • Looking ahead, the question remains as to whether China’s equity markets are charting a sustainable path of recovery. Notwithstanding the well-known concerns, investor sentiment is improving toward China based upon perceived risk/reward.
  • Marginal year-over-year improvement in earnings expectations combined with stock multiples trading at roughly a 50% discount to February 2021 highs is giving investors confidence that current valuations provide an adequate cushion for unforeseen risks.
  • The calculus suggests that even with little to no improvement in sentiment or stock multiples, consensus estimates in year-over-year earnings growth could lead to attractive equity returns. 
  • Thus, we are still in a cautious frame of mind, tinged with some optimism. While last year we think Chinese government policy over promised and under achieved, this year we think the government is seeking to under promise and overachieve. One potentially destabilizing variable on our radar is geopolitics, particularly with the U.S. election approaching. 

 

View the Fund’s Top 10 holdings as of March 31, 2024. Current and future holdings are subject to change and risk.

Average Annual Total Returns - MCSMX as of 03/31/2024
1YR 3YR 5YR 10YR Since Inception Inception Date
-19.39% -19.05% 2.38% 5.30% 4.00% 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. For the Fund's most recent month-end performance visit matthewsasia.com

Fees & Expenses
Gross Expense Ratio 1.40%
Net Expense Ratio 1.26%

Matthews has contractually agreed to waive fees and reimburse expenses to limit the Total Annual Fund Operating Expenses until April 30, 2025. 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.