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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

5.22%

YTD Return (USD)

(as of 03/08/2021)

$39.08

Price (USD)

(as of 03/08/2021)

$648.75 million

Fund Assets

(as of 30/06/2021)

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 $648.75 million (30/06/2021)
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 30/06/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund (USD)
5.33% 12.06% 12.87% 31.74% 25.61% 28.45% n.a. 16.60% 29/02/2012
MSCI China Small Cap Index (USD)
0.05% 4.96% 17.92% 52.68% 8.45% 11.05% n.a. 7.02%
Matthews China Small Companies Fund (GBP)
7.67% 11.21% 11.21% 16.60% n.a. n.a. n.a. 53.10% 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
2.95% 4.83% 16.68% 36.56% n.a. n.a. n.a. 32.78%
As of 30/06/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund (USD)
5.33% 12.06% 12.87% 31.74% 25.61% 28.45% n.a. 16.60% 29/02/2012
MSCI China Small Cap Index (USD)
0.05% 4.96% 17.92% 52.68% 8.45% 11.05% n.a. 7.02%
Matthews China Small Companies Fund (GBP)
7.67% 11.21% 11.21% 16.60% n.a. n.a. n.a. 53.10% 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
2.95% 4.83% 16.68% 36.56% n.a. n.a. n.a. 32.78%
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 30/06/2021
Name 2021 2020 2019 2018 2017 Inception Date
Matthews China Small Companies Fund (USD)
31.74% 71.81% -12.43% 36.36% 29.36% 29/02/2012
MSCI China Small Cap Index (USD)
52.68% -2.99% -13.89% 15.64% 14.49%
Matthews China Small Companies Fund (GBP)
16.60% n.a. n.a. n.a. n.a. 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
36.56% 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 30/06/2021)
Fund Benchmark
Number of Positions 65 257
Weighted Average Market Cap $6.4 billion $2.0 billion
Active Share 85.1 n.a.
P/E using FY1 estimates 13.9x 8.8x
P/E using FY2 estimates 12.0x 7.5x
Price/Cash Flow 14.4 7.9
Price/Book 2.8 1.2
Return On Equity 10.7 5.8
EPS Growth (3 Yr) 45.0% 16.1%

Sources: Brown Brothers Harriman (Luxembourg) S.C.A, Factset Research Systems, Inc., Zephyr StyleADVISOR, Matthews Asia

Top 10 Holdings

(as of 30/06/2021)
Name Sector % Net Assets
KWG Living Group Holdings, Ltd. Real Estate 3.9
360 DigiTech, Inc. Financials 3.7
Ginlong Technologies Co., Ltd. Industrials 3.1
Alchip Technologies, Ltd. Information Technology 2.8
KWG Group Holdings, Ltd. Real Estate 2.6
China Meidong Auto Holdings, Ltd. Consumer Discretionary 2.5
Estun Automation Co., Ltd. Industrials 2.4
China Yongda Automobiles Services Holdings, Ltd. Consumer Discretionary 2.4
Pharmaron Beijing Co., Ltd. Health Care 2.4
Xtep International Holdings, Ltd. Consumer Discretionary 2.3
TOTAL 28.1

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 30/06/2021)
  • 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 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) 39.7
A Shares 22.8
Overseas Listed Companies (OL) 14.2
H Shares 6.5
China-affiliated corporations (CAC) 3.8
Unassigned 10.0
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 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 29/07/2021)

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 30 June 2021

For the first half of 2021, the Matthews China Small Companies Fund returned 12.87%, while its benchmark, the MSCI China Small Cap Index, returned 17.92% over the same period. For the quarter ending 30 June, the Fund returned 12.06%, while the benchmark returned 4.96%.

Market Environment:

China’s macro environment remained relatively stable and the central bank's monetary policy remained largely unchanged. Consumption industries in China largely remain on a recovery track although consumption patterns have not entirely recovered to pre-COVID levels. Industrial industries continue to face worries of raw material cost inflation but we note that this is a manageable risk. A slower pace of increase is expected in the second half of the year and a still strong consumer demand will facilitate the ability of companies to pass on costs through higher prices in our view.

China equity markets recovered in the second quarter post a volatile first quarter, driven by resilient first quarter results coming out of A-shares. Small caps rallied strongly while many of the larger internet companies had a hard quarter as regulatory concerns continued to weigh on sentiment. Investors used the opportunity of the correction seen in the first quarter of 2021 to buy back into areas of secular growth including that of health care and continued to favor cheaper areas such as the materials sectors. On the other hand, real estate in China saw weakness on continued policy tightness.

Performance Contributors and Detractors:

During the first half of the year, our stock selection within the consumer discretionary and industrials sector contributed to the Fund’s relative performance. Among individual securities, contributors to performance included Estun Automation Co. and Ginlong Technologies. Estun is China’s leading robot manufacturer with strong technical capabilities and an 80% overall rate in component self-sufficiency. Amid recovery in the industrial automation industry in China, the company has seen a rebound in orders, creating positive sentiment and leading to stock price gains in the month. We believe local companies, through price competitiveness and improving quality, stand to gain market share against foreign competitors in this industry, where foreigners still hold the lion’s share of the market. Chinese solar inverter manufacturer Ginlong Technologies specializes in string inverters that are predominantly used in distributed solar panel applications globally. The fast growing underlying market for solar panel installations, potential for market share gains and market share growth in ground-mounted solar power stations have helped drive the stock price higher.

On the other hand, our stock selection within the information technology and consumer staples sectors detracted from the Fund’s relative performance in the first half of the year. One notable detractor within the information technology sector was Alchip Technologies. Alchip is an integrated circuit (“IC”) design service firm that provides high performance chip designs to global customers. One of Alchip’s largest customers is China’s up-and-coming chip manufacturer, Phytium Technology. Unfortunately, Phytium was placed on the U.S. Department of Commerce’s entity list, which may restrict Alchip’s ability to continue to supply services and goods to this customer. Unless this issue resolves, Alchip will see a loss of revenue from this client. We continue to see the opportunity for a growing design service business for Alchip however, given more IC design activity in chips that require larger computing capabilities. This potential loss of revenue in our view will likely be offset by growing revenues from other customers.

Notable Portfolio Changes:

Chinese growth stocks recovered in the second quarter of 2021, after a healthy correction in the first quarter. During the second quarter, we continued to take the opportunity to reallocate capital into areas where we see some of the most attractive investment prospects from a secular growth perspective, including in the information technology and health care sectors. Within this theme, we recently added Burning Rock Biotech to the portfolio. Burning Rock is a leading provider of next-generation sequencing (“NGS”)-based diagnostic tools, and is in the process of launching NGS cancer screening tools. We believe that disease preventative tools will proliferate in China’s healthcare industry over the next decade and that Burning Rock will benefit from increased adoption and use of their screening products.

Outlook:

First quarter earnings in China point to a continued recovery in China’s economy. Encouragingly, China’s economy continues to benefit from growth coming from a broad range of different sectors and industries. As a result, cheaper parts of the market have also seen performance recovery given continued earnings delivery. Looking ahead to the rest of the year, we continue to expect corporate earnings to remain on track. While market concerns of increased regulatory scrutiny may persist over the near term, we remain focused on the longer-term fundamentals of the domestic growth engine.

Looking ahead, we expect China small companies to remain engines of growth for China’s broader economy. Among the most attractive themes from a secular growth perspective include technology upgrades, health and wellness trends, premium consumer goods and services that enhance quality of life.

We continue to focus on innovative, efficient and sustainable growth companies, with an emphasis on businesses oriented toward domestic demand and rising income levels.

 

Rolling 12 Month Returns For the period ended 30/06/2021 - I (Acc)
Name 2021 2020 2019 2018 2017 Inception Date
Matthews China Small Companies Fund (USD)
31.74% 71.81% -12.43% 36.36% 29.36% 29/02/2012
MSCI China Small Cap Index (USD)
52.68% -2.99% -13.89% 15.64% 14.49%
Matthews China Small Companies Fund (GBP)
16.60% N.A. N.A. N.A. N.A. 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
36.56% 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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