05/31/2011
Inception Date
0.27%
YTD Return
(as of 03/31/2023)
$11.14
NAV
(as of 03/31/2023)
-0.06
1 Day NAV Change
(as of 03/31/2023)
Long-term capital appreciation.
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.
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.
| Inception Date | 05/31/2011 | |
| Fund Assets | $160.59 million (02/28/2023) | |
| Currency | USD | |
| Ticker | MCSMX | |
| Cusip | 577-125-404 | |
| Portfolio Turnover | 59.0% | |
| Benchmark | MSCI China Small Cap Index | |
| Geographic Focus | China - China includes its administrative and other districts, such as Hong Kong | |
| Gross Expense Ratio | 1.48% | |
| Net Expense Ratio | 1.43% | |
| 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 $5 billion or the market capitalization of the largest company included in the Fund's primary benchmark, the MSCI China Small Cap Index. |
| Risks |
Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Investing in emerging markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country. The Fund is non-diversified as it concentrates its investments in small sized companies.
Investing in small- and mid-size companies is more risky and volatile than investing in large companies as they may be more volatile and less liquid than larger companies.
The risks associated with investing in the Fund can be found in the prospectus |
Unusually high returns may not be sustainable.
Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.
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.
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.
(as of 12/31/2022)
CATEGORY: China Region
| OVERALL | 5 stars | out of 91 funds |
| 3 YEAR | 4 stars | out of 91 funds |
| 5 YEAR | 5 stars | out of 77 funds |
| 10 YEAR | 5 stars | out of 52 funds |
(as of 12/31/2022)
CATEGORY: China Region Funds
| 1 YEAR | 4th | 94 out of 107 funds |
| 3 YEAR | 1st | 9 out of 85 funds |
| 5 YEAR | 1st | 4 out of 72 funds |
| 10 YEAR | 1st | 1 out of 47 funds |
| SINCE INCEPTION | 1st | 4 out of 44 funds |
Ratings agency calculation methodology
Past performance is no guarantee of future results. High ratings and rankings does not assure favorable performance.
The Overall Morningstar® Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and (if applicable) ten-year ratings.
Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.
Lipper Analytical Services, Inc., rankings are based on total return, including reinvestment of dividends and capital gains for the stated periods. Funds are assigned a rank within a universe of funds similar in investment objective as determined by Lipper. For the absolute rankings shown the lower the number rank, the better the Fund performed compared to other funds in the classification group. Lipper also calculates a quartile ranking which divides the peer group into quartiles to identify funds of similar quality. Funds in the 1st or 2nd quartile had outperformed the average fund in the peer group while funds in the 3rd or 4th quartile had underperformed.
Lead Manager
Portfolio Manager
Andrew Mattock is a Portfolio Manager at Matthews Asia and manages the firm’s China and China Small Companies Strategies and co-manages the firm’s Pacific Tiger and China Dividend Strategies. Prior to joining the firm in 2015, he was a Fund Manager at Henderson Global Investors for 15 years, first in London and then in Singapore, managing Asia Pacific equities. Andrew holds a Bachelor of Business majoring in Accounting from ACU. He began his career at PricewaterhouseCoopers and qualified as a Chartered Accountant.
Lead Manager
Portfolio Manager
Winnie Chwang is a Portfolio Manager at Matthews Asia and manages the firm’s China Small Companies and China Dividend Strategies and co-manages the China, Pacific Tiger and Asia Dividend Strategies. She joined the firm in 2004 and has built her investment career at the firm. Winnie earned an MBA from the Haas School of Business and received her B.A. in Economics with a minor in Business Administration from the University of California, Berkeley. She is fluent in Mandarin and conversational in Cantonese.
Sources: Factset Research Systems, Inc.
Fund Risk Metrics are reflective of Investor share class.
Sources: Zephyr StyleADVISOR
Top 10 holdings may combine more than one security from the same issuer and related depositary receipts.
Source: BNY Mellon Investment Servicing (US) Inc.
Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.
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.
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.
Visit our Glossary of Terms page for definitions and additional information.
The MSCI All Country Asia ex Japan Index is a free float–adjusted market capitalization–weighted index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI All Country Asia Pacific Index is a free float–adjusted market capitalization–weighted index of the stock markets of Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Index is a free float-adjusted market capitalization-weighted index of Chinese equities that includes H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges, Hong Kong-listed securities known as Red chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China) and foreign listings (e.g. ADRs).
The MSCI China All Shares Index captures large and mid-cap representation across China A shares, B shares, H shares, Red chips (issued by entities owned by national or local governments in China), P chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g. ADRs). The index aims to reflect the opportunity set of China share classes listed in Hong Kong,Shanghai, Shenzhen and outside of China.
The MSCI Emerging Markets (EM) Asia Index is a free float-adjusted market capitalization weighted index of the stock markets of China, India, Indonesia, Malaysia, Pakistan, Philippines, South Korea, Taiwan and Thailand. The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets ex China Index is a free float-adjusted market capitalization-weighted index that captures large and mid cap representation across 23 of the 24 Emerging Markets (EM) countries excluding China: Brazil, Chile, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets Small Cap Index is a free float-adjusted market capitalization weighted small cap index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungry, India, Indonesia, Kuwait, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan Thailand, Turkey and United Arab Emirates.
The S&P Bombay Stock Exchange 100 (S&P BSE 100) Index is a free float–adjusted market capitalization–weighted index of 100 stocks listed on the Bombay Stock Exchange.
The MSCI Japan Index is a free float–adjusted market capitalization–weighted index of Japanese equities listed in Japan.
The Korea Composite Stock Price Index (KOSPI) is a market capitalization–weighted index of all common stocks listed on the Korea Stock Exchange.
The MSCI All Country Asia ex Japan Small Cap Index is a free float–adjusted market capitalization–weighted small cap index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Small Cap Index is a free float-adjusted market capitalization-weighted small cap index of the Chinese equity securities markets, including H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges,Hong Kong-listed securities known as Red Chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g., ADRs).
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.
Commentary
Period ended December 31, 2022
For the year ending December 31, 2022, the Matthews China Small Companies Fund returned -31.26% (Investor Class) and -31.08% (Institutional Class), while its benchmark, the MSCI China Small Cap Index, returned -24.77% over the same period. For the fourth quarter, the Fund returned 11.57% (Investor Class) and 11.61% (Institutional Class), while the benchmark returned 21.39%.
Market Environment:
During the year, Chinese small caps lagged their large cap peers. Chinese equities were weak and choppy most of the year with continued worry of an economic growth slowdown in the country, weighed down by COVID-19 and enforced lockdowns, ADR delisting pricing pressures and investor worries that Russia-like sanctions could be implemented upon select Chinese companies. Additionally, geopolitical headwinds combined with disappointing announcements post the 20th Party Congress weighed on markets. China’s property market sentiment continued to be negative, and the real estate sector has been hit hard as potential buyers and local government casted doubts on whether some financially distressed developers can finish and deliver their pre-sold homes on time.
However, the last quarter of the year saw a reversal as Chinese equities posted some of the strongest results within global markets with a rebound in sentiment stemming from the government’s statements and actions which support the easing of COVID-related restrictions in favor of ‘living with Covid’ policies. The roll-back of COVID restrictions gained momentum during the quarter spurring speculation of a forthcoming increase in consumer discretionary activity and overall mobility.
Performance Contributors and Detractors:
The portfolio’s stock selection within the industrials and utilities sectors as well as its under allocation to the real estate sector contributed the most to the Fund’s relative performance for the full year. Among individual holdings, Yangzijiang Shipbuilding, one of the few private shipbuilders remaining in China and is a well-run and efficient operator, contributed the most to absolute and relative performance. The company outperformed on strong vessel orderbooks given by greater demand on higher freight rates, as well as environmentally driven upgrades which encourages an acceleration of scrapping of old vessels for the industry. China Overseas Property, a property management firm, whose sister company (China Overseas Land and Investment) is one of China’s largest state-owned property developers, was another top contributor to relative performance. In the current market consolidation phase of the real estate industry, state-owned enterprise (SOE) developers are favored as they have some of the strongest balance sheets in the market and have fewer liquidity concerns. China Overseas Property has an asset-light business model and is less subject to liquidity concerns. Further, its association with a SOE developer will continue to enable it to grow steadily while at the same time potentially benefit from M&A opportunities.
On the other hand, holdings in the information technology sector were among the top detractors to performance for the year. Technology holdings, including ACM Research, detracted amid regulatory policies and harsher new technology export controls introduced by the U.S. ACM Research is a semiconductor equipment company which provides a variety of equipment used in China’s foundries. With the new technology export controls in place, which prohibit high end equipment to be exported to China, China’s foundries may slow their CapEx expansion and reduce semiconductor equipment expenditures as they will not as easily move up the technology curve into more advanced processes.
CIFI Ever Sunshine was another detractor to performance. The company is a property management company and shares a similar business model as China Overseas Property, but is associated with private developer, CIFI. Private developers saw a significant multiple de-rating over the quarter given markets’ concerns about solvency. We continue to hold CIFI Ever Sunshine as we believe private developers will continue to see their liquidity conditions improve as contracted sales pick up with COVID restrictions easing.
Notable Portfolio Changes:
During the quarter, we added AK Medical, one of China’s leading orthopedics joint manufacturers. We have observed throughout the year that the overall attitude towards drug and medical devices price cuts have moderated and become less severe. This improves the overall predictability of future pricing impact and strengthens earnings visibility for the sector. AK Medical has also demonstrated its competitiveness under harsh pricing environments and has continued to gain market share. We like the orthopedic industry given its large addressable market. We see continued trends of orthopedic needs increasing given the demographic shifts in China. We also exited China Yongda, a luxury and mass-market auto dealer in China. The company trades at very attractive valuations and we continued to hold onto the stock given potential customer traffic recovery post COVID. However, we eventually decided to sell out of the name due to limited portfolio exposure to the growing category of new energy vehicles (NEVs) and concerns that NEVs will require less service and maintenance and affect a sizable part of revenues and profits for the company.
Outlook:
Looking ahead, China’s reopening will unfortunately be messy and the road to recovery will not be a smooth one. However, the overall direction of recovery remains clear, and we expect much of the COVID-related disruptions endured in 2022 to be behind. Global economic outlook looks increasingly uncertain as the U.S. continues to slow, and Europe’s economic outlook continues to look fragile. In this environment, China will have to depend ever more on its internal growth engine for recovery. This could be a challenge pending more encouraging signs of recovery on the property, consumption and industrial output fronts, although we are cautiously optimistic that China will manage through these challenges given potential government support. Valuations wise, the Hong Kong market has rebounded, with positive stock performance in the fourth quarter of 2022, bolstered by end-of-COVID optimism. The A-share market, however, has not quite reacted to much of the good news surrounding COVID relaxation. Coupled with valuations that are now more attractive, the A-share market stands to benefit from positive catalysts this year and, in our views, is well positioned for an improvement in 2023.
Top 10 holdings as of December 31, 2022. Current and future holdings are subject to change and risk.
Average Annual Total Returns - MCSMX as of 12/31/2022
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
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.