TOP

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

-28.47%

YTD Return (USD)

(as of 05/12/2022)

$25.80

NAV (USD)

(as of 05/12/2022)

+0.82

1 Day NAV Change

(as of 05/12/2022)

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 $279.64 million (31/10/2022)
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
  • data_graph_selected Created with Sketch.
  • bar_graph_selected Created with Sketch.
As of 31/10/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund (USD)
-10.20% -26.82% -44.11% -47.14% 0.03% 1.82% 8.33% 6.79% 29/02/2012
MSCI China Small Cap Index (USD)
-9.76% -25.86% -44.07% -48.01% -11.20% -10.63% -0.73% -1.65%
Matthews China Small Companies Fund (GBP)
-13.76% -22.70% -34.47% -36.62% n.a. n.a. n.a. 2.11% 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
-12.51% -21.64% -34.21% -38.10% n.a. n.a. n.a. -7.94%
As of 30/09/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund (USD)
-12.92% -20.87% -37.76% -40.12% 5.77% 4.80% 9.94% 7.94% 29/02/2012
MSCI China Small Cap Index (USD)
-15.11% -25.87% -38.02% -43.27% -7.47% -8.45% 0.91% -0.70%
Matthews China Small Companies Fund (GBP)
-8.36% -13.22% -24.01% -27.08% n.a. n.a. n.a. 8.01% 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
-11.51% -19.35% -24.80% -31.48% n.a. n.a. n.a. -3.46%
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 30/09/2022
Name 2022 2021 2020 2019 2018 Inception Date
Matthews China Small Companies Fund (USD)
-40.12% 16.28% 69.95% 6.04% 0.73% 29/02/2012
MSCI China Small Cap Index (USD)
-43.27% 19.68% 16.67% -11.71% -8.05%
Matthews China Small Companies Fund (GBP)
-27.08% 10.86% n.a. n.a. n.a. 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
-31.48% 14.75% 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 31/10/2022)
Fund Benchmark
Number of Positions 63 240
Weighted Average Market Cap $3.9 billion $1.2 billion
Active Share 96.5 n.a.
P/E using FY1 estimates 12.6x 5.5x
P/E using FY2 estimates 10.8x 4.7x
Price/Cash Flow 9.6 3.4
Price/Book 1.8 0.5
Return On Equity 14.2 4.6
EPS Growth (3 Yr) 29.0% 20.9%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 31/10/2022)
9.43%
Alpha
0.72
Beta
86.59%
Upside Capture
71.93%
Downside Capture
-0.02
Sharpe Ratio
0.64
Information Ratio
17.56%
Tracking Error
52.95

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

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 31/10/2022)
Name Sector % Net Assets
Yangzijiang Shipbuilding Holdings, Ltd. Industrials 3.8
ENN Natural Gas Co., Ltd. Utilities 3.3
China Overseas Property Holdings, Ltd. Real Estate 3.2
Morimatsu International Holdings Co., Ltd. Industrials 3.2
Legend Biotech Corp. Health Care 2.7
Longshine Technology Group Co., Ltd. Information Technology 2.7
Zhejiang HangKe Technology, Inc., Co. Industrials 2.7
Anhui Yingjia Distillery Co., Ltd. Consumer Staples 2.4
Zhejiang Shuanghuan Driveline Co., Ltd. Consumer Discretionary 2.4
BOE Varitronix, Ltd. Information Technology 2.3
TOTAL 28.7

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 31/10/2022)
  • Sector Allocation
  • Market Cap Exposure
  • China Exposure
Sector Fund Benchmark Difference
Industrials 27.2 11.4 15.8
Information Technology 18.1 11.2 6.9
Health Care 13.4 17.5 -4.1
Consumer Discretionary 12.3 18.9 -6.6
Consumer Staples 9.8 2.7 7.1
Real Estate 6.0 12.9 -6.9
Materials 3.9 7.2 -3.3
Financials 3.3 6.8 -3.5
Utilities 3.3 5.1 -1.8
Communication Services 2.3 5.3 -3.0
Energy 0.0 0.9 -0.9
Cash and Other Assets, Less Liabilities 0.4 0.0 0.4

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) 0.0 0.0 0.0
Large Cap ($10B-$25B) 4.2 0.0 4.2
Mid Cap ($3B-$10B) 54.4 7.2 47.2
Small Cap (under $3B) 40.9 92.8 -51.9
Cash and Other Assets, Less Liabilities 0.4 0.0 0.4

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 48.8
SAR (Hong Kong) 21.2
H Shares 7.1
China-affiliated corporations (CAC) 6.3
Overseas Listed Companies (OL) 5.8
Unassigned 10.4
Cash and Other Assets, Less Liabilities 0.4

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 28/07/2022)

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 ©2022 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 September 2022

For the quarter ending 30 September 2022, the Matthews China Small Companies Fund returned -20.87%, while its benchmark, the MSCI China Small Cap Index, returned -25.87%.

Market Environment:

Chinese equities were extremely weak in the third quarter as a confluence of negative headlines including worries about a spillover of China’s real estate woes into its broader economy, lingering COVID restrictions and geopolitical tensions weighed on its economy. China’s property market sentiment has been hit hard and continued to struggle as potential buyers and local government cast doubts on whether some financially distressed developers can finish and deliver their pre-sold homes on time. COVID-related worries reappeared as cases jumped in the mega city of Chengdu, with a population of over 20 million, spurring a city-wide multi-day lockdown and mass testing—a protocol which has been discouraged since May of this year. In addition, in late July, a group of four companies were added to the SEC’s listed of potential de-listings from U.S. exchanges, and news that U.S. House Speaker Nancy Pelosi may visit Taiwan added to investor nervousness.

The People’s Bank of China (PBOC) announced a series of monetary and fiscal support measures during the quarter, including another cut to its 1-year policy rate and a lowering of its longer-term loan prime.

Performance Contributors and Detractors:

Chinese small caps lagged larger caps slightly again in the third quarter. The portfolio’s allocation and stock selection within consumer discretionary, materials and communications sectors detracted the most from relative performance. On the other hand, our overweight allocation and stock selection within the industrials sector as well as our stock selection in consumer staples and information technology sectors contributed the most to relative performance.

Among individual securities, Pharmaron Beijing, a contract research organization that offers diverse research and development (R&D) service capabilities to chemical pharmaceutical and biotech companies, detracted from performance. Pharmaron’s second quarter results were weak as China’s overall health care sector continues to suffer from regulatory impact from price cuts and added concerns about geopolitics since most of Pharmaron’s clients are multinational corporations (MNCs). However, we maintain a constructive view of the sector over the longer term as we do not think China will stifle R&D or innovation, and we have added to biotech names given the aggressive valuations pullback.

On the other hand, Yangzijiang Shipbuilding, one of the few remaining shipbuilders in China, contributed to performance during the quarter. In addition to attractive valuations, the company has benefitted from strong order books given limited ship building supply globally. Yangzijiang’s certified and liquefied natural gas (LNG) vessels product mix bodes well for the company amid a shrinking shipbuilding industry.

Notable Portfolio Changes:

During the third quarter, took advantage of market volatility to rotate capital and make adjustments to the portfolio, including reducing our weight to the industrials sector. We took some profit and reduced our position in AirTac International Group, a pneumatic equipment manufacturer and increased our weight to the consumer staples sector, initiating positions in Anhui Yingzia Distillery, a white liquor producer and distributor, and added to Yantai Pet Food. Yantai, one of the top domestic pet food brands in China, is benefiting from the overall increase in pet adoption and “upgrade” in pet food. While the market is dominated by foreign brands, local brands are seeing opportunities to cater to the market.

Outlook:

China’s second quarter results released in July continued to reflect a weak economy dealing with COVID lockdown issues. At the same time, the overhang from a weak property sector and geopolitical tensions continue to plague China’s equity market performance. While the property market continues to be weak, there are signs that the government is increasingly looking to loosen the very tight conditions, including pressuring banks to provide financing to developers, and allowing certain developers to issue renminbi-denominated bonds. The larger unknown is geopolitics, including the how U.S. – China relations will pan out. But there have been signs of pragmatism in Beijing. In August, China resolved a long-running dispute with the U.S. Public Company Accounting Oversight Board (PACOB), and PACOB inspectors are now checking the accounting workbooks for Chinese companies listed in the U.S. 

As for China’s zero-COVID policy, while it is difficult to predict an actual point in time where we might see the end of current strict COVID measures, we are cautiously optimistic that the Chinese government will return to a more pragmatic approach, which strikes a better balance between public health and the economy. Relief of China’s zero-COVID policy would likely unleash more activity on the consumption side, an important part of the Matthews China Small Companies portfolio, given that close to 80% of the revenue stream for the China small companies portfolios is derived from the domestic economy. 

 

Rolling 12 Month Returns For the period ended 30/09/2022 - I (Acc)
Name 2022 2021 2020 2019 2018 Inception Date
Matthews China Small Companies Fund (USD)
-40.12% 16.28% 69.95% 6.04% 0.73% 29/02/2012
MSCI China Small Cap Index (USD)
-43.27% 19.68% 16.67% -11.71% -8.05%
Matthews China Small Companies Fund (GBP)
-27.08% 10.86% N.A. N.A. N.A. 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
-31.48% 14.75% 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. 

Index Definitions