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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

-28.08%

YTD Return (USD)

(as of 20/05/2022)

$25.94

Price (USD)

(as of 20/05/2022)

$430.71 million

Fund Assets

(as of 30/04/2022)

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. 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

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, emerging and frontier market securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation, which may adversely affect the value of the Fund's assets. Investing in Chinese securities involve risks. Heightened risks related to the regulatory environment and the potential actions by the Chinese government could negatively impact performance. 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.

These and other risks associated with investing in the Fund can be found in the prospectus.

Fund Facts
Inception Date 29/02/2012
Fund Assets $430.71 million (30/04/2022)
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 31/03/2022 1.25% ( USD ) 1.25% ( GBP )

Performance

  • Monthly
  • Quarterly
  • Calendar Year
  • Rolling 12 Month
    Returns
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As of 30/04/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund (USD)
-12.04% -20.62% -28.69% -35.12% 11.19% 11.87% 10.37% 9.74% 29/02/2012
MSCI China Small Cap Index (USD)
-5.25% -15.21% -20.72% -35.92% -4.31% -1.56% 2.55% 1.70%
Matthews China Small Companies Fund (GBP)
-8.02% -15.09% -23.39% -28.11% n.a. n.a. n.a. 9.97% 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
-0.63% -9.39% -14.47% -29.33% n.a. n.a. n.a. 1.56%
As of 31/03/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund (USD)
-9.56% -18.94% -18.94% -21.84% 16.86% 15.17% 11.85% 11.23% 29/02/2012
MSCI China Small Cap Index (USD)
-6.52% -16.33% -16.33% -30.18% -2.56% -0.59% 3.18% 2.26%
Matthews China Small Companies Fund (GBP)
-7.75% -16.71% -16.71% -18.03% n.a. n.a. n.a. 14.72% 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
-4.74% -13.93% -13.93% -26.84% n.a. n.a. n.a. 1.92%
For the years ended December 31st
Name 2021 2020 2019 2018 2017 2016 2015 2014 2013
Matthews China Small Companies Fund (USD)
-2.88% 77.70% 31.36% -18.79% 56.47% -1.96% 2.98% -3.20% 34.42%
MSCI China Small Cap Index (USD)
-6.26% 27.21% 6.63% -19.53% 24.62% -5.95% 3.48% -0.34% 18.68%
Matthews China Small Companies Fund (GBP)
-1.58% n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
MSCI China Small Cap Index - GBP (GBP)
-5.39% n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
For the period ended 31/03/2022
Name 2022 2021 2020 2019 2018 Inception Date
Matthews China Small Companies Fund (USD)
-21.84% 62.23% 25.87% -10.72% 42.20% 29/02/2012
MSCI China Small Cap Index (USD)
-30.18% 64.63% -19.51% -10.05% 16.63%
Matthews China Small Companies Fund (GBP)
-18.03% 45.57% n.a. n.a. n.a. 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
-26.84% 47.95% 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 30/04/2022)
Fund Benchmark
Number of Positions 59 253
Weighted Average Market Cap $4.4 billion $1.4 billion
Active Share 95.4 n.a.
P/E using FY1 estimates 11.0x 6.3x
P/E using FY2 estimates 9.2x 5.5x
Price/Cash Flow 9.2 4.7
Price/Book 1.8 0.7
Return On Equity 17.6 8.5
EPS Growth (3 Yr) 41.1% 3.6%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 30/04/2022)
15.18%
Alpha
0.69
Beta
100.50%
Upside Capture
62.13%
Downside Capture
0.48
Sharpe Ratio
0.91
Information Ratio
17.11%
Tracking Error
46.79

Fund Risk Metrics are reflective of Class I USD ACC shares.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 30/04/2022)
Name Sector % Net Assets
China Overseas Property Holdings, Ltd. Real Estate 4.8
China State Construction International Holdings, Ltd. Industrials 4.2
Chailease Holding Co., Ltd. Financials 3.9
Yuexiu Transport Infrastructure, Ltd. Industrials 2.8
Pan Jit International, Inc. Information Technology 2.7
Alchip Technologies, Ltd. Information Technology 2.7
Airtac International Group Industrials 2.6
ENN Natural Gas Co., Ltd. Utilities 2.5
Morimatsu International Holdings Co., Ltd. Industrials 2.4
Zhejiang Shuanghuan Driveline Co., Ltd. Consumer Discretionary 2.3
TOTAL 30.9

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 30/04/2022)
  • 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.

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 33.9
SAR (Hong Kong) 28.0
China-affiliated corporations (CAC) 8.9
H Shares 6.8
Overseas Listed Companies (OL) 3.5
Unassigned 15.3
Cash and Other Assets, Less Liabilities 3.6

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
  • 10 YEAR
(as of 24/01/2022)

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 2022

For the first quarter of the year, the Fund returned -18.94%, while its benchmark, the MSCI China Small Cap Index, returned -16.33% over the same period.

Market Environment:

The first quarter of the year was broadly negative and choppy for emerging and Asian equity markets for the third consecutive quarter. Chinese equities were weak led down by the confluence of COVID-19 case spikes resulting in policy-enforced lockdowns in tier one cities, ADR delisting pricing pressures and investor worries that Russia-like sanctions could be implemented upon select Chinese companies. Although macro data in January and February contained upside surprises, the Chinese government’s zero-COVID policy continued to weigh heavily on certain sectors.

The Chinese government announced during the quarter that they favor a 2022 GDP growth rate of “around 5.5%.” In our opinion, this was an important “stake in the ground” announcement. However, the worsening COVID-19 lockdown environment in China may increasingly make it difficult for China to reach these goals. We continue to envision a battle between temporary lockdowns and stimulus to unfold. Regardless, we think the government will largely succeed in supporting the Chinese economy and that corporate earnings will remain some of the highest in 2022-23.

Performance Contributors and Detractors:

The portfolio’s overweight to A-shares detracted from performance in the first quarter. The A-share markets experienced pull back on weak consumer sentiment given the Chinese government’s zero-COVID policy, and a general property market weakness. In addition, our A-shares holdings are in the growthier part of the A-share markets such as information technology and industrials. These sectors have performed well over 2020 and 2021, and growth sectors, which have become expensive, are undergoing a healthy correction. However, longer term, these are still secularly growing areas in our view. They are also very aligned with the China’s intent to become more self-reliant in areas such as semiconductors and automation.

From a sector perspective, materials and industrials detracted the most from relative performance. The industrials holding underperformance was led by battery equipment-manufacturer Zhejiang Hangke Technology and building material-testing agency China Testing & Certification International Group. Materials sector underperformance was led by fiber glass and wind turbine manufacturer Sinoma Science & Technology and building materials-manufacturer Keshun Waterproof Technologies. A common thread among these holdings is that they are all A-shares and are either in the renewables sector where there has been profit taking or in building materials which is linked to property weakness.

On the other hand, allocation and stock section within utilities and the portfolio’s underweight in consumer discretionary and communications services contributed to relative performance. Among individual holdings, China Overseas Property, a property management company affiliated to large state-owned enterprise (SOE) developer China Overseas Land and Development, contributed to performance. SOE developers have stronger balance sheets and we believe they will benefit from the ability to buy attractively priced assets as the consolidation of real estate continues. We also believe the property market will likely recover this year given the already very weak conditions and more monetary easing that is happening, including the lowering of mortgage rates, and the faster approvals of mortgages, etc.

Notable Portfolio Changes:

Over the quarter, we made a few changes as part of our efforts to position the portfolio for exposure to the most innovatively growing parts of China driven by domestic demand. We initiated a new position in frozen food manufacturer Anjoy Food. The company has strong business-to-business (B2B) and growing business-to-consumer (B2C) lines of business. Anjoy continues to roll out new product categories that include that of frozen convenience meals, but its stock suffered a sizable correction given market conditions. We took the opportunity to add this name given the longer-term growth opportunity of convenience foods in both the B2B and B2C markets. We also exited a few holdings including camera module manufacturer Q Tech. The company disappointed in its delivery of margins amid a weak smartphone sales environment.

Outlook:

Looking ahead, we expect that China’s Zero COVID-19 policy will likely linger, and especially over the next quarter, and we will watch the overhang closely as it puts pressure on consumer sentiment. At the same time, the property market continues to be weak, although there are signs that the government is increasingly in the camp of loosening the very tight conditions of the property market. Given these two pressures, we believe there is more support for monetary easing in the second half of 2022 as China’s key goal is still both economic and political stability.

The larger unknown is how U.S. – China relations will pan out. While we see China becoming more willing to make concessions, we have not quite seen the same level of openness from the U.S. This lack of ability to ascertain U.S. – China politics will be a risk that will unfortunately be hard to manage for. Elsewhere, results remain largely in-line with expectations and a continued healthy pace of growth is seen with some signs of margin erosion but managed relatively well. We remain more hopeful of an improvement in sentiment given still resilient earnings growth and an increased likelihood of policy easing ahead.

Rolling 12 Month Returns For the period ended 31/03/2022 - I (Acc)
Name 2022 2021 2020 2019 2018 Inception Date
Matthews China Small Companies Fund (USD)
-21.84% 62.23% 25.87% -10.72% 42.20% 29/02/2012
MSCI China Small Cap Index (USD)
-30.18% 64.63% -19.51% -10.05% 16.63%
Matthews China Small Companies Fund (GBP)
-18.03% 45.57% N.A. N.A. N.A. 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
-26.84% 47.95% 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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