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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

-0.11%

YTD Return (USD)

(as of 14/04/2021)

$37.10

Price (USD)

(as of 14/04/2021)

$538.77 million

Fund Assets

(as of 31/03/2021)

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 $538.77 million (31/03/2021)
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 31/03/2020 1.50% ( USD ) 1.50% ( GBP )

Performance

  • Monthly
  • Quarterly
  • Calendar Year
  • Rolling 12 Month
    Returns
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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%
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 31/03/2021)
62
Number of Securities

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

12.7x
P/E using FY1 estimates
10.6x
P/E using FY2 estimates
$5.5 billion
Weighted Average Market Cap

Source: FactSet Research Systems

Top 10 Holdings

(as of 31/03/2021)
Name Sector % Net Assets
KWG Group Holdings, Ltd. Real Estate 3.8
360 DigiTech, Inc. Financials 3.7
KWG Living Group Holdings, Ltd. Real Estate 3.5
SITC International Holdings Co., Ltd. Industrials 3.5
China Yongda Automobiles Services Holdings, Ltd. Consumer Discretionary 3.4
Alchip Technologies, Ltd. Information Technology 3.0
ENN Natural Gas Co., Ltd. Materials 3.0
Times China Holdings, Ltd. Real Estate 3.0
China Meidong Auto Holdings, Ltd. Consumer Discretionary 3.0
Kingsoft Corp., Ltd. Information Technology 2.5
TOTAL 32.4

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 31/03/2021)
  • Sector Allocation
  • Market Cap Exposure
  • China Exposure
Sector Fund Benchmark Difference
Information Technology 19.1 12.2 6.9
Industrials 15.4 11.0 4.4
Consumer Discretionary 13.3 20.8 -7.5
Materials 11.5 8.4 3.1
Real Estate 10.3 17.9 -7.6
Health Care 10.1 10.9 -0.8
Financials 10.1 5.7 4.4
Communication Services 3.7 4.9 -1.2
Consumer Staples 3.3 3.0 0.3
Utilities 0.0 3.6 -3.6
Energy 0.0 1.5 -1.5
Cash and Other Assets, Less Liabilities 3.3 0.0 3.3

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) 1.6 0.0 1.6
Large Cap ($10B-$25B) 5.0 2.9 2.1
Mid Cap ($3B-$10B) 53.2 14.4 38.8
Small Cap (under $3B) 36.9 82.8 -45.9
Cash and Other Assets, Less Liabilities 3.3 0.0 3.3

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) 43.1
A Shares 19.1
Overseas Listed Companies (OL) 14.1
H Shares 6.2
China-affiliated corporations (CAC) 5.1
Unassigned 9.0
Cash and Other Assets, Less Liabilities 3.3

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 USD Accumulation 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 December 2020

For the year ending 31 December 2020, the Matthews China Small Companies Fund returned 77.70%, outperforming its benchmark, the MSCI China Small Cap Index, which returned 27.21% over the same period. For the fourth quarter of the year, the Fund returned 15.20%, versus 16.86% for the Index.

Market Environment:

From a global perspective, small companies generally faced greater challenges amid the pandemic than their larger peers, as larger companies tend to have more access to liquidity and resources during periods of economic strain. Nonetheless, small companies in China were strong performers in 2020, providing global investors with meaningful diversification and attractive equity price returns. One reason that China small companies stood out in the year was their focus on domestic demand and opportunities. China’s effective handling of the pandemic meant that its domestic economy re-opened much more quickly than other large economies globally. With the coronavirus pandemic held in check across China, cities, governments, businesses and schools remain open for regular, daily activities. Government micro-reforms in areas such as health care, education and housing continue to support sustainable growth in economic activity.

In addition, as domestic Chinese investors’ sentiment continued to improve throughout the year, the recovery in equity prices quickly broadened to include small and mid-size businesses. The rapid changes brought about by the pandemic created opportunities for innovative businesses to grow and consolidate market share. Trends accelerated by the pandemic included increased e-commerce sales, as well as higher demand for streaming and digital content and entertainment. The pandemic also underscored the need for greater workforce productivity and flexibility, as well as demand for more flexible and scalable health care solutions for a population of over a billion people. While the year began with a great deal of economic uncertainty, it ended on a strong note of optimism by an economy that has experience adapting to rapid change.

Performance Contributors and Detractors:

Stock selection in industrials and information technology were notable contributors in the full year. The only sector that was a slight detractor was materials, where stock selection was negative for the year.

Among individual securities, a contributor was Ginlong Technology Co., a company that manufactures solar inverters for solar energy production. China is very close to achieving grid parity, where the price of renewable energy becomes more competitive with the price of energy produced through fossil fuels. The trajectory of renewable energy expansion in China is very clear in our view and we expect continued solar growth in China given the government’s supportive policies, such as a goal of carbon neutrality by 2060. The solar inverters are a critical component in solar modules and may have more pricing protection when compared to other solar module components given a more consolidated market structure.

On the other hand, a slight detractor was Times China, which focuses on developments in the Greater Bay Area in Guangdong province. China’s policymakers have earmarked the region for further development in high-value-adding sectors such as the technology and financial industries, and is likely to see growth in infrastructure connectivity over time. The real estate industry has been sluggish as the pandemic has disrupted sales in China, but we continue to like the company’s long-term prospects in land banking, as well as its attractive valuations.

Notable Portfolio Changes:

During the fourth quarter, we added a position to Estun Automation Co., 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 prices 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.

We also initiated a position in China Yongda Automobiles Services Holdings, a luxury auto dealer carrying brands such as BMW and Porsche. Yongda is also seeking to expand and broaden its product portfolio to include other strong performing luxury brands such as Mercedes and Lexus. Overall luxury brands are still growing strongly in China, and the company continues to have the opportunity to deliver more aftermarket sales to a growing base of luxury cars. Yongda also trades at an attractive valuation in our view.

Outlook:

Looking ahead, we expect domestic consumption and services to continue driving China’s economic growth. Expansion of consumer buying power in lower-tier cities will remain a key theme we are following. With the coronavirus pandemic held in check across China, cities, governments, businesses and schools remain open for regular, daily activities. Government micro-reforms in areas such as health care, education and housing continue to support sustainable growth in economic activity. Regardless of the potential for U.S. – China trade tensions to ease under the incoming Biden administration, we expect that the local information technology ecosystem and supply chain within China will continue to develop under its own momentum. While some sectors of China’s equity markets are starting to look expensive, there is still a lot of untapped value that can be uncovered through an active approach to security selection. China is not immune from the potential impact of a slowdown in the global economy, but it may be better positioned to weather any such slowdown by drawing on domestic growth drivers.

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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