TOP
Asia Small Company

Matthews China Small Companies Fund

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

29/02/2012

Inception Date

9.94%

YTD Return (USD)

(as of 24/06/2021)

$40.83

Price (USD)

(as of 24/06/2021)

$595.65 million

Fund Assets

(as of 31/05/2021)

Objective

Seeks to achieve long term capital appreciation.

Strategy

The Fund seeks to achieve its investment objective by investing, directly or indirectly, at least 65% of its total net assets, in equities of small companies located in China, and may invest the remainder of its net assets in other permitted assets on a worldwide basis. For the purpose of this policy, China includes the People’s Republic of China, its administrative and other districts, such as Hong Kong, as well as Taiwan.

Risks

The value of an investment in the Fund can go down as well as up and possible loss of principal is a risk of investing. Investments in international and emerging market securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. The Fund invests in holdings denominated in foreign currency, and is exposed to the risk that the value of the foreign currency will increase or decrease. The Fund invests primarily in equity securities, which may result in increased volatility. Investments in a single-country fund may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country. The Fund invests in smaller companies, which are more volatile and less liquid than larger companies.

The risks associated with investing in the Fund can be found in the prospectus.

Fund Facts
Inception Date 29/02/2012
Fund Assets $595.65 million (31/05/2021)
Base Currency USD
ISIN: LU0721876877 (USD) LU2075925870 (GBP)
Bloomberg Symbol MACSMCI:LX (USD) MACSCIG: LX (GBP)
Benchmark MSCI China Small Cap Index
Geographic Focus China and Taiwan: China includes its administrative and other districts, such as Hong Kong.
Fees & Expenses
Management Fee 1.00%
Total Expense Ratio As of 31/03/2021 1.28% ( USD ) 1.26% ( GBP )

Performance

  • Monthly
  • Quarterly
  • Calendar Year
  • Rolling 12 Month
    Returns
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As of 31/05/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund (USD)
0.40% 1.35% 7.16% 40.98% 21.83% 26.43% n.a. 16.10% 29/02/2012
MSCI China Small Cap Index (USD)
1.62% -1.74% 17.86% 69.58% 5.52% 10.82% n.a. 7.08%
Matthews China Small Companies Fund (GBP)
-1.51% -0.29% 3.29% 22.99% n.a. n.a. n.a. 48.70% 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
-1.02% -3.36% 13.34% 47.48% n.a. n.a. n.a. 32.21%
As of 31/03/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund (USD)
-4.74% 0.73% 0.73% 62.23% 22.16% 25.62% n.a. 15.63% 29/02/2012
MSCI China Small Cap Index (USD)
-6.34% 12.34% 12.34% 64.63% 6.03% 9.56% n.a. 6.65%
Matthews China Small Companies Fund (GBP)
-3.47% 0.00% 0.00% 45.57% n.a. n.a. n.a. 53.10% 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
-5.09% 11.31% 11.31% 47.95% n.a. n.a. n.a. 35.49%
For the years ended December 31st
Name 2020 2019 2018 2017 2016 2015 2014 2013
Matthews China Small Companies Fund (USD)
77.70% 31.36% -18.79% 56.47% -1.96% 2.98% -3.20% 34.42%
MSCI China Small Cap Index (USD)
27.21% 6.63% -19.53% 24.62% -5.95% 3.48% -0.34% 18.68%
For the period ended 31/03/2021
Name 2021 2020 2019 2018 2017 Inception Date
Matthews China Small Companies Fund (USD)
62.23% 25.87% -10.72% 42.20% 20.65% 29/02/2012
MSCI China Small Cap Index (USD)
64.63% -19.51% -10.05% 16.63% 13.57%
Matthews China Small Companies Fund (GBP)
45.57% n.a. n.a. n.a. n.a. 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
47.95% n.a. n.a. n.a. n.a.

Source: Brown Brothers Harriman (Luxembourg) S.C.A.

Unusually high returns may not be sustainable.

Since inception performance for share classes with less than one year of history represents actual performance, not annualised. In addition, for share classes less than a year old, Year to Date Return is calculated since inception. Where no past performance is shown there was insufficient data available in that year to provide performance.

Performance details provided are based on a NAV-to-NAV basis with any dividends reinvested, and are net of management fees and other expenses. Performance data has been calculated in the respective currencies stated above, including ongoing charges and excluding subscription fee and redemption fee you might have to pay.

All performance quoted represents past performance and is not indicative of future performance. Investors may not get back the full amount invested. Investors investing in funds denominated in non-local currency should be aware of the risk of currency exchange fluctuations that may cause a loss of principal.

Additional performance, attribution, liquidity, value at risk (VaR), security classification and holdings information is available on request for certain time periods.

Portfolio Characteristics

(as of 31/05/2021)
65
Number of Securities

Source: Brown Brothers Harriman (Luxembourg) S.C.A

12.2x
P/E using FY1 estimates
10.8x
P/E using FY2 estimates
$6.0 billion
Weighted Average Market Cap

Source: FactSet Research Systems

Top 10 Holdings

(as of 31/05/2021)
Name Sector % Net Assets
KWG Living Group Holdings, Ltd. Real Estate 3.5
KWG Group Holdings, Ltd. Real Estate 3.3
ENN Natural Gas Co., Ltd. Materials 3.0
Times China Holdings, Ltd. Real Estate 2.9
China Yuhua Education Corp., Ltd. Consumer Discretionary 2.7
360 DigiTech, Inc. Financials 2.7
China Meidong Auto Holdings, Ltd. Consumer Discretionary 2.6
China Yongda Automobiles Services Holdings, Ltd. Consumer Discretionary 2.6
Ginlong Technologies Co., Ltd. Industrials 2.4
Pharmaron Beijing Co., Ltd. Health Care 2.3
TOTAL 28.0

Top 10 holdings may combine more than one security from the same issuer and related depositary receipts.

Source: Brown Brothers Harriman (Luxembourg) S.C.A

Portfolio Breakdown (%)

(as of 31/05/2021)
  • Sector Allocation
  • Market Cap Exposure
  • China Exposure

Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.

The Fund defines Small Companies as companies with market capitalization generally between $100 million and $5 billion or the largest company included in the Fund’s primary benchmark. The Portfolio’s market cap exposure breakdown presented is used for comparison purposes and the definition of the capitalization breakdown is from MSCI.

China Exposure Portfolio Weight
SAR (Hong Kong) 41.7
A Shares 22.4
Overseas Listed Companies (OL) 14.1
H Shares 6.8
China-affiliated corporations (CAC) 4.6
Unassigned 7.7
Cash and Other Assets, Less Liabilities 2.6

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 unless otherwise noted.
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.

Ratings

  • OVERALL
  • 3 YEAR
  • 5 YEAR
(as of 22/01/2021)

Past performance is no guarantee of future results. High ratings and rankings does not assure favorable performance.

Overall Morningstar RatingTM is reflective of the noted share class. Fund ratings represent an opinion only and are not a recommendation to buy or sell any fund. Copyright ©2021 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is provided for reference purposes only.

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.

Portfolio Managers

Winnie  Chwang photo
Winnie Chwang

Lead Manager

Andrew  Mattock, CFA photo
Andrew Mattock, CFA

Lead Manager

Commentary

Period ended 31 March 2021

For the quarter ending March 31, 2021, the Matthews China Small Companies Fund returned 0.73%, while its benchmark, the MSCI China Small Cap Index, which returned 12.34%.

Market Environment:

Stocks in the MSCI China Small Cap Index rose in the quarter, generating attractive gains. Notably, the Index contains only 230 stocks, listed exclusively in Hong Kong and New York. The Index does not contain any domestically listed stocks, known as A-shares. In contrast, the broader universe of Chinese small-cap stocks includes more than 5,000 companies, with strong representation among domestically listed shares. Strong Index performance was driven by a lower-quality stock rally, fueled by money from mainland Chinese investors who were investing in Hong Kong and New York listed stocks. Gains among domestically listed small-cap stocks were most modest in the quarter.

Chinese economic growth prospects and data points illustrate robust recovery, but not enough to spur central bank policy tightening beyond what markets have already experienced. Small companies remain driven by domestic demand. As investors take a closer look at company fundamentals, the share prices of domestically listed companies may gain more traction. While there was a bit of a “junk” rally in the first quarter among lower-quality stocks, that trend could reverse as investors become more attuned to long-term growth prospects.

Performance Contributors and Detractors:

Stock selection in information technology was a detractor from relative performance. The benchmark has a heavy concentration among two information technology companies focused on solar energy that the Fund does not own. These particular benchmark constituents each experienced a major run-up in stock prices in the quarter, despite no clear catalyst for the jump. The Fund owns other solar energy companies that we find more attractive over the long term based on fundamentals and valuations. On the other hand, stock selection in the real estate sector was a contributor. Property management services is a growing industry in China, as homeowners look for more convenience and more professionals services for condominiums and HOAs.

Among individual securities, SITC International was a contributor. SITC is a very efficient intra-Asia logistics provider. With a superior management team who is very knowledgeable about the region, the company has executed very well in past years. SITC has done well amid rising shipping rates given tighter supply. On the other hand, Flat Glass, a photovoltaic (PV) glass manufacturer, was a detractor. The company benefits from the roll out of more alternative energy investments in China. However, there is more concern about elevated pricing about PV glass and with a potential reduction of solar farm subsidies, more parts of the solar value chain are experiencing reduction in prices, albeit with the offset of still strong volume growth. Valuations for Flat Glass have also corrected down to more attractive levels.

Notable Portfolio Changes:

During the quarter, we continued to rebalance the portfolio, taking profit from expensive areas such as information technology, health care and consumer staples and repositioning into either more attractively valued opportunities. The portfolio’s exposure to materials and financials have increased over the past couple of quarters. New positions include Pan Jit International, a Taiwanese company that manufactures key components for semiconductors. Despite being a Taiwanese company, Pan Jit derives the bulk of its revenues from China and benefits from China’s push to use more locally made semiconductor components. The company also is able to commercialize on its Insulated Gate Bipolar Transistor (IGBT) product, a three-terminal semiconductor-switching device, after going through several years of certification with auto manufacturers. We believe that its growth momentum will continue to accelerate on new product launches and product mix upgrades. The addition of the company to the portfolio is a good example where we have repositioned from more expensive tech names into more attractively valued tech names. Another new position is Sinoma Science and Technology, which produces advanced, specialty materials for the automotive industry as well as for wind blades used in wind energy generation. The company has benefitted from the growth in alternative energy installations for its wind blades business. Its fiberglass business is one where the industry dynamics are a lot more concentrated and attractive for future pricing improvements.

Outlook:

Looking ahead, we expect China small companies to remain engines of growth for China’s broader economy. Keeping the coronavirus under control is key to maintaining China’s V-shaped economic recovery. While China is only in the very early stages of its vaccination program, its strict border controls and data-driven approach to minimizing outbreaks remains highly successful. China’s approach to combatting the virus has been more effective than any other large economy. Because COVID is largely under control in China, people have been able to resume a normal life. Consumption is rising, auto sales are growing, restaurants have long lines and consumers are feeling comfortable gathering indoors. The depth and diversity of the opportunity set among small companies in China continues to expand. Key themes the portfolio management team is following include technology upgrades, health and wellness trends, services that enhance quality of life and premium consumer goods. As always, we continue to look for attractive long-term growth opportunities driven by the Chinese consumer.

 

Rolling 12 Month Returns For the period ended 31/03/2021 - I (Acc)
Name 2021 2020 2019 2018 2017 Inception Date
Matthews China Small Companies Fund (USD)
62.23% 25.87% -10.72% 42.20% 20.65% 29/02/2012
MSCI China Small Cap Index (USD)
64.63% -19.51% -10.05% 16.63% 13.57%
Matthews China Small Companies Fund (GBP)
45.57% N.A. N.A. N.A. N.A. 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
47.95% N.A. N.A. N.A. N.A.

Sources: Brown Brothers Harriman (Luxembourg) S.C.A, Matthews Asia, FactSet Research Systems, Bloomberg

 

Performance figures discussed in the Fund Manager Commentary above reflect that of the Institutional Accumulation Class Shares and has been calculated in USD. Performance details provided for the Fund are based on a NAV-to-NAV basis, with any dividends reinvested, and are net of management fees and other expenses. Past performance information is not indicative of future performance. Investors may not get back the full amount invested.

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. Matthews Asia and its affiliates do not accept any liability for losses either direct or consequential caused by the use of this information.

Information contained herein is sourced from Matthews Asia unless otherwise stated. The views and opinions in this commentary were as of the report date, subject to change and may not reflect the writer’s 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.

Investors should not invest in the Fund solely based on the information in this material alone. Please refer to the Prospectus for further details of the risk factors. 

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