A focus on Asia—and providing compelling investment solutions for our clients—is what we believe distinguishes us among investment managers. Our insights into investment opportunities and risks are backed by proprietary research, a collaborative culture and 30 years of experience.
The Fund promotes environmental and social characteristics according to Article 8 of SFDR. Furthermore, the Fund uses both activity- and norm-based exclusions. Information relating to the environmental and social characteristics of this Fund is available in the prospectus.
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.
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.
The risks associated with investing in the Fund can be found in the prospectus
Performance
Monthly
Quarterly
Calendar Year
Rolling 12 Month Returns
As of 31/03/2024
Annualized Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews China Small Companies Fund (USD)
-2.47%
-2.42%
-2.42%
-17.80%
-18.10%
2.32%
4.96%
6.14%
29/02/2012
MSCI China Small Cap Index (USD)
0.27%
-7.59%
-7.59%
-27.55%
-24.16%
-10.39%
-4.25%
-2.01%
Matthews China Small Companies Fund (GBP)
-2.48%
-1.80%
-1.80%
-19.57%
-15.75%
n.a.
n.a.
-0.43%
30/01/2020
MSCI China Small Cap Index - GBP (GBP)
0.41%
-6.74%
-6.74%
-29.09%
-21.90%
n.a.
n.a.
-8.89%
As of 31/03/2024
Annualized Returns
Name
1MO
3MO
YTD
1YR
3YR
5YR
10YR
Since Inception
Inception Date
Matthews China Small Companies Fund (USD)
-2.47%
-2.42%
-2.42%
-17.80%
-18.10%
2.32%
4.96%
6.14%
29/02/2012
MSCI China Small Cap Index (USD)
0.27%
-7.59%
-7.59%
-27.55%
-24.16%
-10.39%
-4.25%
-2.01%
Matthews China Small Companies Fund (GBP)
-2.48%
-1.80%
-1.80%
-19.57%
-15.75%
n.a.
n.a.
-0.43%
30/01/2020
MSCI China Small Cap Index - GBP (GBP)
0.41%
-6.74%
-6.74%
-29.09%
-21.90%
n.a.
n.a.
-8.89%
For the years ended December 31st
Name
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
Matthews China Small Companies Fund (USD)
-15.73%
-30.72%
-2.88%
77.70%
31.36%
-18.79%
56.47%
-1.96%
2.98%
-3.20%
MSCI China Small Cap Index (USD)
-24.82%
-24.77%
-6.26%
27.21%
6.63%
-19.53%
24.62%
-5.95%
3.48%
-0.34%
Matthews China Small Companies Fund (GBP)
-20.32%
-22.34%
-1.58%
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
MSCI China Small Cap Index - GBP (GBP)
-29.06%
-15.29%
-5.39%
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
For the period ended 31/03/2024
Name
2024
2023
2022
2021
2020
Inception Date
Matthews China Small Companies Fund (USD)
-17.80%
-14.50%
-21.84%
62.23%
25.87%
29/02/2012
MSCI China Small Cap Index (USD)
-27.55%
-13.78%
-30.18%
64.63%
-19.51%
Matthews China Small Companies Fund (GBP)
-19.57%
-9.29%
-18.03%
45.57%
n.a.
30/01/2020
MSCI China Small Cap Index - GBP (GBP)
-29.09%
-8.19%
-26.84%
47.95%
n.a.
Source: Brown Brothers Harriman (Luxembourg) S.C.A.
All returns over 1 year are annualized
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 31/03/2024)
Fund
Benchmark
Number of Positions
46
241
Weighted Average Market Cap
$5.1 billion
$1.4 billion
Active Share
95.0
n.a.
P/E using FY1 estimates
13.3x
7.4x
P/E using FY2 estimates
11.4x
6.4x
Price/Cash Flow
11.4
4.1
Price/Book
2.5
0.6
Return On Equity
16.0
5.1
EPS Growth (3 Yr)
24.1%
7.1%
Sources: Factset Research Systems, Inc.
Risk Metrics (3 Yr Return)
(as of 31/03/2024)
Category
3YR Return Metric
Alpha
3.4%
Beta
0.85
Upside Capture
98.1%
Downside Capture
89.43%
Sharpe Ratio
-0.77
Information Ratio
0.47
Tracking Error
12.8%
R²
79.84
3.40%
Alpha
0.85
Beta
98.10%
Upside Capture
89.43%
Downside Capture
-0.77
Sharpe Ratio
0.47
Information Ratio
12.80%
Tracking Error
79.84
R²
Fund Risk Metrics are reflective of Class I USD ACC shares.
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 31/03/2024)
Sector Allocation
Market Cap Exposure
China Exposure
Sector
Fund
Benchmark
Difference
Consumer Discretionary
21.3
11.6
9.7
Industrials
19.0
13.0
6.0
Information Technology
13.9
9.9
4.0
Consumer Staples
9.4
6.6
2.8
Health Care
9.0
22.2
-13.2
Communication Services
8.1
8.7
-0.6
Real Estate
7.0
7.9
-0.9
Utilities
3.4
3.8
-0.4
Materials
2.8
10.3
-7.5
Financials
2.4
4.5
-2.1
Energy
2.1
1.5
0.6
Cash and Other Assets, Less Liabilities
1.7
0.0
1.7
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)
7.0
0.0
7.0
Mid Cap ($3B-$10B)
59.0
2.8
56.2
Small Cap (under $3B)
32.4
97.2
-64.8
Cash and Other Assets, Less Liabilities
1.7
0.0
1.7
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
Hong Kong Listed Companies
42.1
Mainland China Listed Companies
24.2
Other
22.0
ADR/GDR
10.1
Cash and Other Assets, Less Liabilities
1.7
Mainland China listed companies includes A Share and B Shares. 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. B Shares are mainland Chinese companies listed on the Shanghai and Shenzhen stock exchanges, available to both Chinese and non-Chinese investors. ADRs are American Depositary Receipts and GDRs are Global Depositary Receipts. Hong Kong Listed Companies include SAR (Hong Kong) companies, China-affiliated corporations, and H Shares. SAR 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. H Shares are mainland Chinese companies listed on the Hong Kong exchange but incorporated in mainland China. Other represents Chinese companies listed in other countries or non-China companies with a majority of revenue coming from China such as Japan, Singapore, Taiwan and the United States or other non-China companies.
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.
Sustainability-related Disclosures
This Fund
Yes
No
Complies with Article 8 of SFDR
Investment process integrates ESG factors and sustainability risks based on proprietary and third-party research
Applies norms- and activity-based exclusions
Promotes environmental and social characteristics
Has a sustainable investment objective
Conducts engagement
Exercises Voting Rights
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 Fund’s investment objective and risk factors.
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.
Winnie Chwang is a Portfolio Manager at Matthews and manages the firm’s China Small Companies, China Dividend and China Discovery Strategies and co-manages the China, Pacific Tiger and Asia Dividend Strategies. She joined the firm in 2004 and has built her investment career at the firm. Winnie earned an MBA from the Haas School of Business and received her B.A. in Economics with a minor in Business Administration from the University of California, Berkeley. She is fluent in Mandarin and conversational in Cantonese.
Andrew Mattock is a Portfolio Manager at Matthews and manages the firm’s China, China Small Companies, China A-Share and China Discovery Strategies and co-manages the Pacific Tiger, China Dividend and Emerging Markets Equity Strategies. Prior to joining Matthews in 2015, he was a Fund Manager at Henderson Global Investors for 15 years, first in London and then in Singapore, managing Asia Pacific equities. Andrew holds a Bachelor of Business majoring in Accounting from ACU. He began his career at PricewaterhouseCoopers and qualified as a Chartered Accountant.
Chinese stocks were volatile in the first quarter, and we saw steep falls particularly in some of the smaller indexes. Chinese equities continued to face pressure because of lingering, broad-based concerns including the implications surrounding the late year U.S. elections, deflationary pressures driven by excess capacity, the lack of large-scale policy support for the property sector and the sluggishness in the recovery in consumer demand.
Economic recovery has been much weaker than the market expected and there are only incremental signs that China’s property market is beginning to turn a corner.
Some of the government’s efforts, however, have started to gain traction, such as initiatives to support the stock market by buying equities and restricting certain stock sales and short selling. These efforts helped stabilize the market in February and supported a short-lived rally.
Contributors and Detractors
For the quarter ended March 31, 2024, the China Small Companies Fund returned -2.42%, (I Acc USD) while its benchmark, the MSCI China Small Cap Index, returned -7.59% over the same period.
The top three contributors to relative performance, on a sector basis, were consumer discretionary, information technology (IT) and industrials due to stock selection. The top three detractors to relative performance were materials due to an underweight allocation, real estate and financials due to stock selection.
The three largest contributors to absolute performance during the quarter included ACM Research, a semiconductor equipment company which provides a variety of equipment used in China’s foundries, Yangzijiang Shipbuilding, China’s largest private-owned shipyard or ship building company, and Tongcheng Travel Holdings, an online travel agency. The top three detractors to performance included China Overseas Property Holdings, a property management firm, KE Holdings, a real estate digital platform provider that offers listing information as well as a suite of realty services, and Peijia Medical, a medical devices manufacturing company.
Outlook
Looking ahead, the question remains as to whether China’s equity markets are charting a sustainable path of recovery. Notwithstanding the well-known concerns, investor sentiment is improving toward China based upon perceived risk/reward.
Marginal year-over-year improvement in earnings expectations combined with stock multiples trading at roughly a 50% discount to February 2021 highs is giving investors confidence that current valuations provide an adequate cushion for unforeseen risks.
The calculus suggests that even with little to no improvement in sentiment or stock multiples, consensus estimates in year-over-year earnings growth could lead to attractive equity returns.
Thus, we are still in a cautious frame of mind, tinged with some optimism. While last year we think Chinese government policy over promised and under achieved, this year we think the government is seeking to under promise and overachieve. One potentially destabilizing variable on our radar is geopolitics, particularly with the U.S. election approaching.
Rolling 12 Month Returns For the period ended 31/03/2024 - I (Acc)
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.
The MSCI All Country Asia ex Japan Index is a free float–adjusted market capitalization–weighted index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI All Country Asia Pacific Index is a free float–adjusted market capitalization–weighted index of the stock markets of Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Index is a free float-adjusted market capitalization-weighted index of Chinese equities that includes H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges, Hong Kong-listed securities known as Red chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China) and foreign listings (e.g. ADRs).
The MSCI China All Shares Index captures large and mid-cap representation across China A shares, B shares, H shares, Red chips (issued by entities owned by national or local governments in China), P chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g. ADRs). The index aims to reflect the opportunity set of China share classes listed in Hong Kong,Shanghai, Shenzhen and outside of China.
The MSCI China A Onshore Index captures large and mid cap representation across China securities listed on the Shanghai and Shenzhen exchanges. Index is for comparative purposes only and it is not possible to invest directly in an index.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization-weighted index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets ex China Index is a free float-adjusted market capitalization-weighted index that captures large and mid cap representation across 23 of the 24 Emerging Markets (EM) countries excluding China: Brazil, Chile, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.
The MSCI Emerging Markets Small Cap Index is a free float-adjusted market capitalization weighted small cap index of the stock markets of Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungry, India, Indonesia, Kuwait, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan Thailand, Turkey and United Arab Emirates.
The S&P Bombay Stock Exchange 100 (S&P BSE 100) Index is a free float–adjusted market capitalization–weighted index of 100 stocks listed on the Bombay Stock Exchange.
The MSCI Japan Index is a free float–adjusted market capitalization–weighted index of Japanese equities listed in Japan.
The MSCI All Country Asia ex Japan Small Cap Index is a free float–adjusted market capitalization–weighted small cap index of the stock markets of China, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand.
The MSCI China Small Cap Index is a free float-adjusted market capitalization-weighted small cap index of the Chinese equity securities markets, including H shares listed on the Hong Kong exchange, B shares listed on the Shanghai and Shenzhen exchanges,Hong Kong-listed securities known as Red Chips (issued by entities owned by national or local governments in China) and P Chips (issued by companies controlled by individuals in China and deriving substantial revenues in China), and foreign listings (e.g., ADRs).
The MSCI India Index is a free float-adjusted market capitalization-weighted index of Indian equities listed in India.
Indexes are for comparative purposes only and it is not possible to invest directly in an index.
Commentary
Period ended 31 March 2024
Market Environment
Contributors and Detractors
Outlook
Rolling 12 Month Returns For the period ended 31/03/2024 - I (Acc)
Sources: Brown Brothers Harriman (Luxembourg) S.C.A, Matthews Asia, FactSet Research Systems, Bloomberg