Winnersrationale

While 2021 has been mixed for Greater China equities after the 2020 bull run, Matthews Asia’s Greater China equity strategy — the Matthews China Small Companies Fund — was not only able to produce impressive returns amidst market headwinds, but also testified to the value of prudent, bottom-up stock selection that sets itself apart from competitors.

To begin with, the fund is among the few “de facto” small and mid cap strategies in Greater China equity. It defines “small cap” as stocks with a market capitalisation of US$1 billion to US$5 billion and deploys a fundamental, bottom-up investment process. The managers of the fund seek to identify companies with sustainable long-term growth potential, solid business models, quality governance and reasonable valuations — an approach that they believe is especially suited for the small-cap asset class.

The fund identifies its investment universe of more than 100 companies from a vast pool of over 4,500 individual small to medium-cap firms. The screening process is broken down into two steps: first, it evaluates firms based on fundamentals such as return on invested capital, sales growth, gross margins, liquidity and net debt to equity; then it pins down specific sectors set to benefit from China’s industry dynamics and secular growth trend and within them, sub-sectors and particular companies.

This methodical approach to stock selection, coupled with the company’s long history in researching and interacting with Chinese companies, has paid off despite a challenging macro market. For one thing, it managed to avoid those hit hardest by the regulatory clampdown — large-cap technology companies, major real estate developers, after-school tutoring (AST)-related education stocks, and Macau gaming companies. As of the end of August 2021, the USD share class had generated an annualised return of 14.72% since its inception in 2012, beating the benchmark MSCI China Small Cap Index return of 4.6%.

In the past year, some of the most prominent private banks in Asia have picked the Matthews China Small Companies Fund as a recommended fund, and the fund has witnessed continued investor interest, recording a YoY 80% increase in AUM as of the end of August 2021. Matthews Asia offers private banks direct access to its portfolio management team and its chief investment officer, Robert Horrocks, and investment strategist, Andy Rothman, for macroeconomic insights on the region.

Capitalising on its strength of rigorous stock selection, in-depth analysis and knowledge of the China domestic market, Matthews Asia has proven to be a long-standing pioneer among Greater China equity providers. It has therefore been named Asian Private Banker’s Best Fund Provider — Greater China Equity.