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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

-29.81%

YTD Return

(as of 12/05/2022)

$11.54

NAV

(as of 12/05/2022)

+0.07

1 Day NAV Change

(as of 12/05/2022)

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 $151.97 million (10/31/2022)
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 10/31/2022
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
-9.87% -27.19% -44.47% -47.57% 0.74% 2.80% 8.53% 4.50%
MSCI China Small Cap Index
-9.76% -25.86% -44.07% -48.01% -11.20% -10.63% -0.73% -3.62%
As of 09/30/2022
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
-13.42% -22.26% -38.38% -40.74% 6.42% 5.65% 9.94% 5.50%
MSCI China Small Cap Index
-15.11% -25.87% -38.02% -43.27% -7.47% -8.45% 0.91% -2.77%
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 09/30/2022)

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 51 funds
  • 1 YEAR
  • 4th
  • 95 out of 110 funds
  • 3 YEAR
  • 1st
  • 6 out of 81 funds
  • 5 YEAR
  • 1st
  • 2 out of 67 funds
  • 10 YEAR
  • 1st
  • 1 out of 46 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 09/30/2022)
Fund Benchmark
Number of Positions 62 240
Weighted Average Market Cap $4.2 billion $1.2 billion
Active Share 97.5 n.a.
P/E using FY1 estimates 13.4x 5.8x
P/E using FY2 estimates 11.3x 5.1x
Price/Cash Flow 10.3 3.8
Price/Book 1.8 0.6
Return On Equity 14.7 5.4
EPS Growth (3 Yr) 31.2% 21.6%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 09/30/2022)
13.45%
Alpha
0.73
Beta
96.55%
Upside Capture
68.97%
Downside Capture
0.24
Sharpe Ratio
0.74
Information Ratio
18.69%
Tracking Error
48.54

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 11/30/2022)
Name Sector % Net Assets
China Overseas Property Holdings, Ltd. Real Estate 4.8
Yangzijiang Shipbuilding Holdings, Ltd. Industrials 3.8
ENN Natural Gas Co., Ltd. Utilities 3.3
Hainan Meilan International Airport Co., Ltd. Industrials 3.2
Morimatsu International Holdings Co., Ltd. Industrials 2.8
Pharmaron Beijing Co., Ltd. Health Care 2.4
China State Construction International Holdings, Ltd. Industrials 2.4
Longshine Technology Group Co., Ltd. Information Technology 2.3
Anjoy Foods Group Co., Ltd. Consumer Staples 2.2
Chailease Holding Co., Ltd. Financials 2.2
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 09/30/2022)
  • Sector Allocation
  • Market Cap Exposure
  • China Exposure
Sector Fund Benchmark Difference
Industrials 26.2 12.0 14.2
Information Technology 17.4 11.9 5.5
Consumer Discretionary 11.5 18.4 -6.9
Consumer Staples 10.6 2.9 7.7
Health Care 10.2 15.7 -5.5
Real Estate 7.5 14.6 -7.1
Materials 4.1 7.0 -2.9
Financials 3.6 6.5 -2.9
Utilities 3.5 4.9 -1.4
Communication Services 2.6 5.2 -2.6
Energy 0.0 0.9 -0.9
Cash and Other Assets, Less Liabilities 2.9 0.0 2.9

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) 5.9 0.0 5.9
Mid Cap ($3B-$10B) 44.9 5.8 39.1
Small Cap (under $3B) 46.3 94.2 -47.9
Cash and Other Assets, Less Liabilities 2.9 0.0 2.9

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 46.1
SAR (Hong Kong) 19.4
H Shares 7.4
China-affiliated corporations (CAC) 7.0
Overseas Listed Companies (OL) 5.5
Unassigned 11.7
Cash and Other Assets, Less Liabilities 2.9

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 September 30, 2022

For the quarter ending September 30, 2022, the Matthews China Small Companies Fund returned -22.26% (Investor Class) and -22.19% (Institutional Class), while its benchmark, the MSCI China Small Cap Index returned -25.87%.

Market Environment:

Chinese equities were extremely weak in the third quarter as a confluence of negative headlines including worries about a spillover of China’s real estate woes into its broader economy, lingering COVID restrictions and geopolitical tensions weighed on its economy. China’s property market sentiment has been hit hard and continued to struggle as potential buyers and local government cast doubts on whether some financially distressed developers can finish and deliver their pre-sold homes on time. COVID-related worries reappeared as cases jumped in the mega city of Chengdu, with a population of over 20 million, spurring a city-wide multi-day lockdown and mass testing—a protocol which has been discouraged since May of this year. In addition, in late July, a group of four companies were added to the SEC’s listed of potential de-listings from U.S. exchanges, and news that U.S. House Speaker Nancy Pelosi may visit Taiwan added to investor nervousness.

The People’s Bank of China (PBOC) announced a series of monetary and fiscal support measures during the quarter, including another cut to its 1-year policy rate and a lowering of its longer-term loan prime.

Performance Contributors and Detractors:

Chinese small caps lagged larger caps slightly again in the third quarter. The portfolio’s allocation and stock selection within consumer discretionary, materials and communications sectors detracted the most from relative performance. On the other hand, our overweight allocation and stock selection within the industrials sector as well as our stock selection in consumer staples and information technology sectors contributed the most to relative performance.

Among individual securities, Pharmaron Beijing, a contract research organization that offers diverse research and development (R&D) service capabilities to chemical pharmaceutical and biotech companies, detracted from performance. Pharmaron’s second quarter results were weak as China’s overall health care sector continues to suffer from regulatory impact from price cuts and added concerns about geopolitics since most of Pharmaron’s clients are multinational corporations (MNC)s. However, we maintain a constructive view of the sector over the longer term as we do not think China will stifle R&D or innovation, and we have added to biotech names given the aggressive valuations pullback.

On the other hand, Yangzijiang Shipbuilding, one of the few remaining shipbuilders in China, contributed to performance during the quarter. In addition to attractive valuations, the company has benefited from strong order books given limited ship building supply globally. Yangzijiang’s certified and liquefied natural gas (LNG) vessels product mix bodes well for the company amid a shrinking shipbuilding industry.

Notable Portfolio Changes:

During the third quarter, we took advantage of market volatility to rotate capital and make adjustments to the portfolio, including reducing our weight to the industrials sector. We took some profit and reduced our position in AirTac International Group, a pneumatic equipment manufacturer and increased our weight to the consumer staples sector, initiating positions in Anhui Yingzia Distillery, a white liquor producer and distributor, and added to Yantai Pet Food. Yantai, one of the top domestic pet food brands in China, is benefiting from the overall increase in pet adoption and “upgrade” in pet food. While the market is dominated by foreign brands, local brands are seeing opportunities to cater to the market.

Outlook:

China’s second quarter results released in July continued to reflect a weak economy dealing with COVID lockdown issues. At the same time, the overhang from a weak property sector and geopolitical tensions continue to plague China’s equity market performance. While the property market continues to be weak, there are signs that the government is increasingly looking to loosen the very tight conditions, including pressuring banks to provide financing to developers, and allowing certain developers to issue renminbi-denominated bonds. The larger unknown is geopolitics, including the how U.S. – China relations will pan out. But there have been signs of pragmatism in Beijing. In August, China resolved a long-running dispute with the U.S. Public Company Accounting Oversight Board (PACOB), and PACOB inspectors are now checking the accounting workbooks for Chinese companies listed in the U.S.

As for China’s zero-COVID policy, while it is difficult to predict an actual point in time where we might see the end of current strict COVID measures, we are cautiously optimistic that the Chinese government will return to a more pragmatic approach, which strikes a better balance between public health and the economy. Relief of China’s zero-COVID policy would likely unleash more activity on the consumption side, an important part of the Matthews China Small Companies portfolio, given that close to 80% of the revenue stream for the China small companies portfolios is derived from the domestic economy. 

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 09/30/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-40.74% 6.42% 5.65% 9.94% 5.50% 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.