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

-24.12%

YTD Return (USD)

(as of 10/08/2022)

$27.37

NAV (USD)

(as of 10/08/2022)

-0.13

1 Day NAV Change

(as of 10/08/2022)

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 $474.45 million (31/07/2022)
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 31/07/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund (USD)
-2.89% 7.12% -23.62% -29.49% 14.15% 11.61% 12.80% 10.22% 29/02/2012
MSCI China Small Cap Index (USD)
-9.78% -4.86% -24.57% -33.16% -3.21% -3.35% 3.52% 1.18%
Matthews China Small Companies Fund (GBP)
-3.18% 10.66% -15.22% -18.98% n.a. n.a. n.a. 13.43% 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
-9.96% -1.84% -16.04% -23.64% n.a. n.a. n.a. 0.65%
As of 30/06/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Small Companies Fund (USD)
5.98% -2.98% -21.35% -32.32% 15.28% 12.84% 12.57% 10.62% 29/02/2012
MSCI China Small Cap Index (USD)
7.40% -0.08% -16.39% -33.53% -0.52% -0.40% 4.07% 2.20%
Matthews China Small Companies Fund (GBP)
10.12% 5.13% -12.44% -22.51% n.a. n.a. n.a. 15.47% 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
11.45% 8.33% -6.75% -24.39% n.a. n.a. n.a. 5.15%
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 30/06/2022
Name 2022 2021 2020 2019 2018 Inception Date
Matthews China Small Companies Fund (USD)
-32.32% 31.74% 71.81% -12.43% 36.36% 29/02/2012
MSCI China Small Cap Index (USD)
-33.53% 52.68% -2.99% -13.89% 15.64%
Matthews China Small Companies Fund (GBP)
-22.51% 16.60% n.a. n.a. n.a. 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
-24.39% 36.56% 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 31/07/2022)
Fund Benchmark
Number of Positions 61 243
Weighted Average Market Cap $4.7 billion $1.4 billion
Active Share 96.7 n.a.
P/E using FY1 estimates 14.3x n.a.
P/E using FY2 estimates 11.5x n.a.
Price/Cash Flow 11.4 4.4
Price/Book 2.1 0.7
Return On Equity 13.9 3.6
EPS Growth (3 Yr) 30.9% 16.8%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 30/06/2022)
16.26%
Alpha
0.66
Beta
92.65%
Upside Capture
53.20%
Downside Capture
0.70
Sharpe Ratio
0.91
Information Ratio
17.31%
Tracking Error
44.07

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

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 31/07/2022)
Name Sector % Net Assets
China Overseas Property Holdings, Ltd. Real Estate 3.4
Zhejiang Shuanghuan Driveline Co., Ltd. Consumer Discretionary 3.3
Longshine Technology Group Co., Ltd. Information Technology 2.9
Zhejiang HangKe Technology, Inc., Co. Industrials 2.8
Alchip Technologies, Ltd. Information Technology 2.6
Yangzijiang Shipbuilding Holdings, Ltd. Industrials 2.5
Hainan Meilan International Airport Co., Ltd. Industrials 2.4
Morimatsu International Holdings Co., Ltd. Industrials 2.4
ENN Natural Gas Co., Ltd. Utilities 2.4
Yantai China Pet Foods Co., Ltd. Consumer Staples 2.3
TOTAL 27.0

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 31/07/2022)
  • Sector Allocation
  • Market Cap Exposure
  • China Exposure
Sector Fund Benchmark Difference
Industrials 28.2 11.9 16.3
Information Technology 20.6 11.5 9.1
Consumer Discretionary 11.9 18.3 -6.4
Health Care 9.4 15.7 -6.3
Consumer Staples 7.3 3.1 4.2
Real Estate 6.0 15.4 -9.4
Materials 5.0 6.9 -1.9
Financials 3.7 6.2 -2.5
Communication Services 2.7 5.5 -2.8
Utilities 2.4 4.7 -2.3
Energy 0.0 0.8 -0.8
Cash and Other Assets, Less Liabilities 2.9 0.0 2.9

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) 7.9 0.0 7.9
Mid Cap ($3B-$10B) 53.2 6.4 46.8
Small Cap (under $3B) 36.0 93.6 -57.6
Cash and Other Assets, Less Liabilities 2.9 0.0 2.9

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 46.6
SAR (Hong Kong) 20.9
H Shares 7.0
China-affiliated corporations (CAC) 6.6
Overseas Listed Companies (OL) 5.3
Unassigned 10.8
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
  • 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 ©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 2022

For the first half of 2022, the Matthews China Small Companies Fund returned -21.35%, while its benchmark, the MSCI China Small Cap Index, returned -16.39% over the same period. For the quarter ending June 30, 2022, the Fund returned -2.98%, while the benchmark returned -0.08%.

Market Environment:

The first half of the year was negative and choppy for Chinese markets 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. However, Chinese equities rebounded in the second quarter of the year following three consecutive negative quarters amid less restrictive regulatory pressure on Chinese platforms and internet giants, accommodative monetary and fiscal policy combined with positive changes to COVID lock-down protocols.

Quarantine restrictions for in-bound foreign visitors were reduced and late quarter weakness in imported commodity prices could support China’s current account while reducing inflationary pressures. Although the government’s announced 2022 GDP growth-rate target of “around 5.5%” may not be fully achieved, we believe the government will largely succeed in supporting its economy and that corporate earnings will remain some of the highest globally in 2022-23.

Performance Contributors and Detractors:

During the first half of the year, our underweight and stock selection within utilities and communications services sectors, and our stock selection within industrials contributed to the Fund’s relative performance. On the other hand, stock selection within information technology (IT) and materials sector detracted from performance.

Among induvial securities, Zhejiang Shuanhuan Driveline which makes both auto parts (electric drives) and robotics components (RV reducers) was the top contributor to the Fund’s absolute performance during the first half. The company benefited from increased content expansion in the autos space, and market share gains and increased robotics penetration in the robotics space. Zhejiang has done well on the back of a sentiment recovery in China’s industrials sector which was subject to a lot of profit taking in the earlier months of 2022. Conversely, Taiwanese chip-related companies such as Alchip Technologies and Pan Jit International were among the top detractors to the portfolio’s absolute and relative performance during the period . While the fundamentals of Alchip and Pan Jit remain resilient, with both companies benefiting from the semi-localization efforts in China, they have been affected by a negative sentiment towards semiconductor stocks globally and have thus de-rated meaningfully. It is difficult to gauge if sentiment can turn meaningfully in the short run but we still remain positive about the long-term secular growth opportunities for Alchip and Pan Jit.

Notable Portfolio Changes:

During the second quarter, we increased the portfolio’s exposure to the industrials sector.  Most of our exposure in the sector are in A-shares and with the market correction, we added to names that  we have been following at much cheaper valuations.  We also decreased our exposure to the IT sector. As noted earlier, market conditions resulted in a de-rating of many of the technology names we hold. Given Taiwan’s strong performance in 2021 and continued concerns about the global semi cycle, we have adjusted exposure down slightly. However, we continue to hold a long-term view of the sector with a refocused view on onshore A-share tech opportunities, given the A-share correction seen in the earlier months of 2022.

Both the industrial and IT sectors continue to account for the most sizable exposures of the portfolio, amounting for close to half of the Fund’s sector allocations.

Outlook:

The A-Shares market has recovered meaningfully since the end of April lows. It is uncertain if second quarter results (which will be weak given it will bake in the worst of the COVID lockdowns) might derail this recovery.  However, we are cautiously optimistic that in the second half of this year, the conditions in China will continue to improve.

Large scale lockdowns seem a lot less probable as the government continues to become more pragmatic. Further, the party will likely do what they can to improve economic conditions ahead of the party meeting at the end of the year which may make it more likely that monetary and fiscal stimulus will be unleashed in the second half. Sentiment towards growth globally remains tepid but we believe the significantly lower valuations might warrant a re-interest in this category as well as the fundamentals of the many promising small cap growth companies in China remain. While China won’t be immune to rising costs and a slowing world economy, its government is all in on a commitment to deliver strong and steady growth for its citizens.

Rolling 12 Month Returns For the period ended 30/06/2022 - I (Acc)
Name 2022 2021 2020 2019 2018 Inception Date
Matthews China Small Companies Fund (USD)
-32.32% 31.74% 71.81% -12.43% 36.36% 29/02/2012
MSCI China Small Cap Index (USD)
-33.53% 52.68% -2.99% -13.89% 15.64%
Matthews China Small Companies Fund (GBP)
-22.51% 16.60% N.A. N.A. N.A. 30/01/2020
MSCI China Small Cap Index - GBP (GBP)
-24.39% 36.56% 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