N-CSRS 1 d186681dncsrs.htm FORM N-CSRS Form N-CSRS
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-08510

 

 

Matthews International Funds

(Exact name of registrant as specified in charter)

 

 

Four Embarcadero Center, Suite 550

San Francisco, CA 94111

(Address of principal executive offices) (Zip code)

 

 

William J. Hackett, President

Four Embarcadero Center, Suite 550

San Francisco, CA 94111

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code: 415-788-7553

Date of fiscal year end: December 31

Date of reporting period: June 30, 2021

 

 

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

 

 

 

Table of Contents
Item 1.

Reports to Stockholders.

 

  (a)

The Report to Shareholders is attached herewith.

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Matthews Asia Funds  |  Semi-Annual Report

June 30, 2021  |  matthewsasia.com

 

GLOBAL EMERGING MARKETS STRATEGIES

Matthews Emerging Markets Equity Fund

Matthews Emerging Markets Small Companies Fund

ASIA GROWTH STRATEGIES

Matthews Asia Growth Fund

Matthews Pacific Tiger Fund

Matthews Asia ESG Fund

Matthews Asia Innovators Fund

Matthews China Fund

Matthews China Small Companies Fund

Matthews India Fund

Matthews Japan Fund

Matthews Korea Fund

ASIA GROWTH AND INCOME STRATEGIES

Matthews Asian Growth and Income Fund

Matthews Asia Dividend Fund

Matthews China Dividend Fund

ASIA FIXED INCOME STRATEGIES

Matthews Asia Total Return Bond Fund

Matthews Asia Credit Opportunities Fund

 

 

 

LOGO

 

Paper copies of the Funds’ annual and semi-annual shareholder reports are no longer being sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Funds’ website matthewsasia.com, and you will be notified by mail each time a report is posted and provided with a website link to access the report. You may elect to receive paper copies of shareholder reports and other communications from the Funds anytime by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling 800.789.ASIA (2742).

Your election to receive reports in paper will apply to all Funds held in your account if you invest through your financial intermediary or all Funds held directly with Matthews Asia Funds.

 

LOGO

Table of Contents

Investor Class Performance and Expense Ratios (June 30, 2021) (unaudited)

 

 

 

         Average Annual Total  Return†      

 

     Prospectus
Expense
Ratios*		     Prospectus
Expense
Ratios
after  Fee
Waiver
and
Expense
Reimbursement*		  
     1 year     5 years     10 years     Since
Inception		     Inception
Date		  

GLOBAL EMERGING MARKETS STRATEGIES

              

Emerging Markets Equity Fund (MEGMX)

     51.05%       n.a.       n.a.       62.53%       4/30/20       2.77%       1.08% 1 

Emerging Markets Small Companies Fund (MSMLX)§

     54.60%       16.23%       8.20%       13.24%       9/15/08       1.67%       1.40% 3 

ASIA GROWTH STRATEGIES

              

Asia Growth Fund (MPACX)

     43.27%       17.37%       11.02%       11.17%       10/31/03       1.08%       1.08%  

Pacific Tiger Fund (MAPTX)

     42.78%       12.45%       8.32%       9.24%       9/12/94       1.08%       1.06% 2 

Asia ESG Fund (MASGX)

     62.50%       17.32%       n.a.       12.18%       4/30/15       1.42%       1.38% 3 

Asia Innovators Fund (MATFX)

     54.39%       24.73%       15.42%       7.13%       12/27/99       1.10%       1.10%  

China Fund (MCHFX)

     36.31%       22.71%       8.81%       11.27%       2/19/98       1.09%       1.09%  

China Small Companies Fund (MCSMX)

     30.59%       29.66%       13.75%       13.17%       5/31/11       1.52%       1.43% 3 

India Fund (MINDX)

     60.37%       8.71%       7.73%       10.84%       10/31/05       1.15%       1.15%  

Japan Fund (MJFOX)

     22.37%       9.15%       9.90%       6.75%       12/31/98       0.95%       0.95%  

Korea Fund (MAKOX)

     64.55%       11.47%       8.74%       7.12%       1/3/95       1.19%       1.19%  

ASIA GROWTH AND INCOME STRATEGIES

              

Asian Growth and Income Fund (MACSX)

     30.01%       7.82%       5.64%       9.21%       9/12/94       1.09%       1.09%  

Asia Dividend Fund (MAPIX)

     38.22%       11.46%       8.60%       9.82%       10/31/06       1.03%       1.02% 2 

China Dividend Fund (MCDFX)

     33.88%       16.18%       10.96%       11.66%       11/30/09       1.15%       1.15%  

ASIA FIXED INCOME STRATEGIES

              

Asia Total Return Bond Fund (MAINX)

     7.57%       4.80%       n.a.       4.57%       11/30/11       1.15%       1.12% 1 

Asia Credit Opportunities Fund (MCRDX)

     4.57%       4.06%       n.a.       4.21%       4/29/16       1.14%       1.14% 1 

 

 

†

Annualized performance for periods of at least one year, otherwise cumulative.

 

*

These figures are from the Funds’ prospectus dated as of April 30, 2021, and may differ from the actual expense ratios for fiscal year 2021, as shown in the financial highlights section of this report.

 

§

The Fund’s name changed from Matthews Asia Small Companies Fund to Matthews Emerging Markets Small Companies Fund on April 30, 2021.

 

1

Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 0.90% first by waiving class specific expenses (i.e., shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non-class specific expenses (e.g., custody fees) of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 0.90% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 0.90%. Pursuant to this agreement, any amount waived for prior fiscal years with respect to the Matthews Asia Total Return Bond Fund and the Matthews Asia Credit Opportunities Fund is not subject to recoupment. For the Matthews Emerging Markets Equity Fund, if the operating expenses fall below the expense limitation within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment. This agreement will remain in place until April 30, 2022 and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

 

2

Matthews has contractually agreed to waive a portion of its advisory fee and administrative and shareholder services fee if the Fund’s average daily net assets are over $3 billion, as follows: for every $2.5 billion average daily net assets of the Fund that are over $3 billion, the advisory fee rate and the administrative and shareholder services fee rate for the Fund with respect to such excess average daily net assets will be each reduced by 0.01%, in each case without reducing such fee rate below 0.00%. Any amount waived by Matthews pursuant to this agreement may not be recouped by Matthews. This agreement will remain in place until April 30, 2022 and may be terminated (i) at any time by the Board of Trustees upon 60 days’ prior written notice to Matthews; or (ii) by Matthews at the annual expiration date of the agreement upon 60 days’ prior written notice to the Trust, in each case without payment of any penalty.

 

3

Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 1.20% (except for the Matthews Emerging Markets Small Companies Fund, which has an expense limitation of 1.15% for the Institutional Class) first by waiving class specific expenses (i.e., shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non-class specific expenses (e.g., custody fees) of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 1.20% expense limitation (or 1.15% for the Matthews Emerging Markets Small Companies Fund), to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 1.20% (or 1.15% for the Matthews Emerging Markets Small Companies Fund). If the operating expenses fall below the expense limitation within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment. This agreement will remain in place until April 30, 2022 and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

 

2    MATTHEWS ASIA FUNDS

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Institutional Class Performance and Expense Ratios (June 30, 2021) (unaudited)

 

 

 

         Average Annual Total  Return†      

 

     Prospectus
Expense
Ratios*		     Prospectus
Expense
Ratios
after  Fee
Waiver
and
Expense
Reimbursement*		  
Institutional Class   1 year     5 years     10 years     Since
Inception		     Inception
Date		  

GLOBAL EMERGING MARKETS STRATEGIES

              

Emerging Markets Equity Fund (MIEFX)

     51.34%       n.a.       n.a.       62.79%       4/30/20       2.66%       0.90% 1 

Emerging Markets Small Companies Fund (MISMX)§

     54.88%       16.47%       n.a.       9.91%       4/30/13       1.53%       1.15% 3 

ASIA GROWTH STRATEGIES

              

Asia Growth Fund (MIAPX)

     43.48%       17.56%       11.21%       10.84%       10/29/10       0.95%       0.95%  

Pacific Tiger Fund (MIPTX)

     42.99%       12.63%       8.49%       8.33%       10/29/10       0.94%       0.92% 2 

Asia ESG Fund (MISFX)

     62.77%       17.57%       n.a.       12.42%       4/30/15       1.29%       1.20% 3 

Asia Innovators Fund (MITEX)

     54.61%       24.95%       n.a.       19.06%       4/30/13       0.95%       0.95%  

China Fund (MICFX)

     36.48%       22.94%       8.99%       8.23%       10/29/10       0.93%       0.93%  

China Small Companies Fund (MICHX)

     30.95%       n.a.       n.a.       28.51%       11/30/17       1.37%       1.20% 3 

India Fund (MIDNX)

     60.59%       8.89%       7.92%       6.73%       10/29/10       1.03%       1.03%  

Japan Fund (MIJFX)

     22.46%       9.23%       10.01%       10.55%       10/29/10       0.91%       0.91%  

Korea Fund (MIKOX)

     64.96%       11.57%       8.87%       9.97%       10/29/10       1.05%       1.05%  

ASIA GROWTH AND INCOME STRATEGIES

              

Asian Growth and Income Fund (MICSX)

     30.13%       7.97%       5.80%       5.84%       10/29/10       0.96%       0.96%  

Asia Dividend Fund (MIPIX)

     38.33%       11.57%       8.73%       8.58%       10/29/10       0.93%       0.93% 2 

China Dividend Fund (MICDX)

     33.99%       16.33%       11.14%       10.99%       10/29/10       1.02%       1.02%  

ASIA FIXED INCOME STRATEGIES

              

Asia Total Return Bond Fund (MINCX)

     7.78%       5.04%       n.a.       4.78%       11/30/11       1.00%       0.90% 1 

Asia Credit Opportunities Fund (MICPX)

     4.79%       4.31%       n.a.       4.45%       4/29/16       0.98%       0.90% 1 

 

 

†

Annualized performance for periods of at least one year, otherwise cumulative.

 

*

These figures are from the Funds’ prospectus dated as of April 30, 2021, and may differ from the actual expense ratios for fiscal year 2021, as shown in the financial highlights section of this report.

 

§

The Fund’s name changed from Matthews Asia Small Companies Fund to Matthews Emerging Markets Small Companies Fund on April 30, 2021.

 

1

Matthews has contractually agreed to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 0.90%. Pursuant to this agreement, any amount waived for prior fiscal years with respect to the Matthews Asia Total Return Bond Fund and the Matthews Asia Credit Opportunities Fund is not subject to recoupment. For the Matthews Emerging Markets Equity Fund, if the operating expenses fall below the expense limitation within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment. This agreement will remain in place until April 30, 2022 and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

 

2

Matthews has contractually agreed to waive a portion of its advisory fee and administrative and shareholder services fee if the Fund’s average daily net assets are over $3 billion, as follows: for every $2.5 billion average daily net assets of the Fund that are over $3 billion, the advisory fee rate and the administrative and shareholder services fee rate for the Fund with respect to such excess average daily net assets will be each reduced by 0.01%, in each case without reducing such fee rate below 0.00%. Any amount waived by Matthews pursuant to this agreement may not be recouped by Matthews. This agreement will remain in place until April 30, 2022 and may be terminated (i) at any time by the Board of Trustees upon 60 days’ prior written notice to Matthews; or (ii) by Matthews at the annual expiration date of the agreement upon 60 days’ prior written notice to the Trust, in each case without payment of any penalty.

 

3

Matthews has contractually agreed to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 1.20%% (except for the Matthews Emerging Markets Small Companies Fund, which has an expense limitation of 1.15% for the Institutional Class). If the operating expenses fall below the expense limitation within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment. This agreement will remain in place until April 30, 2022 and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

Past Performance: All performance quoted in this report is past performance and is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the returns quoted. If certain of the Funds’ fees and expenses had not been waived, returns would have been lower. For the Funds’ most recent month-end performance, please call 800.789.ASIA (2742) or visit matthewsasia.com.

 

matthewsasia.com  |   800.789.ASIA      3  

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LOGO

 

Cover photo: Terraced fields at Yunnan, China

 

 

This report has been prepared for Matthews International Funds (d/b/a Matthews Asia Funds) shareholders. It is not authorized for distribution to prospective investors unless accompanied or preceded by a current Matthews Asia Funds prospectus, which contains more complete information about the Funds’ investment objectives, risks and expenses. Additional copies of the prospectus or summary prospectus may be obtained at matthewsasia.com. Please read the prospectus carefully before you invest or send money.

The views and opinions in this report were current as of June 30, 2021. 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 a Fund’s future investment intent. Current and future portfolio holdings are subject to risk.

Statements of fact are from sources considered reliable, but neither the Funds nor the Investment Advisor makes any representation or guarantee as to their completeness or accuracy.

 

4    MATTHEWS ASIA FUNDS

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Contents

 

Message to Shareholders from the Investment Advisor     6  
Manager Commentaries, Fund Characteristics and Schedules of Investments:  
GLOBAL EMERGING MARKETS STRATEGIES  
Matthews Emerging Markets Equity Fund     8  
Matthews Emerging Markets Small Companies Fund*     13  
ASIA GROWTH STRATEGIES  
Matthews Asia Growth Fund     18  
Matthews Pacific Tiger Fund     23  
Matthews Asia ESG Fund     28  
Matthews Asia Innovators Fund     33  
Matthews China Fund     37  
Matthews China Small Companies Fund     42  
Matthews India Fund     47  
Matthews Japan Fund     52  
Matthews Korea Fund     57  
ASIA GROWTH AND INCOME STRATEGIES  
Matthews Asian Growth and Income Fund     62  
Matthews Asia Dividend Fund     67  
Matthews China Dividend Fund     72  
ASIA FIXED INCOME STRATEGIES  
Matthews Asia Total Return Bond Fund     77  
Matthews Asia Credit Opportunities Fund     83  
Index Definitions     88  
Disclosures     89  
Disclosure of Fund Expenses     90  
Statements of Assets and Liabilities     93  
Statements of Operations     105  
Statements of Changes in Net Assets     111  
Financial Highlights     119  
Notes to Financial Statements     135  
1. Organization     135  
2. Significant Accounting Policies     135  
3. Derivative Financial Instruments     142  
4. Capital Shares Transactions     144  
5. Investment Advisory Fees and Other Transactions with Affiliates     147  
6. Investments     150  
7. Holdings of 5% Voting Shares of Portfolio Companies     150  
8. Income Tax Information     150  
9. Public Health Emergency Risks     151  
10. Subsequent Events     151  

 

 

*The Fund’s name changed from Matthews Asia Small Companies Fund to Matthews Emerging Markets Small Companies Fund on April 30, 2021.

Investment Risk: Mutual fund shares are not deposits or obligations of, or guaranteed by, any depositary institution. Shares are not insured by the FDIC, Federal Reserve Board or any government agency and are subject to investment risks, including possible loss of principal amount invested. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Fixed income investments are subject to additional risks, including, but not limited to, interest rate, credit and inflation risks. In addition, single-country and sector funds may be subject to a higher degree of market risk than diversified funds because of a concentration in a specific industry, sector or geographic location. Investing in small and mid-size companies is more risky than investing in large companies as they may be more volatile and less liquid than larger companies. Please see the Funds’ Prospectuses and Statement of Additional Information for more risk disclosure.

 

matthewsasia.com  |   800.789.ASIA      5  

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LOGO

Message to Shareholders from the

Investment Advisor

Dear Valued Shareholders,

Along with the rest of the world, China has recently seen a spike in core inflation. Although, let us be honest, in the U.S. it is 3.8% year-on-year; in China, it is 0.9% year-on-year. One is a spike, the other is more like a soft fluffy cushion. I think it is in line with our previous view that China’s monetary policy was tight but not tightening. Now it appears that things may be loosening up a bit. As well they should!

China had the luxury of a more normal monetary policy because the effects of COVID have been much less severe on its economy. In all practicality, that meant that China was able to continue its policy of squeezing the poorly regulated parts of its credit markets without unduly impacting economic growth. For much of the rest of the world, the focus was on extreme liquidity from Central Banks and emergency payments to unemployed workers. As much of the world emerges from the pandemic-enforced lockdowns, we are seeing inflation rise as demand comes back strongly, before inventories have been rebuilt and before all workers are back on their shifts.

It is conventional wisdom in emerging markets investing that Asia (as well as Latin American markets) tend to do best during periods of loose monetary policy and faster economic growth. It’s conventional wisdom that, whereas it is on average true, also drives me crazy because it comes from the viewpoint of tactical rather than strategic asset allocation. However, I cannot deny that it is useful for those with a 12 to 24-month view. And perhaps only that—for as frightening as 3.8% core inflation may seem, the fact that supply constraints are a major cause also means that it is likely not sustainable. It could still accelerate if wage demands spiral and the U.S. Fed refuses to tighten, but this inflationary pressure can and should be tamed—five-year inflation expectations are still only 2.5%, and 10-year lower still.

Beyond the tactical view, what are the longer-term prospects? First, we have to acknowledge the political tensions between the U.S. and China. And whereas we were always inclined to think that these tensions would persist, I, for one, thought the rhetoric of the new Biden administration would at least be less confrontational. That expectation, it appears, was in error. Yes, the focus has moved from the trade deficit to issues of human rights and political systems, but the intention, despite this, is still to try to influence China by imposing economic costs. It does seem to me that the motivation for this comes partly from wishing to be a standard bearer for basic human rights—however, it also appears partly to be out of fear that China is starting to catch up in terms of technology with the West. As laudable as it is to uphold the former, it is neither good for the world, nor in my view even possible, to try to retard the latter.

The U.S. will not take on China in a vacuum. It is seeking the help of its allies in Europe. However, as we have noted in previous essays, Europe is not as unified on this subject as the U.S. might wish. Some parts of the continent, badly served by EU policy, have increasingly been looking East for investment funds. After Brexit, the U.K. has even publicly stated that it makes sense to replace some of the lost access to the markets of Europe with an approach to China. So, whilst the banner of human rights is a far better rallying cry than mere economic concerns, it is not guaranteed success. And then there is the rest of the world, including Eastern Europe, Latin America, Central Asia and Southeast Asia, where the lure of Chinese investment, infrastructure spending and demand for raw materials can be contrasted with the U.S.’ history of largely militaristic diplomacy. In these regions, the impetus for growth and the primacy of economic development make the new China containment policy by the U.S. far from a simple sales pitch.

 

 

6    MATTHEWS ASIA FUNDS

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For our part, our focus on companies that help facilitate the growth of middle-class lifestyles across Asia and other emerging market countries naturally allies us with the economic forces that improve social outcomes and, increasingly important for these economies, protection of the environment. Our preference for domestic businesses also shields our investments to an extent from some of the potential direct impacts of any sanctions. And our desire for sustainable, long-term businesses that treat minority shareholders well aligns us with the stated goals of economies to develop their capital markets and financial systems. Nevertheless, we have to continue to be mindful of these issues and the risks they pose to our investments in the current political environment.

In fact, as we look beyond this year, the chances for strong profit growth in Asia seem to be better than they have for some years. It is rather ironic, given current headlines, that China has in the past few years sacrificed profit growth for better wage growth. In this effort, it has been joined by other economies across Asia, though less so in other regions. As the U.S. and Europe struggle with labor issues born from a declining share of labor over many years, Asia’s economies have returned by and large to a more natural balance between capitalist and worker. It is possible that the inflation spike in the U.S. continues to be met by higher wage demands and then ultimately by a tighter monetary policy. At that point, U.S. profits will be caught in the jaws of a terrible vise. For many economies in Asia, where core inflation still ranges from zero to three percent, the likely scenario is continued modest reflationary pressures. Such reflation has typically favored better earnings growth*. In terms of portfolio flows into our markets and potential currency movements, it remains to be seen how businesses and asset allocators in the U.S. and Europe will deal with the confluence of a difficult political environment and the potential for improved economic momentum in emerging markets. Normally, it seems to me, economics wins out...but who knows?

Where does that leave us stewards of your capital? Well, the CEOs and CFOs of the companies we invest in also take all of these issues seriously. Ultimately, protecting their businesses is a prerequisite for growth. And those growth prospects are considerable. Nominal Gross Domestic Product growth is still expected to be much stronger in Asia than the rest of the world. Savings rates are high, helping those currencies to seem well-protected. And the growing complexity and diversity of consumer preferences gives scope for businesses to build new markets. The strength of the IPO market, in which we have participated to a much greater extent than in the past, is a testament to the wave of new businesses and industries emerging in Asia. And these days, Asia dominates emerging markets—and leads their growth too.

We remain excited at the prospects for your investments and are focused on finding the businesses and management that can best navigate the obstacles while taking advantage of the opportunities.

We are honored to be your advisor in Asian and emerging markets investment.

 

LOGO

Robert Horrocks, PhD

Chief Investment Officer

Matthews International Capital Management, LLC

 

*

Earnings growth is the change in an entity’s reported net income over a period of time.

 

 

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Table of Contents

LOGO

 

PORTFOLIO MANAGERS
John Paul Lech  

Lead Manager

  
FUND FACTS
    Investor   Institutional

Ticker

   MEGMX   MIEFX

CUSIP

   577130651   577130644

Inception

   4/30/20   4/30/20

NAV

   $17.23   $17.24

Initial Investment

   $2,500   $100,000

Gross Expense Ratio1

   2.77%   2.66%

After fee waiver and Reimbursement2

   1.08%   0.90%

Portfolio Statistics

Total # of Positions

 

53

Net Assets

  

$59.6 million

Weighted Average Market Cap

 

$173.3 billion

Portfolio Turnover3

 

62.3%

Benchmark

  

MSCI Emerging Markets Index

OBJECTIVE

 

 

Long-term capital appreciation.

STRATEGY

 

 

Under normal circumstances, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in emerging market countries. Emerging market countries generally include every country in the world except the United States, Australia, Canada, Hong Kong, Israel, Japan, New Zealand, Singapore and most of the countries in Western Europe.

Matthews Emerging Markets Equity Fund

Portfolio Manager Commentary  (unaudited)

For the first half of 2021, the Matthews Emerging Markets Equity Fund returned 9.33% (Investor Class) and 9.32% (Institutional Class), while its benchmark, the MSCI Emerging Markets Index, returned 7.58% over the same period. For the quarter ending June 30, the Fund returned 7.69% (Investor Class) and 7.68% (Institutional Class), while the benchmark returned 5.12%.

Market Environment

The second quarter of 2021 saw a high degree of dispersion below what appeared to be a calm quarter. Chinese equities were essentially flat in the second quarter and underperformed global emerging markets (“EM”). Sectors also displayed a high degree of return dispersion. Many of the larger Chinese internet companies, in particular, had a hard quarter as regulatory pressure continues to weigh on sentiment. The drag created by these large platform companies also led to smaller capitalization companies outperforming their larger peers.

The market remains dominated by a few key questions. One large debate relates to the structural vs. transitory nature of inflation in several economies, including the U.S. The easing of supply constraints should dissipate inflationary pressure for quite a few categories; however, expectations have also probably risen and at the Federal Open Market Committee meeting in June, the Fed had a more hawkish tone than that of March. Notably, the median projection of the Fed Funds Rate is for two hikes by the end of 2023. Gradual increases in U.S. rates are, on balance, not bad for EM and could indeed be positive if they are in part predicated upon strong economic activity coming out of the pandemic. Certain EM economies may see positive terms of trade impacts, should the positive price evolution in certain commodities like energy and base metals continue.

The other big question is where the world stands related to COVID-19. There’s been significant progress among many developed economies in terms of vaccine rollouts, which has been counterbalanced a bit by new coronavirus variants emerging and ongoing health care challenges in countries such as India. Continued uncertainty has muted enthusiasm, but many countries where the virus remains problematic are also experiencing high levels of investor interest.

Contributors and Detractors

For the first half of the year, our overweight to Vietnam (which is not represented in the benchmark) was a contributor to relative performance from a regional perspective. On the other hand, stock selection in Taiwan was a detractor. From a sector perspective, stock selection in energy and health care contributed to relative performance, while stock selection in financials was a detractor.

Turning to individual securities, our two positions in Vietnam, FPT Corp. and Military Commercial Joint Stock Bank, were among the largest contributors during the first half of the year. Vietnam has a large current account surplus, positive real GDP growth, a growing population and relatively benign inflation. Our attraction to Vietnam has to be backed up by company-level fundamentals, however. FPT Corp. is among the largest technology companies in the country, and is a top 10 holding. It is both a leader in providing broadband internet as well as in information technology (“IT”) services to companies abroad, mainly in the U.S. and Japan. Military Commercial Bank is a leading joint-stock bank in the country and has among the larger exposures to Vietnamese consumers within the financial system. Vietnam is the only frontier market the portfolio is currently invested in.

(continued)

 

 

1

Prospectus expense ratios.

2

Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 0.90% first by waiving class specific expenses (i.e., shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non-class specific expenses (e.g., custody fees) of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 0.90% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 0.90%. If the operating expenses fall below the expense limitation within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment. This agreement will remain in place until April 30, 2022 and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

3

The lesser of fiscal year 2020 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

 

8    MATTHEWS ASIA FUNDS

Table of Contents
 
PERFORMANCE AS OF JUNE 30, 2021  
 

 

     

 

       

 

       

 

      Average Annual
Total Returns		       

 

  
     3 Months      YTD      1 Year      Since
Inception		      Inception
date		  
Investor Class (MEGMX)      7.69%        9.33%        51.05%        62.53%        04/30/20  
Institutional Class (MIEFX)      7.68%        9.32%        51.34%        62.79%        04/30/20  
MSCI Emerging Markets Index4      5.12%        7.58%        41.36%        43.98%     

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund’s fees and expenses had not been waived. For the Fund’s most recent month-end performance visit matthewsasia.com.

 

 

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

 

LOGO

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

 

  4

It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 88 for index definition.

 

       
TOP TEN HOLDINGS5                     
     Sector      Country      % of Net Assets  
Samsung Electronics Co., Ltd., Pfd.    Information Technology      South Korea        6.5%  
Taiwan Semiconductor Manufacturing Co., Ltd.    Information Technology      Taiwan        6.4%  
Tencent Holdings, Ltd.    Communication Services      China/Hong Kong        6.2%  
Alibaba Group Holding, Ltd.    Consumer Discretionary      China/Hong Kong        3.3%  
AIA Group, Ltd.    Financials      China/Hong Kong        3.1%  
LUKOIL PJSC    Energy      Russia        2.8%  
FPT Corp.    Information Technology      Vietnam        2.6%  
First Quantum Minerals, Ltd.    Materials      Zambia        2.5%  
HDFC Bank, Ltd.    Financials      India        2.5%  
CapitaLand, Ltd.    Real Estate      Singapore        2.3%  
% OF ASSETS IN TOP 10                38.2%  

 

  5

Holdings may combine more than one security from same issuer and related depositary receipts.

 

matthewsasia.com  |   800.789.ASIA      9  

Table of Contents

Matthews Emerging Markets Equity Fund

Portfolio Manager Commentary  (unaudited) (continued)

On the other hand, New Oriental Education & Technology Group was a detractor. The company is among the older, larger and more established education companies in China. We bought the company partly on the expectation of a positive evolution in enrollment with the re-starting of in-person learning post pandemic. Ultimately, we sold out of the company as regulatory clouds persist in the education space which may limit the timing and types of services that private education companies can offer in China.

Notable Portfolio Changes

We had a quite active second quarter, adding seven new unique positions and exiting nine. New positions in the quarter include Chinese A-share company Beijing Oriental Yuhong, a leader in waterproofing coatings. We believe the company’s market is set to grow as construction spend shifts to quality. In contrast to many of the tech companies that are suffering from regulatory headwinds, we think better construction durability is aligned with China’s development objectives. In contrast, we sold Anhui Conch Cement Co., a leading and profitable Chinese cement company, during the quarter after seeing little to be excited about in terms of earnings evolution. We also initiated a position in Fix Price Group, a Russia-based chain of discount companies, comparable to a “dollar store” in the U.S. It sells mostly low-priced merchandise, rotating most of its items to generate consumer excitement while being one of the most reliable value stores for basic consumers. We believe the business model of Fix Price will allow the company to expand rapidly in the regions it operates as well as within existing stores via densification. In our view, the company is in the rare position of being able to grow fast and pay a sizable dividend at the same time. With a net-cash balance sheet, high management ownership and solid returns on capital, the company fits our strategy’s philosophy.

Outlook

In its own words, the Fed is “talking about talking about tapering.” As previously mentioned, higher rates that accrue gradually due to increased economic activity could be viewed as net positive for emerging market assets. We believe valuations on a relative basis are attractive in EM, as all asset classes are fairly picked over after years of very accommodative monetary policy. We’ve seen select EM currencies—notably the Brazilian real—strengthen over the quarter, which may continue over the second half of the year.

While there’s been significant progress in vaccine rollouts among many developed economies, it has been counterbalanced a bit by new variants of the virus emerging. That said, firms and countries have adapted to the challenges of operating during a pandemic, and we’re quite optimistic that reopening and the next normal will be a durable trend in the second half of 2021. The scope and nature of durable change at the company level as a result of pandemic is something we are highly focused on.

With a benchmark-agnostic approach, the portfolio is broadly diversified by country and sector, based on bottom-up stock selection. China is our largest underweight relative to its position in the MSCI Emerging Markets Index. The regulatory topography in internet/internet-adjacent, education and healthcare sectors, in particular, is hard to decipher, and this keeps us on the sidelines. More clarity on the regulatory environment in these sectors would be a welcomed development. However, there are still many great companies with durable advantage and the country remains our largest overall allocation in an absolute sense. As previously mentioned, relative to the benchmark one of our largest overweight markets is Vietnam. We believe it is quite possible that Vietnam will be upgraded from frontier to EM status by one or more of the relevant indices in the next few years. Our positions in Vietnam are by and large driven by the positive evolution of the domestic economy there. We have three positions in Mexico, but each is partly predicated upon the recovery of the global economy as much as the domestic conditions of Mexico. We highlight this contrast explicitly because it is in keeping with our “company then country” approach. We do not allocate to countries top down.

We continue to seek out high-growth, high-quality companies across emerging markets and across the market capitalization spectrum, looking for companies that can adapt and thrive across a broad range of conditions.

 

 
COUNTRY ALLOCATION (%)6,7  
China/Hong Kong     30.2  
India     9.9  
South Korea     9.8  
Brazil     7.9  
Taiwan     6.4  
Russia     6.2  
Mexico     4.9  
Vietnam     4.3  
Singapore     4.2  
Poland     2.7  
Philippines     2.6  
Canada     2.5  
Netherlands     2.0  
Israel     1.7  
Indonesia     1.5  
Cyprus     1.1  
France     1.1  
Cash and Other Assets, Less Liabilities     1.1  

 

 
SECTOR ALLOCATION (%)7  
Information Technology     21.2  
Consumer Discretionary     18.1  
Financials     15.7  
Communication Services     9.5  
Materials     8.7  
Energy     6.3  
Real Estate     6.0  
Health Care     5.5  
Industrials     4.3  
Consumer Staples     3.5  
Cash and Other Assets, Less Liabilities     1.1  

 

 
MARKET CAP EXPOSURE (%)7  
Mega Cap (over $25B)     64.1  
Large Cap ($10B-$25B)     15.9  
Mid Cap ($3B-10B)     11.2  
Small Cap (under $3B)     7.7  
Cash and Other Assets, Less Liabilities     1.1  

 

6

Not all countries where the Fund may invest are included in the benchmark index.

 

7

Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Country allocations and percentage values may be derived from different data sources and may not be consistent with other Fund literature.

 

 

10    MATTHEWS ASIA FUNDS

Table of Contents

Matthews Emerging Markets Equity Fund

June 30, 2021

Schedule of Investmentsa (unaudited)

COMMON EQUITIES: 92.4%

 

     Shares     Value  
CHINA/HONG KONG: 30.2%    

Tencent Holdings, Ltd.

     49,400       $3,719,450  

AIA Group, Ltd.

     150,200       1,863,318  

Alibaba Group Holding, Ltd.b

     53,500       1,516,930  

Wuxi Biologics Cayman, Inc.b,c,d

     74,500       1,364,117  

Yum China Holdings, Inc.

     18,000       1,192,500  

JD.com, Inc. ADRb

     14,000       1,117,340  

China International Capital Corp., Ltd. H Sharesc,d

     330,400       888,518  

Midea Group Co., Ltd. A Shares

     78,700       868,107  

Bilibili, Inc. ADRb

     7,000       852,880  

Estun Automation Co., Ltd. A Sharesb

     138,600       835,583  

Techtronic Industries Co., Ltd.

     46,500       810,354  

Jiumaojiu International Holdings, Ltd.c,d

     165,000       674,404  

KE Holdings, Inc. ADRb

     12,400       591,232  

Beijing Oriental Yuhong Waterproof Technology Co., Ltd. A Shares

     59,700       510,460  

Alibaba Group Holding, Ltd. ADRb

     1,900       430,882  

Weimob, Inc.b,c,d

     138,000       304,530  

BeiGene, Ltd. ADRb

     800       274,552  

Beijing Oriental Yuhong Waterproof Technology Co., Ltd. A Shares

     16,900       144,650  
   

 

 

  

Total China/Hong Kong

       17,959,807  
   

 

 

  
   
     
INDIA: 9.8%    

HDFC Bank, Ltd. ADRb

     20,200       1,477,024  

Infosys, Ltd. ADR

     61,100       1,294,709  

Dabur India, Ltd.

     115,359       883,278  

Reliance Industries, Ltd.

     27,441       780,323  

Kotak Mahindra Bank, Ltd.b

     32,624       749,897  

Aditya Birla Capital, Ltd.b

     431,705       682,128  
   

 

 

  

Total India

       5,867,359  
   

 

 

  
   
     
BRAZIL: 7.9%    

Vale SA ADR

     58,100       1,325,261  

Banco BTG Pactual SA

     45,800       1,123,959  

Hapvida Participacoes e Investimentos SAc,d

     272,600       844,579  

Magazine Luiza SA

     166,900       709,706  

Banco Bradesco SA ADR

     137,030       702,964  
   

 

 

  

Total Brazil

       4,706,469  
   

 

 

  
   
     
RUSSIA: 7.3%    

LUKOIL PJSC ADR

     18,063       1,676,471  

Novatek PJSC GDRd

     6,021       1,321,213  

Fix Price Group, Ltd. GDRb,d

     79,378       694,557  

Polymetal International PLC

     31,344       674,982  
   

 

 

  

Total Russia

       4,367,223  
   

 

 

  
   
     
TAIWAN: 6.4%    

Taiwan Semiconductor Manufacturing Co., Ltd.

     176,000       3,790,694  
   

 

 

  

Total Taiwan

       3,790,694  
   

 

 

  
   
     
MEXICO: 4.9%    

Grupo Cementos de Chihuahua SAB de CV

     129,400       1,044,794  

Prologis Property Mexico SA de CV, REIT

     437,498       974,242  

Grupo Aeroportuario del Sureste SAB de CV ADRb

     5,000       924,500  
   

 

 

  

Total Mexico

       2,943,536  
   

 

 

  
     Shares     Value  
VIETNAM: 4.3%    

FPT Corp.

     409,348       $1,564,714  

Military Commercial Joint Stock Bankb

     518,800       977,095  
   

 

 

  

Total Vietnam

       2,541,809  
   

 

 

  
   
     
SINGAPORE: 4.2%    

CapitaLand, Ltd.

     505,200       1,395,479  

Sea, Ltd. ADRb

     4,000       1,098,400  
   

 

 

  

Total Singapore

       2,493,879  
   

 

 

  
   
     
SOUTH KOREA: 3.3%    

Kia Corp.

     14,830       1,181,846  

Hugel, Inc.b

     3,776       805,030  
   

 

 

  

Total South Korea

       1,986,876  
   

 

 

  
   
     
POLAND: 2.7%    

LiveChat Software SA

     22,332       807,068  

Allegro.eu SAb,c,d

     45,528       783,516  
   

 

 

  

Total Poland

       1,590,584  
   

 

 

  
   
     
PHILIPPINES: 2.6%    

Wilcon Depot, Inc.

     2,300,900       949,767  

Ayala Land, Inc.

     797,500       588,956  
   

 

 

  

Total Philippines

       1,538,723  
   

 

 

  
   
     
ZAMBIA: 2.5%    

First Quantum Minerals, Ltd.

     64,100       1,477,361  
   

 

 

  

Total Zambia

       1,477,361  
   

 

 

  
   
     
NETHERLANDS: 2.0%    

Heineken N.V.

     9,727       1,180,852  
   

 

 

  

Total Netherlands

       1,180,852  
   

 

 

  
   
     
ISRAEL: 1.7%    

Nice, Ltd. ADRb

     4,200       1,039,332  
   

 

 

  

Total Israel

       1,039,332  
   

 

 

  
   
     
INDONESIA: 1.5%    

PT Bank Rakyat Indonesia Persero

     3,338,400       907,695  
   

 

 

  

Total Indonesia

       907,695  
   

 

 

  
   
     
FRANCE: 1.1%    

LVMH Moet Hennessy Louis Vuitton SE

     810       637,192  
   

 

 

  

Total France

       637,192  
   

 

 

  
   
   
TOTAL COMMON EQUITIES

 

     55,029,391  
   

 

 

  

(Cost $46,549,058)

    
   
 

 

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Table of Contents

Matthews Emerging Markets Equity Fund

June 30, 2021

Schedule of Investmentsa (unaudited) (continued)

PREFERRED EQUITIES: 6.5%

 

     Shares     Value  
SOUTH KOREA: 6.5%

 

Samsung Electronics Co., Ltd., Pfd.

     58,747       $3,844,996  
   

 

 

  

Total South Korea

 

     3,844,996  
   

 

 

  
   
   
TOTAL PREFERRED EQUITIES

 

     3,844,996  
   

 

 

  

(Cost $2,981,250)

    
   
   
TOTAL INVESTMENTS: 98.9%

 

     58,874,387  

(Cost $49,530,308)

 

   
CASH AND OTHER ASSETS,
LESS LIABILITIES: 1.1%

 

     678,177  
   

 

 

  

NET ASSETS: 100.0%

 

     $59,552,564  
   

 

 

  

 

a

Certain securities were fair valued under the valuation policies approved by the Board of Trustees (Note 2-A).

 

b

Non-income producing security.

 

c

Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. The security may be resold in transactions exempt from registration normally to qualified institutional buyers. The security has been determined to be liquid in accordance with procedures adopted by the Funds’ Board of Trustees. At June 30, 2021, the aggregate value is $4,859,664, which is 8.16% of net assets.

 

d

The securities may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the Securities Act of 1933.

 

ADR

American Depositary Receipt

 

GDR

Global Depositary Receipt

 

Pfd.

Preferred

 

REIT

Real Estate Investment Trust

See accompanying notes to financial statements.

 

12    MATTHEWS ASIA FUNDS     

Table of Contents

LOGO

 

PORTFOLIO MANAGERS
Vivek Tanneeru  
Lead Manager  
Robert Harvey, CFA   Jeremy Sutch, CFA
Co-Manager  

Co-Manager

FUND FACTS
    Investor   Institutional  

Ticker

   MSMLX   MISMX

CUSIP

   577125206   577125867

Inception

   9/15/08   4/30/13

NAV

  

$30.72

  

$30.68

Initial Investment

   $2,500   $100,000

Gross Expense Ratio1

  

1.67%

  

1.53%

After Fee Waiver and Reimbursement2

  

1.40%

  

1.15%

Portfolio Statistics

  

Total # of Positions

  

74

Net Assets

  

$384.4 million

Weighted Average
Market Cap

  

$4.9 billion

Portfolio Turnover3

  

111.9%

Benchmark

  

MSCI Emerging Markets Small Cap Index

OBJECTIVE

 

 

Long-term capital appreciation.

STRATEGY

 

 

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of Small Companies located in emerging market countries. Emerging market countries generally include every country in the world except the United States, Australia, Canada, Hong Kong, Israel, Japan, New Zealand, Singapore and most of the countries in Western Europe. The Fund defines Small Companies as companies with market capitalization no higher than the greater of $5 billion or the market capitalization of the largest company included in the Fund’s primary benchmark, the MSCI Emerging Markets Small Cap Index.

Matthews Emerging Markets Small Companies Fund (formerly known as Matthews Asia Small Companies Fund)

Portfolio Manager Commentary  (unaudited)

For the first half of 2021, the Matthews Emerging Markets Small Companies Fund returned 18.47% (Investor Class) and 18.59% (Institutional Class), while its benchmark, the MSCI Emerging Markets Small Cap Index, returned 19.95% over the same period. For the quarter ending June 30, the Fund returned 18.06% (Investor Class) and 18.09% (Institutional Class), while the benchmark returned 11.36%.

Market Environment

From late January to early June, value stocks outperformed growth stocks as investors expected the strong global economic rebound from last year’s COVID-related slowdown to drive profit growth in economic cycle-sensitive industries. This view was further reinforced by investors’ belief that the U.S. Fed would let inflation run ahead of its target for a period of time to enable a stronger economic recovery. This scenario was also very conducive to the outperformance of small-cap stocks in relation to large-cap stocks in emerging markets (EM). Also not surprisingly, the industrials and materials sectors were the best performing during the first half of the year, while the performance of the health care sector lagged, as did expensive internet and other fast-growing industries. However that trend moderated somewhat after the Federal Open Market Committee meeting in June, when the Fed signaled the potential for interest rate hikes sooner than expected, lowering the potential long-term growth overshoot from previous expectations.

During the first half of the year the best performing markets included India, South Africa and Saudi Arabia, while the worst performing markets were COVID- and political uncertainty-impacted Andean countries Columbia and Peru. In terms of currencies, the Brazilian real and South African rand appreciated the most during the first half of 2021, with the real gaining during the second quarter on the back of rate hikes and generally strong commodity prices. Meanwhile, the Turkish lira and Argentinian peso depreciated the most.

Performance Contributors and Detractors

For the first half of the year, Vietnam and South Korea were the biggest contributors to relative performance, while stock selection in Taiwan and Indonesia, along with our overweight to Indonesia, were notable detractors from relative performance. From a sector perspective, industrials, health care and financials contributed positively, while information technology and consumer discretionary stocks detracted relative to the benchmark.

Turning to individual securities, Chinese solar inverter manufacturer Ginlong Technologies Co. was among the biggest contributors to absolute performance during the first half of the year. The company specializes in string inverters that are predominantly used in distributed solar panel applications globally. The fast growing underlying market for solar panel installations, potential for market share gains and market share growth in ground-mounted solar power stations have helped drive the stock price higher.

(continued)

 
1

Prospectus expense ratios.

2

Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 1.15% first by waiving class specific expenses (i.e., shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non-class specific expenses (e.g., custody fees) of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 1.15% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 1.15%. If the operating expenses fall below the expense limitation within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment. This agreement will remain in place until April 30, 2022 and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

3

The lesser of fiscal year 2020 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

 

matthewsasia.com  |   800.789.ASIA      13  

Table of Contents
                 
PERFORMANCE AS OF JUNE 30, 2021                                                        
 

 

     

 

                    Average Annual Total Returns       

 

  
     3 Months      YTD      1 Year      3 Years      5 Years      10 Years      Since
Inception		      Inception
Date		  
Investor Class (MSMLX)      18.06%        18.47%        54.60%        18.28%        16.23%        8.20%        13.24%        09/15/08  
Institutional Class (MISMX)      18.09%        18.59%        54.88%        18.51%        16.47%        n.a.        9.91%        04/30/13  
MSCI Emerging Markets Small Cap Index4      11.36%        19.95%        64.38%        12.74%        12.24%        4.88%        8.53% 5    
MSCI AC Asia ex Japan Small Cap Index4      9.61%        20.08%        62.52%        12.75%        12.17%        5.61%        9.10% 5    

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund’s fees and expenses had not been waived. For the Fund’s most recent month-end performance, visit matthewsasia.com.

 

 

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

 

LOGO

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

 

  4

It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 93 for index definition.

 

  5

Calculated from 9/15/08.

 

       
TOP TEN HOLDINGS6                     
     Sector      Country      % of Net Assets  
Silergy Corp.    Information Technology      China/Hong Kong        5.9%  
Shriram City Union Finance, Ltd.    Financials      India        5.8%  
Ginlong Technologies Co., Ltd.    Industrials      China/Hong Kong        4.7%  
Hugel, Inc.    Health Care      South Korea        3.7%  
Military Commercial Joint Stock Bank    Financials      Vietnam        3.4%  
Phoenix Mills, Ltd.    Real Estate      India        3.4%  
Peijia Medical, Ltd.    Health Care      China/Hong Kong        2.7%  
Mobile World Investment Corp.    Consumer Discretionary      Vietnam        2.3%  
Andes Technology Corp.    Information Technology      Taiwan        2.3%  
Ashok Leyland, Ltd.    Industrials      India        2.1%  
% OF ASSETS IN TOP 10                36.3%  
  6

Holdings may combine more than one security from same issuer and related depositary receipts.

 

14    MATTHEWS ASIA FUNDS

Table of Contents

Matthews Emerging Markets Small Companies Fund

Portfolio Manager Commentary  (unaudited) (continued)

On the other hand, Indonesian stocks in general, and Bank Tabungan Negara in particular, were among the biggest detractors to relative performance during the quarter. Bank Tabungan Negara Persero is an Indonesian market leader in mortgage lending and the company specializes in middle to low income borrowers. There is a persistent shortage of housing in Indonesia and that demand in conjunction with the under-penetration of mortgages offers strong growth prospects for the company. We believe the bank could potentially see a sequential improvement in profits driven by reduced credit losses this year. But the Indonesian market in general, and its banking sector in particular, has been negatively affected by the latest wave of COVID infections. We remain positive on the mid- to long-term growth prospects of Bank Tabungan Negara, driven by strong underlying demand, a rebounding property market, supportive government policies in the sector and the potential for the Bank to improve its operational efficiencies. The investment case is also supported by very attractive valuations.

Notable Portfolio Changes

During the second quarter, we initiated numerous positions in emerging markets outside of Asia, as part of the portfolio’s transition to emerging markets in countries including Russia, Brazil, Chile and Mexico, among others. As part of this transition we have initiated a position in Ozon Holdings, a leading Russian e-commerce company. Ozon has an attractive combination of exposure to a relatively large market with a low but fast-growing e-commerce penetration (a trend that was accelerated by COVID-19), strong execution capabilities and management team, superior investments in the underlying technology and physical infrastructure along with a good mix of both direct-to-consumer sales and marketplace formats.

Outlook

Looking ahead, earnings growth, liquidity and valuations all appear supportive of emerging markets equities. We expect strong corporate earnings across emerging markets small caps in 2021, as the global recovery continues to expand. Across the region we see sufficient liquidity—while we have not seen as much uptake in corporate credit issuance, any pick up in credit issuance should further support economic growth.

In many emerging markets, we are seeing a return to normalcy, leading to better economic prospects for businesses. Parts of Asia have progressed from recovery to expansion, while others like Indonesia are still getting back to pre-pandemic levels of activity. Other emerging market countries like Peru, Columbia and South Africa, which have yet to recover from the pandemic, are also facing uncertain political climates. Overall, we continue to believe that emerging markets small companies are poised for attractive growth over the long term, driven by innovation, thriving entrepreneurism and strong consumption growth. Post-pandemic economic recovery should provide additional tailwinds to these growth prospects.

 
COUNTRY ALLOCATION (%)7,8  
China/Hong Kong     31.1  
India     23.3  
Taiwan     11.3  
South Korea     8.4  
Vietnam     7.7  
Indonesia     4.0  
Philippines     2.7  
Mexico     2.2  
Russia     2.1  
Cyprus     1.3  
Bangladesh     1.3  
Chile     1.2  
Brazil     1.1  
United States     1.0  
Canada     0.8  
United Kingdom     0.7  
Thailand     0.5  
Uruguay     0.1  
Liabilities in Excess of Cash and Other Assets     -0.5  

 

 
SECTOR ALLOCATION (%)8  
Information Technology     24.8  
Industrials     23.3  
Financials     16.0  
Health Care     13.8  
Consumer Discretionary     9.5  
Real Estate     6.7  
Consumer Staples     3.3  
Materials     3.2  
Liabilities in Excess of Cash and Other Assets     -0.5  

 

 
MARKET CAP EXPOSURE (%)8,9  
Mega Cap (over $25B)     0.0  
Large Cap ($10B-$25B)     14.3  
Mid Cap ($3B-10B)     41.2  
Small Cap (under $3B)     45.0  
Liabilities in Excess of Cash and Other Assets     -0.5  

 

7

Not all countries where the Fund may invest are included in the benchmark index.

 

8

Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Country allocations and percentage values may be derived from different data sources and may not be consistent with other Fund literature.

 

9

The Fund defines Small Companies as companies with market capitalization no higher than the greater of $5 billion or the market capitalization of the largest company included in the Fund’s primary benchmark, the MSCI All Country Asia ex Japan Small Cap Index.

 

 

     matthewsasia.com  |  800.789.ASIA      15  

Table of Contents

Matthews Emerging Markets Small Companies Fund

June 30, 2021

Schedule of Investmentsa (unaudited)

COMMON EQUITIES: 100.5%

 

     Shares     Value  
CHINA/HONG KONG: 31.1%    

Silergy Corp.

     168,000       $22,801,553  

Ginlong Technologies Co., Ltd. A Shares

     418,337       11,680,553  

Peijia Medical, Ltd.b,c,d

     2,261,000       10,521,255  

SITC International Holdings Co., Ltd.

     1,823,000       7,618,218  

Innovent Biologics, Inc.b,c,d

     591,500       6,899,764  

Ginlong Technologies Co., Ltd. A Shares

     232,294       6,478,263  

Airtac International Group

     160,000       6,163,191  

Centre Testing International Group Co., Ltd. A Shares

     1,134,574       5,586,738  

ASM Pacific Technology, Ltd.

     352,000       4,768,270  

Flat Glass Group Co., Ltd. H Shares

     1,040,000       4,283,058  

Yantai China Pet Foods Co., Ltd. A Shares

     673,950       4,275,878  

OPT Machine Vision Tech Co., Ltd. A Shares

     52,973       3,687,174  

RemeGen Co., Ltd. H Sharesb,c,d

     177,000       2,699,581  

Hongfa Technology Co., Ltd. A Shares

     264,400       2,561,684  

Asymchem Laboratories (Tianjin) Co., Ltd. A Shares

     40,514       2,330,413  

AK Medical Holdings, Ltd.b,d

     1,304,000       2,300,447  

Jacobio Pharmaceuticals Group Co., Ltd.b,c,d

     759,900       2,131,049  

Hua Hong Semiconductor, Ltd.b,c,d

     350,000       1,932,244  

Jiumaojiu International Holdings, Ltd.b,d

     456,000       1,863,808  

Kingdee International Software Group Co., Ltd.c

     532,000       1,801,811  

InnoCare Pharma, Ltd.b,c,d

     449,000       1,652,502  

Provident Acquisition Corp.c

     150,000       1,504,500  

Yidu Tech, Inc.b,c,d

     273,000       1,433,076  

Yihai International Holding, Ltd.

     168,000       1,128,296  

Sichuan Teway Food Group Co., Ltd. A Shares

     227,292       1,033,514  

Ever Sunshine Lifestyle Services Group, Ltd.d

     158,000       392,264  
   

 

 

  

Total China/Hong Kong

       119,529,104  
   

 

 

  
   
     
INDIA: 23.3%    

Shriram City Union Finance, Ltd.

     959,588       22,145,037  

Phoenix Mills, Ltd.c

     1,189,744       13,059,145  

Ashok Leyland, Ltd.c

     4,900,968       8,102,616  

Lemon Tree Hotels, Ltd.b,c,d

     13,594,355       7,686,219  

Finolex Cables, Ltd.

     1,052,014       7,366,409  

Marico, Ltd.

     859,603       6,141,449  

Indian Railway Catering & Tourism Corp., Ltd.

     210,882       5,776,933  

Dr. Lal PathLabs, Ltd.b,d

     118,130       5,206,007  

Galaxy Surfactants, Ltd.d

     103,295       4,205,359  

Crompton Greaves Consumer Electricals, Ltd.

     645,959       3,782,008  

GMR Infrastructure, Ltd.c

     7,483,413       3,205,819  

HEG, Ltd.c

     96,032       2,835,849  
   

 

 

  

Total India

       89,512,850  
   

 

 

  
   
     
TAIWAN: 11.3%    

Andes Technology Corp.

     497,000       8,981,666  

Formosa Sumco Technology Corp.

     983,000       6,664,176  

Yageo Corp.

     320,000       6,442,379  

M31 Technology Corp.

     401,000       5,724,944  

Accton Technology Corp.

     435,000       5,151,088  

ASMedia Technology, Inc.

     101,000       4,871,552  

Sporton International, Inc.

     338,000       2,915,083  

Foxsemicon Integrated Technology, Inc.

     328,000       2,805,947  
   

 

 

  

Total Taiwan

       43,556,835  
   

 

 

  
     Shares     Value  
SOUTH KOREA: 8.3%    

Hugel, Inc.c

     66,821       $14,246,008  

Ecopro BM Co., Ltd.

     38,982       7,339,031  

Eugene Technology Co., Ltd.

     117,101       4,704,104  

Wonik IPS Co., Ltd.

     79,768       3,509,858  

Koh Young Technology, Inc.

     109,605       2,315,508  
   

 

 

  

Total South Korea

       32,114,509  
   

 

 

  
   
     
VIETNAM: 7.7%    

Military Commercial Joint Stock Bankc

     7,022,274       13,225,581  

Mobile World Investment Corp.

     1,360,605       8,983,665  

FPT Corp.

     1,223,140       4,675,396  

Nam Long Investment Corp.

     1,505,612       2,551,219  
   

 

 

  

Total Vietnam

       29,435,861  
   

 

 

  
   
     
INDONESIA: 4.0%    

PT Summarecon Agungc

     94,141,016       5,533,036  

PT Bank Tabungan Negara Perseroc

     56,429,800       5,344,212  

PT Mitra Adiperkasac

     103,995,500       4,488,052  
   

 

 

  

Total Indonesia

       15,365,300  
   

 

 

  
   
     
RUSSIA: 3.4%    

TCS Group Holding PLC GDRd

     58,618       5,131,620  

Moscow Exchange MICEX-RTS PJSC

     1,742,160       4,068,438  

Ozon Holdings PLC ADRc

     65,700       3,851,334  
   

 

 

  

Total Russia

       13,051,392  
   

 

 

  
   
     
PHILIPPINES: 2.7%    

Cebu Air, Inc.c

     6,409,000       7,108,867  

Wilcon Depot, Inc.

     7,918,000       3,268,398  
   

 

 

  

Total Philippines

       10,377,265  
   

 

 

  
   
     
MEXICO: 2.1%    

Grupo Cementos de Chihuahua SAB de CV

     623,600       5,035,036  

Banco del Bajio SAb,d

     1,813,200       3,252,736  
   

 

 

  

Total Mexico

       8,287,772  
   

 

 

  
   
     
CHILE: 2.0%    

Parque Arauco SAc

     3,327,650       4,667,111  

Lundin Mining Corp.

     334,300       3,015,064  
   

 

 

  

Total Chile

       7,682,175  
   

 

 

  
   
     
BANGLADESH: 1.3%    

BRAC Bank, Ltd.

     8,321,833       4,860,253  
   

 

 

  

Total Bangladesh

       4,860,253  
   

 

 

  
   
     
BRAZIL: 1.1%    

Vamos Locacao de Caminhoes Maquinas e Equipamentos SAc

     379,500       4,320,858  
   

 

 

  

Total Brazil

       4,320,858  
   

 

 

  
   
     
UNITED STATES: 1.0%    

Legend Biotech Corp. ADRc

     90,059       3,696,922  
   

 

 

  

Total United States

       3,696,922  
   

 

 

  
   
     
UNITED KINGDOM: 0.7%    

Pepco Group NVb,c,d

     200,000       $2,570,155  
   

 

 

  

Total United Kingdom

       2,570,155  
   

 

 

  
   
 

 

16    MATTHEWS ASIA FUNDS

Table of Contents

Matthews Emerging Markets Small Companies Fund

June 30, 2021

Schedule of Investmentsa (unaudited) (continued)

COMMON EQUITIES (continued)

 

     Shares     Value  
     
THAILAND: 0.5%    

Kasikornbank Public Co., Ltd.

     505,000       1,863,908  
   

 

 

  

Total Thailand

       1,863,908  
   

 

 

  
   
     
URUGUAY: 0.0%    

Dlocal, Ltd.c

     4,047       212,589  
   

 

 

  

Total Uruguay

       212,589  
   

 

 

  
   
     
SRI LANKA: 0.0%    

Ceylon Tobacco Co. PLC

     6,222       29,777  
   

 

 

  

Total Sri Lanka

       29,777  
   

 

 

  
   
   
TOTAL INVESTMENTS: 100.5%

 

     386,467,525  

(Cost $269,482,446)

    
   
LIABILITIES IN EXCESS OF CASH
AND OTHER ASSETS: (0.5%)		       (2,038,863 ) 
   

 

 

  

NET ASSETS: 100.0%

       $384,428,662  
   

 

 

  
a

Certain securities were fair valued under the valuation policies approved by the Board of Trustees (Note 2-A).

 

b

Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. The security may be resold in transactions exempt from registration normally to qualified institutional buyers. The security has been determined to be liquid in accordance with procedures adopted by the Funds’ Board of Trustees. At June 30, 2021, the aggregate value is $50,148,843, which is 13.05% of net assets.

 

c

Non-income producing security.

 

d

The securities may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the Securities Act of 1933.

 

ADR

American Depositary Receipt

GDR

Global Depositary Receipt

See accompanying notes to financial statements.

 

 

matthewsasia.com  |   800.789.ASIA      17  

Table of Contents

LOGO

 

PORTFOLIO MANAGERS
Taizo Ishida  

Lead Manager

  
Michael J. Oh, CFA  

Co-Manager

  
FUND FACTS
    Investor   Institutional

Ticker

   MPACX   MIAPX

CUSIP

   577130867   577130776

Inception

   10/31/03   10/29/10

NAV

  

$41.75

  

$42.17

Initial Investment

   $2,500   $100,000

Gross Expense Ratio1

  

1.08%

  

0.95%

Portfolio Statistics

    

Total # of Positions

     66

Net Assets

     $2.4 billion

Weighted Average Market Cap

   $66.0 billion

Portfolio Turnover2

   42.8%

Benchmark

MSCI AC Asia Pacific Index

OBJECTIVE

 

 

Long-term capital appreciation.

STRATEGY

 

 

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in Asia. Asia consists of all countries and markets in Asia, and includes developed, emerging and frontier countries and markets in the Asian region. The Fund may also invest in the convertible securities, of any duration or quality, of Asian companies.

Matthews Asia Growth Fund

Portfolio Manager Commentary  (unaudited)

For the first half of 2021, the Matthews Asia Growth Fund returned 5.86% (Investor Class) and 5.90% (Institutional Class), while its benchmark, the MSCI All Country Asia Pacific Index, returned 5.14% over the same period. For the quarter ending June 30, the Fund returned 7.91% (Investor Class) and 7.93% (Institutional Class), while the benchmark returned 2.66%.

Market Environment

Asian equity markets were broadly positive during the first half of the year, with growth stocks regaining momentum after the first quarter’s sharp pivot to value equities. In our view, growth stocks showed strength in the second quarter due to three factors: the trajectory of U.S. interest rate which peaked on May 12—which also proved to be the trough of the global equity market; COVID data trends such as vaccination penetration rates, number of new cases, hospitalizations and deaths; and the global Purchasing Managers’ Index (PMI)—an indicator of economic trends in the manufacturing and services sectors—peaked in May, suggesting either a pause or the end of the current cycle. Japan was hampered by the second factor, suffering from slow vaccination rollout, with partial national lockdowns, while China struggled with the third factor, as global economic momentum slowed.

During the period, Taiwan and India were the best performing Asia Pacific equities markets, followed by strong returns in Australia and Singapore, while Indonesia and Malaysia were relative laggards. Sector wise, “value” sectors such as energy, materials and financials outperformed at the expense of “growth” sectors such as consumer staples, health care and consumer discretionary.

Performance Contributors and Detractors

Bilibili, Inc., a Chinese online entertainment company focusing on offering content that includes videos, live broadcasting and mobile games, was the top contributor to absolute performance year to date. Bilibili was the largest holding in the portfolio at the end of the second quarter, and our conviction level in the company remains high. Wuxi Biologics, the largest Chinese research and development outsourcing company for biologic drug development, was the next largest contributor to absolute performance. Wuxi’s stock price rallied strongly from a sluggish performance in the first quarter. Stock selection within the health care sector was a significant contributor to relative performance, as five out of the top 10 contributors to the portfolio’s absolute performance were health care companies, despite the relative weakness of the sector during the period.

On the other hand, Cloopen Group Holding Ltd., a China-based provider of cloud-based computing services offering communication solutions and networking services to clients worldwide, was the largest detractor to absolute performance. We participated in the company’s IPO in February with a positive view of the high-growing CPaaS (Communications Platform as a Service) space in China. Subsequently we have seen a slower cloud-based communications market growth rate in China than anticipated. While the jury is still out with respect to CPaaS, our position in Cloopen was less than 0.5% of the portfolio, and we chose to exit this position in the second quarter. AI Inside, a Japanese artificial intelligence—based software as a service OCR (optical character recognition) provider, was another large detractor. Since our initial purchase in June 2020, AI Inside performed well on the back of very strong topline growth until the third quarter earnings report in Feb 2021, which told a different story as new accounts were not opening up as fast as expected. In addition, the company indicated a new strategy focusing on existing its core OCR software business, and we exited our position.

Notable Portfolio Changes

In the second quarter, some notable portfolio additions include two large-cap Chinese companies, Meituan, a web-based shopping platform provider and Wuxi AppTec, a contract research organization; a large-cap Indian automaker Maruti Suzuki India Ltd.;

(continued)

 
1

Prospectus expense ratios.

2

The lesser of fiscal year 2020 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

 

18    MATTHEWS ASIA FUNDS

Table of Contents
 
PERFORMANCE AS OF JUNE 30, 2021  
 

 

     

 

       

 

       

 

      Average Annual Total Returns       

 

  
     3 Months      YTD      1 Year      3 Years      5 Years      10 Years      Since
Inception		      Inception
Date		  
Investor Class (MPACX)      7.91%        5.86%        43.27%        16.82%        17.37%        11.02%        11.17%        10/31/03  
Institutional Class (MIAPX)      7.93%        5.90%        43.48%        16.99%        17.56%        11.21%        10.84%        10/29/10  
MSCI AC Asia Pacific Index3      2.66%        5.14%        34.71%        10.66%        12.94%        7.28%        8.00% 4    

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. For the Fund’s most recent month-end performance, visit matthewsasia.com.

 

 

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

 

LOGO

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

 

  3

It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 88 for index definition.

 

  4

Calculated from 10/31/03.

 

         
TOP TEN HOLDINGS                            
     Sector      Country             % of Net Assets  
Wuxi Biologics Cayman, Inc.    Health Care      China/Hong Kong             6.2%  
Bilibili, Inc.    Communication Services      China/Hong Kong             5.9%  
Innovent Biologics, Inc.    Health Care      China/Hong Kong             3.4%  
BeiGene, Ltd.    Health Care      China/Hong Kong             3.2%  
Sony Group Corp.    Consumer Discretionary      Japan             3.1%  
XPeng, Inc.    Consumer Discretionary      China/Hong Kong             2.7%  
Shenzhou International Group Holdings, Ltd.    Consumer Discretionary      China/Hong Kong             2.5%  
CSL, Ltd.    Health Care      Australia             2.5%  
Shimao Services Holdings, Ltd.    Real Estate      China/Hong Kong             2.4%  
HDFC Bank, Ltd.    Financials      India             2.4%  
% OF ASSETS IN TOP 10                     34.3%  

 

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Table of Contents

Matthews Asia Growth Fund

Portfolio Manager Commentary  (unaudited) (continued)

and a large-cap Japanese industrial company FANUC Corp. The investment thesis is to strengthen the portfolio’s exposure to the cyclicals recovery with multiple angles. We believe Meituan is poised to benefit from the broader consumer spending recovery in China, while Maruti Suzuki should be a beneficiary of post-COVID consumption demand uptick in India. Wuxi AppTec is, in our estimation, one of the best clinical research organizations in the world, and on-going industry consolidation should further enhance its growth opportunities. FANUC is a well-known Japanese factory automation company which has seen an increase in orders recently due to higher capital expenditure expectations in automotive and semiconductor industries. Another notable change year to date has been an increased exposure to India.

In the second quarter, we exited from several smaller-sized holdings from the health care sector including Alphamab Oncology and ADC Therapeutics, and from the financials sector including BRAC Bank Ltd. and Sampath Bank PLC. We also exited from recent Chinese IPO names due to their smaller position sizes, including KE Holdings and Yatsen Holdings Ltd. Another notable exit is Oil Search Ltd., an oil and gas exploration and development company, which we had owned since 2009 with the anticipation of increasing demand for “cleaner” natural gas from ex-Japan Asian countries. While the increase in demand for natural gas materialized since we initiated the position, we now believe natural gas is no longer the “future” of cleaner energy sources going forward.

Outlook

Looking ahead, we will continue to closely monitor the three important factors currently at play: the trajectory of U.S. interest rates, the rate of progress of COVID pandemic recovery, and global PMI outlook. At the same time, we are keeping a close watch on the tighter regulatory environment facing the information technology sector in China, as well as the U.S. to some extent. While the current geopolitical tensions between the U.S. and China is a major source of negative market sentiment, we remain focused on finding secular opportunities in China with strong long-term fundamentals. The recent indication of interest rate cuts in China via the Reserve Requirement Ratio (RRR) is encouraging to boost the declining demand.

We are also carefully monitoring vaccine rollout data in Japan, which has been discouragingly slow despite the obvious incentive for the Japanese government to act swiftly, given the upcoming Olympics start date of July 23. While we are currently hesitant to play into a “reopening” theme in the domestic Japanese market, this may change quickly once we see significant improvement in vaccination rates. One of the less reported and quite encouraging data points is the low number of hospitalizations and deaths from COVID despite the much discussed “case” numbers.

Over the long-term, we continue to see attractive opportunities in the health care sector across Asia, including India. We are optimistic about the continued growth prospects of the global health care sector. The recent regulatory changes to the drug approval process in China provide support to our investment approach, as more innovative biopharmaceutical companies may have greater opportunities for success compared to low R&D spending generic pharmaceutical companies. The core of our process remains in identifying opportunities on a company-by-company basis with strong top-line growth, strong management teams and an ability to grow its market share.

 

 
COUNTRY ALLOCATION (%)6,7  
China/Hong Kong     48.4  
Japan     25.1  
India     10.3  
United States     3.5  
Australia     2.5  
Indonesia     2.2  
Taiwan     1.9  
Singapore     1.7  
Vietnam     0.6  
Cash and Other Assets, Less Liabilities     3.7  

 

 
SECTOR ALLOCATION (%)7  
Health Care     39.8  
Consumer Discretionary     15.7  
Communication Services     11.0  
Information Technology     9.3  
Financials     6.4  
Industrials     5.0  
Consumer Staples     3.6  
Real Estate     2.4  
Energy     1.6  
Materials     1.3  
Cash and Other Assets, Less Liabilities     3.7  

 

 
MARKET CAP EXPOSURE (%)7  
Mega Cap (over $25B)     59.3  
Large Cap ($10B–$25B)     11.8  
Mid Cap ($3B–10B)     17.9  
Small Cap (under $3B)     7.2  
Cash and Other Assets, Less Liabilities     3.7  

 

6

Not all countries where the Fund may invest are included in the benchmark index.

 

7

Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Country allocations and percentage values may be derived from different data sources and may not be consistent with other Fund literature.

 

 

20    MATTHEWS ASIA FUNDS     

Table of Contents

Matthews Asia Growth Fund

June 30, 2021

Schedule of Investmentsa (unaudited)

COMMON EQUITIES: 96.3%

 

     Shares     Value  
CHINA/HONG KONG: 48.4%    

Wuxi Biologics Cayman, Inc.b,c,d

    8,236,000       $150,803,573  

Bilibili, Inc. ADRc

    1,177,000       143,405,680  

Innovent Biologics, Inc.b,c,d

    6,984,500       81,473,211  

BeiGene, Ltd. ADRc

    224,200       76,943,198  

XPeng, Inc. ADRc

    1,442,975       64,096,950  

Shenzhou International Group Holdings, Ltd.

     2,365,300       59,730,434  

Shimao Services Holdings, Ltd.b,d

    16,742,000       57,704,686  

InnoCare Pharma, Ltd.b,c,d

    13,816,000       50,848,492  

Shenzhen Inovance Technology Co., Ltd. A Shares

     4,225,612       48,410,167  

Silergy Corp.

     345,000       46,824,617  

Burning Rock Biotech, Ltd. ADRc

    1,528,948       45,042,808  

Baozun, Inc. ADRc

    1,054,700       37,378,568  

Alibaba Group Holding, Ltd.c

    1,173,600       33,276,065  

Meituan B Sharesb,c,d

    776,400       32,027,404  

RemeGen Co., Ltd. H Sharesb,c,d

    2,011,000       30,671,513  

Hangzhou Tigermed Consulting Co., Ltd. H Sharesb,d

    1,284,600       30,107,161  

WuXi AppTec Co., Ltd. A Shares

     1,192,836       28,830,402  

Peijia Medical, Ltd.b,c,d

    5,343,000       24,862,921  

Hansoh Pharmaceutical Group Co., Ltd.b,d

    5,620,000       24,557,377  

Jacobio Pharmaceuticals Group Co., Ltd.b,c,d

    8,477,400       23,773,853  

AK Medical Holdings, Ltd.b,d

    11,702,000       20,644,044  

JD Health International, Inc.b,c,d

    1,437,400       20,530,404  

Adagene, Inc. ADRc

    753,700       10,220,172  

Chindata Group Holdings, Ltd. ADRc

    659,200       9,947,328  

JW Cayman Therapeutics Co., Ltd.b,c,d

    2,715,000       8,723,284  

Zhaoke Ophthalmology, Ltd.b,c,d

    5,683,633       8,608,571  

Angelalign Technology, Inc.b,c,d

    12,600       650,099  
   

 

 

  

Total China/Hong Kong

       1,170,092,982  
   

 

 

  
   
     
JAPAN: 25.1%    

Sony Group Corp.

     770,900       74,752,064  

Nintendo Co., Ltd.

     74,900       43,342,609  

SoftBank Group Corp.

     552,400       38,525,383  

Terumo Corp.

     921,900       37,339,239  

Nidec Corp.

     289,200       33,255,176  

Advantest Corp.

     369,300       33,158,273  

Shin-Etsu Chemical Co., Ltd.

     193,200       32,314,765  

M3, Inc.

     400,400       29,172,482  

Daiichi Sankyo Co., Ltd.

     1,302,500       28,098,956  

Keyence Corp.

     55,500       27,951,100  

PeptiDream, Inc.c

    555,300       27,137,949  

Sansan, Inc.c

    299,800       26,355,307  

FANUC Corp.

     89,400       21,437,925  

Hikari Tsushin, Inc.

     121,500       21,353,150  

HEALIOS KKc

    1,243,200       20,358,544  

Sysmex Corp.

     168,900       20,037,407  

Freee KKc

    218,700       19,965,905  

Japan Elevator Service Holdings Co., Ltd.

     805,200       18,676,155  

Chugai Pharmaceutical Co., Ltd.

     427,900       16,960,503  

Appier Group, Inc.c

    1,056,100       14,953,478  

Nitori Holdings Co., Ltd.

     66,900       11,814,349  

Sosei Group Corp.c

    550,900       9,050,839  
   

 

 

  

Total Japan

       606,011,558  
   

 

 

  
     Shares     Value  
INDIA: 10.3%    

HDFC Bank, Ltd.

     2,837,251       $57,306,412  

Bajaj Finance, Ltd.c

    655,186       53,141,324  

Reliance Industries, Ltd.

     1,361,517       38,716,609  

Avenue Supermarts, Ltd.b,c,d

    789,988       35,568,991  

Dabur India, Ltd.

     3,753,077       28,736,462  

Maruti Suzuki India, Ltd.

     238,987       24,200,682  

Dr. Lal PathLabs, Ltd.b,d

    272,658       12,016,080  
   

 

 

  

Total India

       249,686,560  
   

 

 

  
   
     
UNITED STATES: 3.5%    

Legend Biotech Corp. ADRc

    771,938       31,688,055  

Schrodinger, Inc.c

    392,000       29,639,120  

Terns Pharmaceuticals, Inc.c

    1,071,421       13,135,621  

Turning Point Therapeutics, Inc.c

    135,900       10,602,918  
   

 

 

  

Total United States

       85,065,714  
   

 

 

  
   
     
AUSTRALIA: 2.5%    

CSL, Ltd.

     278,623       59,588,692  
   

 

 

  

Total Australia

       59,588,692  
   

 

 

  
   
     
INDONESIA: 2.3%    

PT Bank Rakyat Indonesia Persero

     167,403,300       45,516,143  

PT Mayora Indah

     54,105,900       8,619,629  
   

 

 

  

Total Indonesia

       54,135,772  
   

 

 

  
   
     
TAIWAN: 1.9%    

Taiwan Semiconductor Manufacturing Co., Ltd. ADR

     389,800       46,838,368  
   

 

 

  

Total Taiwan

       46,838,368  
   

 

 

  
   
     
SINGAPORE: 1.7%    

Sea, Ltd. ADRc

    151,800       41,684,280  
   

 

 

  

Total Singapore

       41,684,280  
   

 

 

  
   
     
VIETNAM: 0.6%    

Vietnam Dairy Products JSC

     3,739,910       14,691,989  
   

 

 

  

Total Vietnam

       14,691,989  
   

 

 

  
   
     
TOTAL INVESTMENTS: 96.3%       2,327,795,915  

(Cost $1,436,050,435)

    
   
CASH AND OTHER ASSETS,
LESS LIABILITIES: 3.7%		       90,604,599  
   

 

 

  

NET ASSETS: 100.0%

       $2,418,400,514  
   

 

 

  
 

 

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Table of Contents

Matthews Asia Growth Fund

June 30, 2021

Schedule of Investmentsa (unaudited) (continued)

 

a

Certain securities were fair valued under the valuation policies approved by the Board of Trustees (Note 2-A).

 

b

Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. The security may be resold in transactions exempt from registration normally to qualified institutional buyers. The security has been determined to be liquid in accordance with procedures adopted by the Funds’ Board of Trustees. At June 30, 2021, the aggregate value is $613,571,664, which is 25.37% of net assets.

 

c

Non-income producing security.

 

d

The securities may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the Securities Act of 1933.

 

ADR

American Depositary Receipt

 

JSC

Joint Stock Co.

See accompanying notes to financial statements.

 

 

22   

MATTHEWS ASIA FUNDS

     

Table of Contents

LOGO

 

PORTFOLIO MANAGERS
Sharat Shroff, CFA    

Lead Manager

    
Winnie Chwang   Inbok Song

Co-Manager

   Lead Manager
FUND FACTS        
    Investor   Institutional

Ticker

   MAPTX   MIPTX

CUSIP

   577130107   577130834

Inception

   9/12/94   10/29/10

NAV

  

$36.89

  

$36.87

Initial Investment

  

$2,500

  

$100,000

Gross Expense Ratio1

  

1.08%

  

0.94%

After Fee Waiver and Reimbursement2

  

1.06%

  

0.92%

Portfolio Statistics

  

Total # of Positions

  

72

Net Assets

  

$9.7 billion

Weighted Average Market Cap

  

$159.7 billion

Portfolio Turnover3

  

38.1%

Benchmark

MSCI AC Asia ex Japan Index

OBJECTIVE

 

 

Long-term capital appreciation.

STRATEGY

 

 

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in Asia ex Japan, which consists of all countries and markets in Asia excluding Japan, but including all other developed, emerging and frontier countries and markets in the Asian region.

Matthews Pacific Tiger Fund

Portfolio Manager Commentary  (unaudited)

For the first half of 2021, the Matthews Pacific Tiger Fund returned 5.58% (Investor Class) and 5.64% (Institutional Class), while its benchmark, the MSCI All Country Asia ex Japan Index, returned 6.51% over the same period. For the quarter ending June 30, the Fund returned 3.95% (Investor Class) and 3.98% (Institutional Class), while the benchmark returned 3.66%.

Market Environment

The debate around pricing pressures manifesting into higher inflationary expectations continues to have an influence on Asian equities along with other factors like regulatory changes, and the evolution of corporate earnings. The regulatory developments in China present some uncertainty even as the government is trying to grapple with a variety of issues like anti-monopoly, data privacy, and welfare rights (especially, for workers in the gig economy) that stem from the emergence of platform type business models.

The MSCI Asia ex Japan Growth and Value indices were about neck-and-neck in the second quarter, both gaining about 3% after Value outperformed growth in the first quarter. Small caps outperformed the large caps for the fifth consecutive quarter reflecting investor optimism towards a broadening in economic recovery.

For the region, earnings have generally been revised upwards since the start of the year led by South Korea and Taiwan, although COVID-impacted regions like Indonesia and Philippines have seen some retracement in forward expectations. Sectors like industrials and materials have been the best performing year to date, as investors anticipate a reflationary environment to favorably impact earnings.

Asian currencies depreciated against the U.S. dollar during the first half but in an orderly way, even as nominal U.S. yields are starting to move higher, reflecting the buildup of foreign reserves albeit weaker fiscal positions stemming from loss of economic activity.

Performance Contributors and Detractors

Stock selection in South Korea was a contributor to performance, especially within the portfolio’s industrial and internet holdings, such as HMM Co. and NAVER Corp. South Korean industrial shipping company HMM has performed well throughout the first half of the year given its restructuring efforts during the industry’s consolidation which set up the company to be well positioned to enjoy a positive operating environment. Search engine and internet content provider NAVER’s continued transformation of its business model into an e-commerce platform is increasingly being recognized by investors as the company continues to solidify its leading position in South Korea by building open ecosystem around e-commerce development in the country. In addition, stock selection in the utilities sector such as Tata Power Co. in India and ENN Energy Holdings in China performed well. Tata Power Co. and ENN Energy Holdings both have leading positions in clean energy utilities such as solar power and natural gas distribution. In particular, China’s ENN Energy benefited from the continued recovery of the industrial demand in the country combined with the government’s efforts to reduce its carbon footprint in the coming decades.

On the other hand, domestically oriented holdings in Southeast Asia, including the Philippines and Indonesia, were detractors. These two countries’ recovery from the pandemic has taken a longer path. Thus, traffic to the Philippines’ SM Prime Holding’s shopping malls and the loan demand for Bank Central Asia in Indonesia have not fully recovered, and uncertain near term-prospects dragged both stock’s performance. Additionally, the portfolio’s internet holdings in China, including Alibaba Group Holdings and Beijing Kuaishou Technology Co., detracted from

(continued)

 

 

1

Prospectus expense ratios.

2

Matthews has contractually agreed to waive a portion of its advisory fee and administrative and shareholder services fee if the Fund’s average daily net assets are over $3 billion, as follows: for every $2.5 billion average daily net assets of the Fund that are over $3 billion, the advisory fee rate and the administrative and shareholder services fee rate for the Fund with respect to such excess average daily net assets will be each reduced by 0.01%, in each case without reducing such fee rate below 0.00%. Any amount waived by Matthews pursuant to this agreement may not be recouped by Matthews. This agreement will remain in place until April 30, 2022 and may be terminated (i) at any time by the Board of Trustees upon 60 days’ prior written notice to Matthews; or (ii) by Matthews at the annual expiration date of the agreement upon 60 days’ prior written notice to the Trust, in each case without payment of any penalty.

3

The lesser of fiscal year 2020 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

 

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Table of Contents
 
PERFORMANCE AS OF JUNE 30, 2021  
 

 

     

 

       

 

       

 

      Average Annual Total Returns       

 

  
     3 Months      YTD      1 Year      3 Years      5 Years      10 Years      Since
Inception		      Inception
Date		  
Investor Class (MAPTX)      3.95%        5.58%        42.78%        12.27%        12.45%        8.32%        9.24%        9/12/94  
Institutional Class (MIPTX)      3.98%        5.64%        42.99%        12.43%        12.63%        8.49%        8.33%        10/29/10  
MSCI AC Asia ex Japan Index4      3.66%        6.51%        40.03%        12.54%        14.82%        7.34%        5.55% 5    

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund’s fees and expenses had not been waived. For the Fund’s most recent month-end performance, visit matthewsasia.com.

 

 

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

LOGO

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

 

  4

It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 88 for index definition.

 

  5

Calculated from 8/31/94.

 

       
TOP TEN HOLDINGS6                     
     Sector      Country      % of Net Assets  
Taiwan Semiconductor Manufacturing Co., Ltd.    Information Technology      Taiwan        5.3%  
Tencent Holdings, Ltd.    Communication Services      China/Hong Kong        5.2%  
Samsung Electronics Co., Ltd.    Information Technology      South Korea        5.1%  
Alibaba Group Holding, Ltd.    Consumer Discretionary      China/Hong Kong        3.9%  
AIA Group, Ltd.    Financials      China/Hong Kong        2.7%  
Wuxi Biologics Cayman, Inc.    Health Care      China/Hong Kong        2.4%  
ENN Energy Holdings, Ltd.    Utilities      China/Hong Kong        2.3%  
Hong Kong Exchanges & Clearing, Ltd.    Financials      China/Hong Kong        2.1%  
Tata Power Co., Ltd.    Utilities      India        2.0%  
NAVER Corp.    Communication Services      South Korea        2.0%  
% OF ASSETS IN TOP 10                33.0%  

 

  6

Holdings may combine more than one security from same issuer and related depositary receipts.

 

24    MATTHEWS ASIA FUNDS     

Table of Contents
 
COUNTRY ALLOCATION (%)7,8  
China/Hong Kong     46.3  
South Korea     15.3  
Taiwan     14.4  
India     10.9  
Singapore     3.4  
Indonesia     2.0  
Thailand     1.8  
Philippines     1.7  
Vietnam     0.8  
Cash and Other Assets, Less Liabilities     3.3  

 

 
SECTOR ALLOCATION (%)8  
Information Technology     24.4  
Consumer Discretionary     15.7  
Communication Services     12.7  
Financials     10.3  
Consumer Staples     8.6  
Industrials     7.8  
Real Estate     5.5  
Utilities     4.3  
Materials     3.8  
Health Care     3.5  
Cash and Other Assets, Less Liabilities     3.3  

 

 
MARKET CAP EXPOSURE (%)8  
Mega Cap (over $25B)     53.5  
Large Cap ($10B–$25B)     20.4  
Mid Cap ($3B–10B)     21.1  
Small Cap (under $3B)     1.6  
Cash and Other Assets, Less Liabilities     3.3  

 

7

Not all countries where the Fund may invest are included in the benchmark index.

 

8

Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Country allocations and percentage values may be derived from different data sources and may not be consistent with other Fund literature.

Matthews Pacific Tiger Fund

Portfolio Manager Commentary  (unaudited) (continued)

performance amid a changing operational environment as competitive and regulatory pressures continue to intensify. While both Alibaba and Kuaishou are delivering strong execution in their own rights, the changing landscape would mean that they need to invest more and near term profitability may be impacted.

Notable Portfolio Changes

As part of our continuous efforts to position the portfolio towards durable earnings growth, we made a few changes, especially in the industrial sector. We rotated capital from Weichai Power Co., a heavy duty truck manufacturer in China, and initiated a new position in Shenzhen Inovance Technology Co., an industrial automation component manufacturer. Although both Weichai and Shenzhen Inovance are leaders in their respective industries, we view the long-term market share gain potential of Inovance with a strong track record of the management team to be better.

We also rotated capital from South Korean utility company Korea Electric Power Corporation (KEPCO) and initiated a position in Doosan Bobcat Inc., a leading construction equipment company in South Korea gaining market share in the U.S. and Europe. In the past, Bobcat has shown strong execution capability in integrating its acquisition and expanded distribution network in developed countries. Compared to KEPCO, where our expected milestone of the electricity tariff faced political challenges, Bobcat’s prospects are expected to be better as they start to display new product development capability in addition to its channel expansion.

Outlook

Looking ahead, several crosscurrents are likely to have an impact on Asian equities in the near to medium term. These crosscurrents may affect the evolution of earnings across the region, especially as the monetary and fiscal policy environment continues to unfold in China, and as inflationary pressures evolve in coming periods.

One of the biggest unanswered questions concerns pricing pressures, some of which reflect consumer demand that is running ahead of constrained supply chains. While the consumer demand recovery has been impressive, it is quite likely that the pattern of consumption will shift towards personal experiences. As the pandemic continues to abate, it is also possible that labor and other transportation-related bottlenecks will further ease (barring further interruptions from the coronavirus).

That being said, there are structural changes in China’s industrial landscape that might continue to have lasting impact on the global economy. China’s authorities continue to impose stricter environmental regulations on polluting sectors, and are encouraging a shift towards higher value-added production. Furthermore, Chinese entrepreneurs may be hesitant in committing significant Capital Expenditures* considering the uncertainty from tariffs and duties. While this may present an opportunity for an augmentation in supply chains elsewhere, the process may not be smooth and there could be intermittent mismatch between supply and demand.

We believe the core of the portfolio continues to be invested in businesses capable of delivering durable earnings growth accompanied by solid cash flow. There are many subsectors such as housing in India and digital e-commerce in Southeast Asia which may have long runways for growth. In addition, we continue to look for Chinese businesses that are taking long strides in closing the technology gap with the West, and may start to substitute imports. The opportunity set continues to broaden and widen, and the portfolio team remains focused on finding uncorrelated and diversified long-term growth in Asian equities.

 

*

Capital Expenditures (CapEx) - An amount spent by a company to acquire or significantly improve the capacity or capabilities of a long-term asset such as equipment or buildings.

 

 

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Table of Contents

Matthews Pacific Tiger Fund

June 30, 2021

Schedule of Investmentsa (unaudited)

COMMON EQUITIES: 96.7%

 

     Shares     Value  
CHINA/HONG KONG: 46.4%    

Tencent Holdings, Ltd.

     6,703,100       $504,693,224  

Alibaba Group Holding, Ltd.b

    11,916,000       337,864,339  

AIA Group, Ltd.

     20,962,600       260,053,185  

Wuxi Biologics Cayman, Inc.b,c,d

    12,849,000       235,268,955  

ENN Energy Holdings, Ltd.

     11,747,300       223,266,199  

Hong Kong Exchanges & Clearing, Ltd.

     3,389,900       201,799,997  

Kweichow Moutai Co., Ltd. A Shares

     564,173       179,271,119  

StarPower Semiconductor, Ltd. A Shares

     3,529,523       174,512,216  

Xinyi Solar Holdings, Ltd.

     67,560,000       145,417,742  

China Resources Mixc Lifestyle Services, Ltd.c,d

    21,165,430       144,959,916  

Yum China Holdings, Inc.

     2,048,501       135,713,191  

China Resources Beer Holdings Co., Ltd.

     14,543,775       130,435,141  

Shandong Sinocera Functional Material Co., Ltd. A Shares

     15,372,502       115,691,776  

Shenzhen Inovance Technology Co., Ltd. A Shares

     9,612,923       110,129,186  

Topsports International Holdings, Ltd.c,d

    67,131,000       109,772,228  

CSPC Pharmaceutical Group, Ltd.

     75,896,000       109,628,240  

CITIC Securities Co., Ltd. H Shares

     41,271,500       103,412,283  

Meituan B Sharesb,c,d

    2,449,300       101,036,478  

Baidu, Inc. ADRb

    493,900       100,706,210  

Ming Yuan Cloud Group Holdings, Ltd.

     20,071,175       99,341,358  

China Lesso Group Holdings, Ltd.

     40,131,000       99,070,121  

WH Group, Ltd.c,d

    105,549,000       94,741,059  

China Tourism Group Duty Free Corp., Ltd. A Shares

     2,033,378       94,218,745  

Ping An Insurance Group Co. of China, Ltd. H Shares

     9,312,500       91,033,395  

Kuaishou Technologyb,c,d

    3,275,600       82,378,896  

Suofeiya Home Collection Co., Ltd. A Shares

     20,898,786       78,143,669  

JD.com, Inc. ADRb

    945,800       75,484,298  

JD Logistics, Inc.b,c,d

    12,683,200       69,098,226  

China East Education Holdings, Ltd.c,d

    40,962,000       64,319,092  

China Resources Land, Ltd.

     13,022,000       52,593,286  

Alibaba Group Holding, Ltd. ADRb

    185,220       42,004,192  

Inner Mongolia Yili Industrial Group Co., Ltd. A Shares

     7,023,908       39,931,986  

JD.com, Inc. A Sharesb

    928,150       36,961,786  

TravelSky Technology, Ltd. H Shares

     16,592,000       35,748,861  

Tuya, Inc. ADRb

    1,292,706       31,671,297  
   

 

 

  

Total China/Hong Kong

       4,510,371,892  
   

 

 

  
   
     
SOUTH KOREA: 15.3%    

Samsung Electronics Co., Ltd.

     6,960,371       498,266,206  

NAVER Corp.

     520,654       193,198,418  

LG Chem Ltd.

     163,215       123,242,025  

Mando Corp.b

    1,966,943       116,296,536  

HYBE Co., Ltd.b

    397,436       103,162,980  

Doosan Bobcat, Inc.b

    2,330,165       99,401,659  

HMM Co., Ltd.b

    2,477,089       96,569,993  

Amorepacific Corp.

     348,523       77,974,658  

NCSoft Corp.

     105,881       77,041,412  

Samsung Engineering Co., Ltd.b

    3,010,453       63,813,832  

SK IE Technology Co., Ltd.b,c,d

    257,305       41,812,205  
   

 

 

  

Total South Korea

       1,490,779,924  
   

 

 

  
     Shares     Value  
TAIWAN: 14.4%    

Taiwan Semiconductor Manufacturing Co., Ltd.

     23,765,000       $511,851,345  

MediaTek, Inc.

     5,466,000       188,501,799  

Yageo Corp.

     6,443,000       129,713,285  

Delta Electronics, Inc.

     11,361,182       123,426,305  

Uni-President Enterprises Corp.

     41,964,000       110,195,187  

Accton Technology Corp.

     9,052,000       107,189,997  

Eclat Textile Co., Ltd.

     4,055,000       95,476,226  

Realtek Semiconductor Corp.

     4,633,000       83,926,229  

E Ink Holdings, Inc.

     20,762,000       55,603,296  
   

 

 

  

Total Taiwan

       1,405,883,669  
   

 

 

  
   
     
INDIA: 10.9%    

Tata Power Co., Ltd.

     117,707,984       193,784,329  

Titan Co., Ltd.

     6,423,426       149,919,504  

Housing Development Finance Corp., Ltd.

     4,080,319       136,173,098  

Dabur India, Ltd.

     16,112,505       123,369,805  

Ashok Leyland, Ltd.b

    68,826,160       113,788,123  

ICICI Bank, Ltd.b

    12,676,655       107,921,748  

Tata Consultancy Services, Ltd.

     2,303,129       103,791,840  

Pidilite Industries, Ltd.b

    3,152,608       91,427,057  

PVR, Ltd.b

    2,054,065       36,920,293  
   

 

 

  

Total India

       1,057,095,797  
   

 

 

  
   
     
SINGAPORE: 3.4%    

Sea, Ltd. ADRb

    506,000       138,947,600  

SATS, Ltd.b

    35,963,700       105,332,374  

Venture Corp., Ltd.

     6,271,900       89,725,488  
   

 

 

  

Total Singapore

       334,005,462  
   

 

 

  
   
     
INDONESIA: 2.0%    

PT Bank Central Asia

     47,791,100       99,391,336  

PT Astra International

     268,274,600       91,560,129  
   

 

 

  

Total Indonesia

       190,951,465  
   

 

 

  
   
     
THAILAND: 1.8%    

Central Pattana Public Co., Ltd.

     105,748,000       173,476,598  
   

 

 

  

Total Thailand

       173,476,598  
   

 

 

  
   
     
PHILIPPINES: 1.7%    

SM Prime Holdings, Inc.

     224,061,771       167,535,689  
   

 

 

  

Total Philippines

       167,535,689  
   

 

 

  
   
     
VIETNAM: 0.8%    

Vietnam Dairy Products JSC

     19,619,028       77,072,053  
   

 

 

  

Total Vietnam

       77,072,053  
   

 

 

  
   
   
TOTAL INVESTMENTS: 96.7%

 

     9,407,172,549  

(Cost $6,168,575,472)

    
   
CASH AND OTHER ASSETS,
LESS LIABILITIES: 3.3%		       324,236,121  
   

 

 

  

NET ASSETS: 100.0%

       $9,731,408,670  
   

 

 

  
 

 

26   

MATTHEWS ASIA FUNDS

     

Table of Contents

Matthews Pacific Tiger Fund

June 30, 2021

Schedule of Investmentsa (unaudited) (continued)

 

a

Certain securities were fair valued under the valuation policies approved by the Board of Trustees (Note 2-A).

 

b

Non-income producing security.

 

c

Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. The security may be resold in transactions exempt from registration normally to qualified institutional buyers. The security has been determined to be liquid in accordance with procedures adopted by the Funds’ Board of Trustees. At June 30, 2021, the aggregate value is $943,387,055, which is 9.69% of net assets.

 

d

The securities may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the Securities Act of 1933.

 

ADR

American Depositary Receipt

 

JSC

Joint Stock Co.

See accompanying notes to financial statements.

 

 

     matthewsasia.com  |  800.789.ASIA      27  

Table of Contents

LOGO

 

PORTFOLIO MANAGERS
Vivek Tanneeru  

Lead Manager

  
FUND FACTS
    Investor   Institutional

Ticker

   MASGX   MISFX

CUSIP

   577130727   577130719

Inception

   4/30/15   4/30/15

NAV

   $17.10   $17.09

Initial Investment

   $2,500   $100,000

Gross Expense Ratio1

   1.42%   1.29%

After Fee Waiver and Reimbursement2

   1.38%   1.20%

Portfolio Statistics

    

Total # of Positions

   51

Net Assets

   $112.5 million

Weighted Average
Market Cap

   $31.1 billion

Portfolio Turnover3

   84.6%

Benchmark

  

MSCI AC Asia ex Japan Index

OBJECTIVE

 

 

Long-term capital appreciation.

STRATEGY

 

 

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies of any market capitalization located in Asia that Matthews believes satisfy one or more of its environmental, social and governance (“ESG”) standards. Asia consists of all countries and markets in Asia and includes developed, emerging, and frontier countries and markets in the Asia region. The Fund may also invest in convertible securities and fixed-income securities, of any duration or quality, including high yield securities, of Asian companies.

The Fund’s consideration of ESG factors may impact its relative investment performance—positively or negatively—depending on whether such investments are in or out of favor in the market. The ESG factors used in the Fund’s investment process will likely make it perform differently from a fund that relies solely or primarily on financial metrics.

Matthews Asia ESG Fund

Portfolio Manager Commentary  (unaudited)

For the first half of 2021, the Matthews Asia ESG Fund returned 14.46% (Investor Class) and 14.54% (Institutional Class), while its benchmark, the MSCI All Country Asia ex Japan Index, returned 6.51% over the same period. For the quarter ending June 30, the Fund returned 8.99% (Investor Class) and 9.06% (Institutional Class), while the benchmark returned 3.66%.

Market Environment

From early February to early June, value stocks outperformed growth stocks in Asia as investors expected the strong global economic rebound from last year’s COVID-related slowdown to drive profit growth in economic cycle-sensitive industries. This view was further reinforced by investors’ belief that the U.S. Fed would let inflation run ahead of its target for a period of time to enable a stronger economic recovery. This scenario was also very conducive to the outperformance of small-cap stocks in relation to large-cap stocks. Not surprisingly then, the industrials, materials and energy sectors were also the best performing in Asia during the first half of the year, while the performance of consumer staples sector lagged alongside communication services and utilities sectors. However that trend moderated somewhat after the Federal Open Market Committee meeting in June, when the Fed signaled the potential for interest rate hikes sooner than expected, lowering the potential long-term growth overshoot from previous expectations.

During the first half of the year the best performing markets included Taiwan and India, while the worst performing market was COVID-impacted Indonesia. In terms of currencies, the Taiwanese dollar and Chinese renminbi appreciated the most during the first half of 2021. Meanwhile, the Japanese yen and Thai baht depreciated the most.

Performance Contributors and Detractors

For the first half of the year, China and India were the biggest contributors to relative performance, while stock selection in Indonesia, along with our underweight in Taiwan, were notable detractors from relative performance. From a sector perspective, industrials, health care, consumer discretionary, information technology and financials all contributed positively, while the materials sector detracted relative to the benchmark.

Turning to individual securities, Chinese solar inverter manufacturer Ginlong Technologies was among the biggest contributors to absolute performance during the second quarter of 2021. The company specializes in string inverters that are predominantly used in distributed solar panel applications globally. The fast growing underlying market for solar panel installations, potential for market share gains and market share growth in ground-mounted solar power stations have helped drive the stock price higher.

On the other hand, Bank Tabungan Negara was among the biggest detractors to relative performance during the quarter. Bank Tabungan Negara is an Indonesian market leader in mortgage lending and the company specializes in middle- to low income-borrowers. There is a persistent shortage of housing in Indonesia and that demand, in conjunction with the under-penetration of mortgages, offers strong growth prospects for the company. We believe the bank could potentially see a

(continued)

 
1

Prospectus expense ratios.

2

Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 1.20% first by waiving class specific expenses (i.e., shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non-class specific expenses (e.g., custody fees) of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 1.20% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 1.20%. If the operating expenses fall below the expense limitation within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment. This agreement will remain in place until April 30, 2022 and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

3

The lesser of fiscal year 2020 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

 

28    MATTHEWS ASIA FUNDS     

Table of Contents
 
PERFORMANCE AS OF JUNE 30, 2021  
 

 

     

 

       

 

       

 

      Average Annual Total Returns       

 

  
    

3 Months

     

YTD

     

1 Year

     

3 years

     

5 years

     

Since
Inception

     

Inception
Date

  
Investor Class (MASGX)      8.99%        14.46%        62.50%        19.27%        17.32%        12.18%        4/30/15  
Institutional Class (MISFX)      9.06%        14.54%        62.77%        19.46%        17.57%        12.42%        4/30/15  
MSCI AC Asia ex Japan Index4      3.66%        6.51%        40.03%        12.54%        14.82%        8.50%     

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund’s fees and expenses had not been waived. For the Fund’s most recent month-end performance visit matthewsasia.com.

 

 

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

LOGO

Plotted Monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gain distributions or redemption of Fund shares. Values are in US$.

 

  4

It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 88 for index definition.

 

         
TOP TEN HOLDINGS5                              
     Sector      Country               % of Net Assets  
Samsung SDI Co., Ltd., Pfd.    Information Technology      South Korea             6.7%  
Shriram City Union Finance, Ltd.    Financials      India             6.1%  
Hong Kong Exchanges & Clearing, Ltd.    Financials      China/Hong Kong             5.1%  
Bandhan Bank, Ltd.    Financials      India             4.1%  
IndusInd Bank, Ltd.    Financials      India             4.0%  
Phoenix Mills, Ltd.    Real Estate      India             3.3%  
Legend Biotech Corp.    Health Care      United States             3.1%  
Micron Technology, Inc.    Information Technology      United States             3.0%  
Andes Technology Corp.    Information Technology      Taiwan             2.9%  
Wuxi Biologics Cayman, Inc.    Health Care      China/Hong Kong             2.8%  
% OF ASSETS IN TOP 10                     41.1%  

 

  5

Holdings may combine more than one security from same issuer and related depositary receipts.

 

     matthewsasia.com  |  800.789.ASIA      29  

Table of Contents

Matthews Asia ESG Fund

Portfolio Manager Commentary  (unaudited) (continued)

sequential improvement in profits driven by reduced credit losses this year. But the Indonesian market in general, and its banking sector in particular, has been negatively affected by the latest wave of COVID infections. We remain positive on the mid- to long-term growth prospects of Bank Tabungan Negara, driven by strong underlying demand, a rebounding property market, supportive government policies in the sector and the potential for the bank to improve its operational efficiencies. The investment case is also supported by very attractive valuations.

Notable Portfolio Changes

During the second quarter we participated in the IPO of Full Truck Alliance (“FTA”), a leading online commercial freight platform in China that is also the world’s largest digital freight platform. FTA acts as an online marketplace that connects truckers with firms that need goods shipped. From the truckers’ perspective, the platform provides a much faster, cheaper and more convenient way to find customers, while at the same time lift earnings potential by offering more pricing transparency, optimized delivery route planning and increased backhaul utilization—all of which increases earning potential and equally important improves the quality of life for millions of truckers in China. From the goods shippers’ perspective, the platform cuts out multiple layers of middlemen thereby meaningfully reducing both the time and cost of finding truckers. The platform also helps reduce emissions by cutting down empty miles and wasted fuel. In 2020, FTA helped reduce an estimated 330,000 tons of CO2 emissions.

Outlook

Looking ahead, earnings growth, liquidity and valuations all appear broadly supportive of Asia’s equity markets. We expect strong corporate earnings across Asia in 2021 as the global recovery continues to expand despite sporadic COVID-19 outbreaks—especially in developing economies. Across the region we see sufficient liquidity—while we have not seen as much uptake in credit, any pick up in credit issuance, especially in South and South East Asia, should further support economic growth. We also see a return to normalcy, leading to better economic prospects for businesses. Many countries in Asia have progressed from recovery to expansion, while others like Indonesia are still getting back to pre-pandemic levels of activity.

For investors interested in ESG (Environmental, Social and Governance) themes, such as reducing carbon emissions, alleviating poverty and creating greater financial inclusion in the developing world, Asia remains an important investment destination, in our view. To tackle these themes globally, we believe we need to include the world’s most populous economies, many of which lie in Asia. As the global economy returns to strength, we seek attractive opportunities for alpha* generation throughout our large, diverse investment universe.

 

*

Alpha - a commonly quoted indicator of investment performance, is defined as the excess return on an investment relative to the return on a benchmark index.

   
COUNTRY ALLOCATION (%)6,7      
China/Hong Kong     32.3  
India     28.7  
Taiwan     12.2  
South Korea     8.4  
United States     6.1  
Bangladesh     3.8  
Japan     3.3  
Singapore     2.7  
Indonesia     2.7  
Vietnam     1.0  
Liabilities in Excess of Cash and Other Assets     -1.1  

 

   
SECTOR ALLOCATION (%)7      
Information Technology     25.9  
Financials     23.2  
Industrials     18.0  
Health Care     13.3  
Consumer Discretionary     10.0  
Real Estate     6.9  
Consumer Staples     2.4  
Communication Services     1.3  
Materials     0.1  
Liabilities in Excess of Cash and Other Assets     -1.1  

 

   
MARKET CAP EXPOSURE (%)7      
Mega Cap (over $25B)     25.5  
Large Cap ($10B-$25B)     16.1  
Mid Cap ($3B-10B)     23.5  
Small Cap (under $3B)     36.1  
Liabilities in Excess of Cash and Other Assets     -1.1  

 

6

Not all countries are included in the benchmark index.

 

7

Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Country allocations and percentage values may be derived from different data sources and may not be consistent with other Fund literature.

 

 

30    MATTHEWS ASIA FUNDS     

Table of Contents

Matthews Asia ESG Fund

June 30, 2021

Schedule of Investmentsa (unaudited)

COMMON EQUITIES: 94.3%

 

     Shares     Value  
CHINA/HONG KONG: 32.3%    
   

Hong Kong Exchanges & Clearing, Ltd.

     95,900       $5,708,906  

Wuxi Biologics Cayman, Inc.b,c,d

    170,000       3,112,750  

Ginlong Technologies Co., Ltd. A Shares

     106,590       2,976,141  

Innovent Biologics, Inc.b,c,d

    219,000       2,554,604  

Xinyi Glass Holdings, Ltd.

     624,000       2,542,457  

CSPC Pharmaceutical Group, Ltd.

     1,734,960       2,506,069  

China Conch Venture Holdings, Ltd.

     576,500       2,425,657  

Contemporary Amperex Technology Co., Ltd. A Shares

     26,700       2,200,445  

Hangzhou Tigermed Consulting Co., Ltd. A Shares

     71,076       2,119,665  

ASM Pacific Technology, Ltd.

     145,200       1,966,911  

Flat Glass Group Co., Ltd. H Shares

     438,000       1,803,826  

Full Truck Alliance Co., Ltd. ADRc

    58,300       1,188,154  

JD Health International, Inc.b,c,d

    77,650       1,109,076  

Meituan B Sharesb,c,d

    24,500       1,010,654  

New Oriental Education & Technology Group, Inc. ADRc

    116,100       950,859  

OPT Machine Vision Tech Co., Ltd. A Shares

     13,300       925,744  

RemeGen Co., Ltd. H Sharesb,c,d

    56,500       861,731  

Adagene, Inc. ADRc

    26,900       364,764  
   

 

 

  

Total China/Hong Kong

       36,328,413  
   

 

 

  
   
     
INDIA: 28.7%    

Shriram City Union Finance, Ltd.

     295,480       6,818,984  

Bandhan Bank, Ltd.b,c,d

    1,041,180       4,636,154  

IndusInd Bank, Ltd.c

    331,528       4,546,347  

Phoenix Mills, Ltd.c

    337,517       3,704,733  

Marico, Ltd.

     383,457       2,739,615  

NBCC India, Ltd.

     3,114,914       2,264,863  

Lemon Tree Hotels, Ltd.b,c,d

    3,929,040       2,221,471  

Mahindra & Mahindra, Ltd.

     193,162       2,025,183  

Indian Railway Catering & Tourism Corp., Ltd.

     63,350       1,735,419  

Minda Industries, Ltd.

     185,558       1,601,409  
   

 

 

  

Total India

       32,294,178  
   

 

 

  
   
     
TAIWAN: 12.2%    

Andes Technology Corp.

     179,000       3,234,846  

Formosa Sumco Technology Corp.

     341,000       2,311,784  

M31 Technology Corp.

     149,000       2,127,224  

Taiwan Semiconductor Manufacturing Co., Ltd. ADR

     13,500       1,622,160  

Sporton International, Inc.

     164,903       1,422,207  

Poya International Co., Ltd.c

    70,000       1,363,209  

Merida Industry Co., Ltd.

     88,000       988,049  

ASMedia Technology, Inc.

     13,000       627,031  
   

 

 

  

Total Taiwan

       13,696,510  
   

 

 

  
   
     
UNITED STATES: 6.1%    

Legend Biotech Corp. ADRc

    84,388       3,464,128  

Micron Technology, Inc.c

    39,600       3,365,208  
   

 

 

  

Total United States

       6,829,336  
   

 

 

  
   
    Shares     Value  
     
BANGLADESH: 3.8%    

BRAC Bank, Ltd.

     4,672,596       $2,728,966  

GrameenPhone, Ltd.

     363,819       1,499,833  
   

 

 

  

Total Bangladesh

       4,228,799  
   

 

 

  
   
     
JAPAN: 3.3%    

Koa Corp.

     116,200       1,809,049  

UT Group Co., Ltd.

     41,700       1,216,849  

Nidec Corp.

     6,300       724,439  
   

 

 

  

Total Japan

       3,750,337  
   

 

 

  
   
     
SINGAPORE: 2.7%    

SATS, Ltd.c

    542,900       1,590,074  

CDL Hospitality Trusts

     1,624,600       1,487,724  
   

 

 

  

Total Singapore

       3,077,798  
   

 

 

  
   
     
INDONESIA: 2.7%    

PT Bank Tabungan Negara Perseroc

    17,057,700       1,615,458  

PT Summarecon Agungc

    24,811,591       1,458,274  
   

 

 

  

Total Indonesia

       3,073,732  
   

 

 

  
   
     
SOUTH KOREA: 1.5%    

Eugene Technology Co., Ltd.

     43,433       1,744,762  
   

 

 

  

Total South Korea

       1,744,762  
   

 

 

  
   
     
VIETNAM: 1.0%    

Nam Long Investment Corp.

     647,269       1,096,780  
   

 

 

  

Total Vietnam

       1,096,780  
   

 

 

  
   
     
TOTAL COMMON EQUITIES       106,120,645  
   

 

 

  

(Cost $77,461,201)

    
   

PREFERRED EQUITIES: 6.8%

    
     
SOUTH KOREA: 6.8%    

Samsung SDI Co., Ltd., Pfd.

     19,454       7,561,526  

LG Chem, Ltd., Pfd.

     332       113,091  
   

 

 

  

Total South Korea

       7,674,617  
   

 

 

  
   
   
TOTAL PREFERRED EQUITIES

 

     7,674,617  
   

 

 

  

(Cost $3,334,271)

    
   
   
TOTAL INVESTMENTS: 101.1%

 

     113,795,262  

(Cost $80,795,472)

    
   
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS: (1.1%)       (1,248,457 ) 
   

 

 

  

NET ASSETS: 100.0%

       $112,546,805  
   

 

 

  
 

 

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Table of Contents

Matthews Asia ESG Fund

June 30, 2021

Schedule of Investmentsa (unaudited) (continued)

 

a

Certain securities were fair valued under the valuation policies approved by the Board of Trustees (Note 2-A).

 

b

Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. The security may be resold in transactions exempt from registration normally to qualified institutional buyers. The security has been determined to be liquid in accordance with procedures adopted by the Funds’ Board of Trustees. At June 30, 2021, the aggregate value is $15,506,440, which is 13.78% of net assets.

c

Non-income producing security.

 

d

The securities may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the Securities Act of 1933.

 

ADR

American Depositary Receipt

 

Pfd.

Preferred

See accompanying notes to financial statements.

 

 

32   

MATTHEWS ASIA FUNDS

     

Table of Contents

LOGO

 

PORTFOLIO MANAGERS
Michael J. Oh, CFA  

Lead Manager

    
FUND FACTS        
    Investor   Institutional

Ticker

   MATFX   MITEX

CUSIP

   577130883   577125859

Inception

   12/27/99   4/30/13

NAV

   $28.04   $28.28

Initial Investment

   $2,500   $100,000

Gross Expense Ratio1

   1.10%   0.95%

Portfolio Statistics

    

Total # of Positions

     40

Net Assets

     $2.2 billion

Weighted Average Market Cap

   $146.4 billion

Portfolio Turnover2

   119.8%

Benchmark

    

MSCI AC Asia ex Japan Index

 

 

OBJECTIVE

 

 

Long-term capital appreciation.

STRATEGY

 

 

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in Asia that Matthews believes are innovators in their products, services, processes, business models, management, use of technology, or approach to creating, expanding or servicing their markets. Asia consists of all countries and markets in Asia, including developed, emerging, and frontier countries and markets in the Asian region.

Matthews Asia Innovators Fund

Portfolio Manager Commentary  (unaudited)

For the first half of 2021, the Matthews Asia Innovators Fund returned 5.02% (Investor Class) and 5.09% (Institutional Class), while its benchmark, the MSCI All Country Asia ex Japan Index, returned 6.51% over the same period. For the quarter ending June 30, the Fund returned 5.77% (Investor Class) and 5.80% (Institutional Class), while the benchmark returned 3.66%.

Market Environment

The first six months of the year has been a volatile period for Asian equity markets. There have been two driving forces going head-to-head during the first half of the year—the ongoing recovery of the economy with improving corporate earnings versus increasing regulatory headwinds. During the first quarter of the year, the market sold off on the back of increasing regulatory challenges, especially within the Chinese internet and education sectors. During the same period equity markets rotated from growth to value.

During the second quarter, growing concerns over inflation and potential interest rate hikes began to fade. As companies reported earnings, the market started to recover as investors shifted their attention back to fundamentals. We might see these two forces continue to pull the market in either direction during the next few quarters. Toward the end of the second quarter, concerns over the rise of the Delta variant of the COVID virus spooked investors again, causing equities to give up some of the gains made during the quarter.

Performance Contributors and Detractors

For the first six month of the year Chinese video content company Bilibili, Inc. and Singapore-based gaming and e-commerce company Sea Ltd. were the largest contributors to the Fund’s absolute and relative performance. Sea’s dual engines of growth—online gaming and e-commerce—continued to show healthy growth, contributing to its strong performance during the period. Bilibili, which caters to young viewers, continued to demonstrate its strong hold on China’s “Generation-Z” cohort (approximate birth years: mid-1990s to early 2010s). Both companies remain as core holdings in the strategy.

During the second quarter, the health care sector in China made the biggest contribution to relative performance, as concerns over rate hikes and inflation subsided. Among individual health care companies, Wuxi Biologics Inc., a CDMOs (Contract Development and Manufacturing Organization) that helps many of large global and smaller regional pharma companies get drugs developed, made the biggest contribution, and was the biggest contributor to absolute performance during the quarter. Chinese information technology company Silergy Corp. was another holding that performed well during the quarter. Silergy, which mainly makes power management analog semiconductors, is in our view well positioned to benefit from the import-substitution trend we have been seeing in China, as the company continued to take market share away from other global semiconductor companies. We expect this trend to continue in coming years.

On the other hand, Chinese e-commerce companies continued to lag in the portfolio. Both Alibaba Group Holding Ltd. and JD.com, Inc. were among the top detractors to absolute performance both during the second quarter and year to date periods. The Chinese internet sector overall remained under pressure from increasing regulatory headwinds, as the Chinese government continued their investigation focusing mainly on consumer privacy and data protection. The sector will continue to be under pressure as the current investigation is on-going. How-

(continued)

 
1

Prospectus expense ratios.

2

The lesser of fiscal year 2020 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

 

     matthewsasia.com  |  800.789.ASIA      33  

Table of Contents
 
PERFORMANCE AS OF JUNE 30, 2021  
 

 

     

 

       

 

             Average Annual Total Returns       

 

       

 

  
     3 Months      YTD      1 Year      3 Years      5 Years      10 Years      Since
Inception		      Inception
Date		  
Investor Class (MATFX)      5.77%        5.02%        54.39%        26.84%        24.73%        15.42%        7.13%        12/27/99  
Institutional Class (MITEX)      5.80%        5.09%        54.61%        27.06%        24.95%        n.a.        19.06%        4/30/13  
MSCI AC Asia ex Japan Index3      3.66%        6.51%        40.03%        12.54%        14.82%        7.34%        7.41% 4    

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. For the Fund’s most recent month-end performance, visit matthewsasia.com.

 

 

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

 

LOGO

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

 

  3

It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 88 for index definition.

 

  4

Calculated from 12/31/99.

 

       
TOP TEN HOLDINGS5                     
     Sector      Country      % of Net Assets  
Sea, Ltd.    Communication Services      Singapore        6.3%  
Bilibili, Inc.    Communication Services      China/Hong Kong        6.1%  
Wuxi Biologics Cayman, Inc.    Health Care      China/Hong Kong        5.0%  
Meituan    Consumer Discretionary      China/Hong Kong        4.8%  
Tencent Holdings, Ltd.    Communication Services      China/Hong Kong        4.6%  
HDFC Bank, Ltd.    Financials      India        4.5%  
JD.com, Inc.    Consumer Discretionary      China/Hong Kong        4.2%  
ICICI Bank, Ltd.    Financials      India        3.9%  
Silergy Corp.    Information Technology      China/Hong Kong        3.4%  
AIA Group, Ltd.    Financials      China/Hong Kong        3.3%  
% OF ASSETS IN TOP 10                46.1%  

 

  5

Holdings may combine more than one security from same issuer and related depositary receipts.

 

 

34    MATTHEWS ASIA FUNDS     

Table of Contents
   
COUNTRY ALLOCATION (%)6,7      
China/Hong Kong     59.4  
India     16.0  
South Korea     8.1  
Singapore     6.3  
Taiwan     3.9  
France     1.3  
Vietnam     0.8  
Cash and Other Assets, Less Liabilities     4.4  

 

   
SECTOR ALLOCATION (%)7      
Consumer Discretionary     22.9  
Communication Services     18.4  
Financials     16.6  
Health Care     13.5  
Information Technology     10.2  
Consumer Staples     8.0  
Real Estate     1.9  
Energy     1.9  
Materials     1.6  
Industrials     0.7  
Cash and Other Assets, Less Liabilities     4.4  

 

   
MARKET CAP EXPOSURE (%)7      
Mega Cap (over $25B)     68.1  
Large Cap ($10B–$25B)     21.8  
Mid Cap ($3B–10B)     3.3  
Small Cap (under $3B)     2.5  
Cash and Other Assets, Less Liabilities     4.4  

 

  6

Not all countries are included in the benchmark index.

 

  7

Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Country allocations and percentage values may be derived from different data sources and may not be consistent with other Fund literature.

Matthews Asia Innovators Fund

Portfolio Manager Commentary  (unaudited) (continued)

ever, we expect the market to reflect each company’s fundamentals when the investigation is complete. The underlying growth and earnings of Chinese internet companies have been very resilient so far and valuations are now looking very attractive. We continue to be very selective in this sector and will continue to focus on fundamentals.

Notable Portfolio Changes

We continue to reduce our exposure to areas that are highly sensitive to the current regulatory environment. During the quarter, we exited our position in China’s Tal Education Group, which offers after-school education for students in primary and secondary school. Tal Education faces uncertainty that may directly impact their revenue in the face of a potential government crackdown on for-profit education. We will continue to monitor this space until the regulatory framework becomes more transparent. During the quarter, we added Maruti Suzuki India Ltd., a subsidiary of the Japanese automotive manufacturer Suzuki Maruti Suzuki has been introducing energy efficient models in India while also developing hybrid models. We believe that Maruti Suzuki can make a big shift to hybrids and then to electric vehicles in coming years.

Outlook

Looking ahead, while there is some risk of the Delta variant threatening economic recovery in some countries, the COVID vaccination programs across Asia are also picking up pace. Regulatory environment concerns will likely persist during the second half of the year, and we will continue to monitor this situation very closely.

With the on-going concerns over the regulatory environment in China, valuations for innovative companies continue to look attractive in our view. We are also excited to see the pace of innovation picking up across Asia, and we are seeing more “unicorns” going public beyond China, particularly in South Korea, India and Indonesia. We find many innovative companies in Asia at appealing levels today and the current levels continue to provide fertile hunting ground for companies that are innovating in areas such as business strategy, products and services, marketing and human capital. We continue to see many structural growth opportunities driven by rising disposable incomes and growing demand for improving productivity.

 

 

 

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Table of Contents

Matthews Asia Innovators Fund

June 30, 2021

Schedule of Investmentsa  (unaudited)

COMMON EQUITIES: 95.6%

 

     Shares     Value  
CHINA/HONG KONG: 59.3%    

Bilibili, Inc. ADRb

    1,096,544       $133,602,921  

Wuxi Biologics Cayman, Inc.b,c,d

    6,014,500       110,127,257  

Meituan B Sharesb,c,d

    2,535,400       104,588,203  

Tencent Holdings, Ltd.

     1,342,600       101,087,724  

JD.com, Inc. A Sharesb

    2,280,400       90,812,537  

Silergy Corp.

     554,000       75,190,835  

AIA Group, Ltd.

     5,774,600       71,637,255  

Alibaba Group Holding, Ltd.b

    2,312,600       65,571,087  

Trip.com Group, Ltd. ADRb

    1,803,456       63,950,550  

Innovent Biologics, Inc.b,c,d

    5,470,000       63,806,781  

Zai Lab, Ltd. ADRb

    258,100       45,681,119  

China Resources Mixc Lifestyle Services, Ltd.c,d

    5,910,600       40,481,109  

Shenzhou International Group Holdings, Ltd.

     1,509,100       38,108,992  

WuXi AppTec Co., Ltd. H Sharesc,d

    1,561,800       36,454,884  

China Mengniu Dairy Co., Ltd.

     5,902,000       35,655,479  

Wuliangye Yibin Co., Ltd. A Shares

     677,824       31,160,886  

Baidu, Inc. ADRb

    150,200       30,625,780  

XPeng, Inc. ADRb

    681,100       30,254,462  

Yidu Tech, Inc.b,c,d

    5,587,700       29,331,871  

Huazhu Group, Ltd. ADRb

    522,800       27,609,068  

Yatsen Holding, Ltd. ADRb

    2,828,200       26,500,234  

JD Logistics, Inc.b,c,d

    2,791,000       15,205,402  

Kingdee International Software Group Co., Ltd.b

    3,274,000       11,088,587  

Zhaoke Ophthalmology, Ltd.b,c,d

    6,363,867       9,638,870  

Haidilao International Holding, Ltd.c,d

    1,798,000       9,467,696  
   

 

 

  

Total China/Hong Kong

       1,297,639,589  
   

 

 

  
   
     
INDIA: 15.9%    

HDFC Bank, Ltd.

     4,887,351       98,714,054  

ICICI Bank, Ltd.b

    10,090,340       85,903,350  

Bajaj Finance, Ltd.b

    736,538       59,739,684  

Reliance Industries, Ltd.

     1,494,494       42,497,993  

Dabur India, Ltd.

     4,574,595       35,026,639  

Maruti Suzuki India, Ltd.

     266,397       26,976,317  
   

 

 

  

Total India

       348,858,037  
   

 

 

  
   
     
SOUTH KOREA: 8.1%    

Samsung Electronics Co., Ltd.

     692,045       49,540,842  

KB Financial Group, Inc.

     949,460       47,121,743  

LG Household & Health Care, Ltd.

     29,220       45,718,279  

LG Chem Ltd.

     46,647       35,222,686  
   

 

 

  

Total South Korea

       177,603,550  
   

 

 

  
   
     
SINGAPORE: 6.3%    

Sea, Ltd. ADRb

    499,100       137,052,860  
   

 

 

  

Total Singapore

       137,052,860  
   

 

 

  
   
     
TAIWAN: 3.9%    

Alchip Technologies, Ltd.

     2,032,000       44,508,230  

Taiwan Semiconductor Manufacturing Co., Ltd.

     1,937,000       41,719,169  
   

 

 

  

Total Taiwan

       86,227,399  
   

 

 

  
   
    Shares     Value  
     
FRANCE: 1.3%    

LVMH Moet Hennessy Louis Vuitton SE

     34,961       $27,502,316  
   

 

 

  

Total France

       27,502,316  
   

 

 

  
   
     
VIETNAM: 0.8%    

Mobile World Investment Corp.

     2,575,516       17,005,356  
   

 

 

  

Total Vietnam

       17,005,356  
   

 

 

  
   
   
TOTAL INVESTMENTS: 95.6%

 

     2,091,889,107  

(Cost $1,699,940,884)

    
   
CASH AND OTHER ASSETS,
LESS LIABILITIES: 4.4%		       95,157,381  
   

 

 

  

NET ASSETS: 100.0%

       $2,187,046,488  
   

 

 

  

 

a

Certain securities were fair valued under the valuation policies approved by the Board of Trustees (Note 2-A).

 

b

Non-income producing security.

 

c

Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. The security may be resold in transactions exempt from registration normally to qualified institutional buyers. The security has been determined to be liquid in accordance with procedures adopted by the Funds’ Board of Trustees. At June 30, 2021, the aggregate value is $419,102,073, which is 19.16% of net assets.

 

d

The securities may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the Securities Act of 1933.

 

ADR

American Depositary Receipt

See accompanying notes to financial statements.

 

 

36    MATTHEWS ASIA FUNDS     

Table of Contents

LOGO

 

PORTFOLIO MANAGERS
Andrew Mattock, CFA  

Lead Manager

  
Winnie Chwang           

Co-Manager

  

    

FUND FACTS        
    Investor   Institutional

Ticker

   MCHFX   MICFX

CUSIP

   577130701   577130818

Inception

   2/19/98   10/29/10

NAV

  

$28.89

  

$28.86

Initial Investment

   $2,500   $100,000

Gross Expense Ratio1

   1.09%   0.93%

Portfolio Statistics

Total # of Positions

  

59

Net Assets

  

$1.8 billion

Weighted Average
Market Cap

  

$175.1 billion

Portfolio Turnover2

  

52.6%

Benchmarks

MSCI China Index

MSCI China All Shares Index

OBJECTIVE

 

 

Long-term capital appreciation.

STRATEGY

 

 

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in China. China includes its administrative and other districts, such as Hong Kong.

Matthews China Fund

Portfolio Manager Commentary  (unaudited)

For the first half of 2021, the Matthews China Fund returned 7.00% (Investor Class) and 7.13% (Institutional Class), while its benchmark, the MSCI China Index, returned 1.89% over the same period. For the quarter ending June 30, 2021, the Matthews China Fund returned 4.33% (Investor Class) and 4.38% (Institutional Class), while the benchmark returned 2.32%.

Market Environment

China equity markets recovered in the second quarter post a volatile first quarter, driven by resilient first quarter results coming out of A-shares. Investors used the opportunity of the correction seen in the first quarter of 2021 to buy back into areas of secular growth including that of health care, consumer discretionary and information technology sectors. On the other hand, real estate in China saw weakness on continued policy tightness. The financials sector also saw a pullback over the second quarter as investors continued their focus on growth opportunities in China.

China’s macro environment remained relatively stable and the central bank’s monetary policy remained largely unchanged. Consumption industries in China largely remain on a recovery track although consumption patterns have not entirely recovered to pre-COVID levels. Industrial industries continue to face worries of raw material cost inflation but we note that this is a manageable risk. A slower pace of increase is expected in the second half of the year and a still strong consumer demand will facilitate the ability of companies to pass on costs through higher prices in our view. Valuations in China remain attractive at mid-teens price-to-earnings multiple coupled with low teens earning per share (EPS) growth given that the quality of earnings growth continues to become more secular and higher quality in nature.

YTD Contributors and Detractors

Strong stock selection drove the Fund’s outperformance in the first half. From a sector perspective, stock selection in financials and information technology contributed to relative performance. Among the portfolio’s financials holdings, our holding in China’s premiere banking franchise, China Merchants Bank Co., did well given attractive valuations and the bank’s ability to continue to provide financial solutions to high net worth individuals. Elsewhere in financials, our holdings in brokerages also did well. Our overweight in brokerages stems from cheap valuations and still strong fundamentals and earnings growth given the brokerages’ ability to expand service offerings as China’s capital markets deepen.

On the other hand, stock selection in the consumer discretionary and real estate sectors detracted from relative performance. The portfolio’s holding Midea Group Co., a domestic demand-oriented consumer discretionary company, suffered from weaker performance given concerns about rising raw material prices compressing margins. However, we believe that consumer demand still remains resilient in China, which will likely facilitate the ability to pass on prices in the near future. In real estate, a continued tighter policy environment resulted in the weak performance of Times China Holdings, a southern China focused developer. We believe that this presents the opportunity for market consolidation over the longer term, and that leading regional players such as Times China should be able to grow market share under these conditions given their strong balance sheets. Real estate opportunities in China are also attractively valued and may offer high dividend yields making the risk reward still favorable in our view.

(continued)

 
1

Prospectus expense ratios.

2

The lesser of fiscal year 2020 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

 

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Table of Contents
 
PERFORMANCE AS OF JUNE 30, 2021  
 

 

     

 

       

 

       

 

      Average Annual Total Returns       

 

  
    

3 Months

     

YTD

      1 Year     

3 Years

     

5 Years

     

10 Years

     

Since
Inception

      Inception
Date		  
Investor Class (MCHFX)      4.33%        7.00%        36.31%        17.46%        22.71%        8.81%        11.27%        2/19/98  
Institutional Class (MICFX)      4.38%        7.13%        36.48%        17.69%        22.94%        8.99%        8.23%        10/29/10  
MSCI China Index3      2.32%        1.89%        27.54%        10.53%        16.75%        7.93%        5.74% 4    
MSCI China All Shares Index3      4.73%        3.17%        32.40%        13.49%        14.75%        7.63%        n.a. 5    

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. For the Fund’s most recent month-end performance, visit matthewsasia.com.

 

 

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

 

LOGO

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

 

  3

It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 88 for index definition.

 

  4

Calculated from 2/28/98.

 

  5

Index performance data prior to 11/25/08 is not available.

 

       
TOP TEN HOLDINGS5                     
    

Sector

            

% of Net Assets

  

Alibaba Group Holding, Ltd.

    Consumer Discretionary             9.3%  

Tencent Holdings, Ltd.

    Communication Services             8.9%  

JD.com, Inc.

    Consumer Discretionary             4.4%  

China Merchants Bank Co., Ltd.

    Financials             4.1%  

China International Capital Corp., Ltd.

    Financials             3.8%  

AIA Group, Ltd.

    Financials             2.9%  

Meituan

    Consumer Discretionary             2.9%  

China Construction Bank Corp.

    Financials             2.8%  

CITIC Securities Co., Ltd.

    Financials             2.8%  

Pharmaron Beijing Co., Ltd.

    Health Care             2.6%  

% OF ASSETS IN TOP 10

                44.5%  

 

  5

Holdings may combine more than one security from same issuer and related depositary receipts.

 

38    MATTHEWS ASIA FUNDS     

Table of Contents
 
COUNTRY ALLOCATION (%)6  

China/Hong Kong

     98.1  

Cash and Other Assets, Less Liabilities

     1.9  

 

 
SECTOR ALLOCATION (%)6  

Financials

     21.9  

Consumer Discretionary

     21.8  

Information Technology

     12.6  

Communication Services

     11.4  

Industrials

     9.5  

Health Care

     7.8  

Materials

     7.1  

Real Estate

     4.0  

Utilities

     1.1  

Consumer Staples

     0.9  

Cash and Other Assets, Less Liabilities

     1.9  

 

 
MARKET CAP EXPOSURE (%)6  

Mega Cap (over $25B)

     61.9  

Large Cap ($10B–$25B)

     17.6  

Mid Cap ($3B–10B)

     17.4  

Small Cap (under $3B)

     1.2  

Cash and Other Assets, Less Liabilities

     1.9  

 

6

Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Country allocations and percentage values may be derived from different data sources and may not be consistent with other Fund literature.

Matthews China Fund

Portfolio Manager Commentary  (unaudited) (continued)

YTD Portfolio Changes

Chinese growth stocks recovered in the second quarter after a healthy correction in the first quarter of 2021. During the second quarter, we continued to take the opportunity to reallocate capital into areas of reasonable valuations and high-quality growth opportunities. We consolidated our smaller positions and added positions in financials, information technology, materials and industrials. Taking an all-shares approach to investing in Chinese equities, we continue to find interesting opportunities in the Hong Kong (H-shares) market in terms of both valuation and quality. We also continue to find opportunities in domestic A-shares and added some holdings over the quarter which increased the Fund’s overall exposures in A-shares.

Outlook

First quarter earnings in China point to a continued recovery in China’s economy. Encouragingly, China’s economy continues to benefit from growth coming from a broad range of different sectors and industries. As a result, cheaper parts of the market have also seen performance recovery given continued earnings delivery. Looking ahead to the rest of the year, we continue to expect corporate earnings to remain on track. While market concerns of increased regulatory scrutiny may persist over the near term, we remain focused on the longer-term fundamentals of the domestic growth engine. Among the most attractive themes from a secular growth perspective include technology upgrades, health and wellness trends, and services that enhance quality of life and premium consumer goods.

 

 

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Table of Contents

Matthews China Fund

June 30, 2021

Schedule of Investmentsa (unaudited)

COMMON EQUITIES: 98.1%

 

     Shares     Value  
FINANCIALS: 21.9%

 

  

Capital Markets: 11.2%

 

  

China International Capital Corp., Ltd. H Sharesb,c

    25,552,000       $68,714,907  

CITIC Securities Co., Ltd. H Shares

     19,972,000       50,043,011  

China Merchants Securities Co., Ltd. H Sharesb,c

    22,072,400       30,690,907  

Hong Kong Exchanges & Clearing, Ltd.

     509,200       30,312,564  

Futu Holdings, Ltd. ADRd

    133,200       23,854,788  
   

 

 

  
      203,616,177  
   

 

 

  
   

Banks: 6.9%

    

China Merchants Bank Co., Ltd. A Shares

     8,862,423       74,204,102  

China Construction Bank Corp. H Shares

     64,366,660       50,508,757  
   

 

 

  
      124,712,859  
   

 

 

  
   

Insurance: 3.8%

    

AIA Group, Ltd.

     4,263,000       52,884,982  

Ping An Insurance Group Co. of China, Ltd. A Shares

     1,567,347       15,563,839  
   

 

 

  
      68,448,821  
   

 

 

  

Total Financials

       396,777,857  
   

 

 

  
   
     
CONSUMER DISCRETIONARY: 21.8%    

Internet & Direct Marketing Retail: 16.5%

 

Alibaba Group Holding, Ltd.d

    5,934,900       168,277,196  

Meituan B Sharesb,c,d

    1,260,800       52,009,469  

JD.com, Inc. ADRd

    499,389       39,856,236  

JD.com, Inc. A Sharesd

    998,780       39,774,489  
   

 

 

  
      299,917,390  
   

 

 

  
   

Specialty Retail: 3.7%

    

Zhongsheng Group Holdings, Ltd.

     4,093,500       34,051,127  

China Yongda Automobiles Services Holdings, Ltd.

     18,572,000       33,238,544  
   

 

 

  
      67,289,671  
   

 

 

  
   

Household Durables: 1.6%

    

Midea Group Co., Ltd. A Shares

     2,537,352       27,959,917  
   

 

 

  

Total Consumer Discretionary

       395,166,978  
   

 

 

  
   
   
INFORMATION TECHNOLOGY: 12.6%

 

  

Software: 4.7%

    

Kingsoft Corp., Ltd.

     4,617,000       27,650,750  

Thunder Software Technology Co., Ltd. A Shares

     1,132,066       27,446,826  

Weimob, Inc.b,c,d

    6,194,000       13,668,545  

Sangfor Technologies, Inc. A Shares

     214,909       8,603,978  

Kingdee International Software Group Co., Ltd.d

    2,299,000       7,786,396  
   

 

 

  
      85,156,495  
   

 

 

  
   

Semiconductors & Semiconductor Equipment: 4.2%

 

LONGi Green Energy Technology Co., Ltd. A Shares

     2,076,282       28,457,118  

Gigadevice Semiconductor Beijing, Inc. A Shares

     809,187       23,471,355  

NAURA Technology Group Co., Ltd. A Shares

     306,841       13,141,915  

Shenzhen SC New Energy Technology Corp. A Shares

     579,456       10,362,104  
   

 

 

  
      75,432,492  
   

 

 

  
   
     Shares     Value  

Electronic Equipment, Instruments & Components: 3.0%

 

Wingtech Technology Co., Ltd. A Shares

     1,637,935       $24,502,859  

Wuxi Lead Intelligent Equipment Co., Ltd. A Shares

     2,631,916       24,449,432  

Luxshare Precision Industry Co., Ltd. A Shares

     865,562       6,152,863  
   

 

 

  
      55,105,154  
   

 

 

  
   

IT Services: 0.7%

    

Kingsoft Cloud Holdings, Ltd. ADRd

    362,500       12,299,625  
   

 

 

  

Total Information Technology

       227,993,766  
   

 

 

  
   
     
COMMUNICATION SERVICES: 11.4%    

Interactive Media & Services: 9.7%

    

Tencent Holdings, Ltd.

     2,137,900       160,967,857  

Kuaishou Technologyb,c,d

    648,900       16,319,351  
   

 

 

  
      177,287,208  
   

 

 

  
   

Entertainment: 1.7%

    

Bilibili, Inc. ADRd

    249,100       30,350,344  
   

 

 

  

Total Communication Services

       207,637,552  
   

 

 

  
   
     
INDUSTRIALS: 9.5%    

Machinery: 4.2%

    

Estun Automation Co., Ltd. A Sharesd

    6,609,325       39,845,872  

Jiangsu Hengli Hydraulic Co., Ltd. A Shares

     1,432,808       19,008,879  

Weichai Power Co., Ltd. A Shares

     6,536,261       18,030,658  
   

 

 

  
      76,885,409  
   

 

 

  
   

Electrical Equipment: 3.0%

    

Sungrow Power Supply Co., Ltd. A Shares

     2,379,174       42,227,830  

Sunwoda Electronic Co., Ltd. A Shares

     2,491,112       12,528,850  
   

 

 

  
      54,756,680  
   

 

 

  
   

Building Products: 1.6%

    

Xinyi Glass Holdings, Ltd.

     7,166,000       29,197,517  
   

 

 

  
   

Air Freight & Logistics: 0.7%

    

JD Logistics, Inc.b,c,d

    2,275,100       12,394,772  
   

 

 

  

Total Industrials

       173,234,378  
   

 

 

  
   
     
HEALTH CARE: 7.8%    

Life Sciences Tools & Services: 4.9%

    

Pharmaron Beijing Co., Ltd. A Shares

     1,398,892       46,847,824  

Wuxi Biologics Cayman, Inc.b,c,d

    1,276,000       23,363,934  

Hangzhou Tigermed Consulting Co., Ltd. A Shares

     620,486       18,504,454  
   

 

 

  
      88,716,212  
   

 

 

  
   

Biotechnology: 2.0%

    

Shenzhen New Industries Biomedical Engineering Co., Ltd. A Shares

     2,154,057       20,519,730  

Innovent Biologics, Inc.b,c,d

    1,373,500       16,021,684  
   

 

 

  
      36,541,414  
   

 

 

  
   

Health Care Providers & Services: 0.9%

 

Dian Diagnostics Group Co., Ltd. A Shares

     2,879,016       17,025,822  

New Horizon Health, Ltd.b,c,d

    6,000       61,161  
   

 

 

  
      17,086,983  
   

 

 

  

Total Health Care

       142,344,609  
   

 

 

  
   
 

 

40    MATTHEWS ASIA FUNDS     

Table of Contents

Matthews China Fund

June 30, 2021

Schedule of Investmentsa (unaudited) (continued)

COMMON EQUITIES (continued)

 

    Shares     Value  
   
MATERIALS: 7.1%

 

  

Chemicals: 3.8%

    

Shandong Sinocera Functional Material Co., Ltd. A Shares

     4,055,666       $30,522,501  

Sinoma Science & Technology Co., Ltd. A Shares

     5,229,952       21,142,088  

Lianhe Chemical Technology Co., Ltd. A Shares

     2,025,600       8,733,013  

Wanhua Chemical Group Co., Ltd. A Shares

     491,018       8,254,886  
   

 

 

  
      68,652,488  
   

 

 

  
   

Metals & Mining: 2.0%

    

Zijin Mining Group Co., Ltd. H Shares

     13,694,000       18,375,821  

MMG, Ltd.d

    40,456,000       17,771,300  
   

 

 

  
      36,147,121  
   

 

 

  
   

Construction Materials: 1.3%

    

China Jushi Co. Ltd. A Shares

     7,234,200       17,325,821  

Anhui Conch Cement Co., Ltd. A Shares

     1,192,144       7,563,011  
   

 

 

  
      24,888,832  
   

 

 

  

Total Materials

       129,688,441  
   

 

 

  
   
     
REAL ESTATE: 4.0%    

Real Estate Management & Development: 4.0%

 

  

CIFI Holdings Group Co., Ltd.

     42,050,000       32,800,143  

Times China Holdings, Ltd.

     19,592,000       22,407,373  

KE Holdings, Inc. ADRd

    354,800       16,916,864  
   

 

 

  

Total Real Estate

       72,124,380  
   

 

 

  
   
     
UTILITIES: 1.1%    

Gas Utilities: 1.1%

    

ENN Energy Holdings, Ltd.

     1,019,400       19,374,457  
   

 

 

  

Total Utilities

       19,374,457  
   

 

 

  
   
     
CONSUMER STAPLES: 0.9%    

Beverages: 0.9%

    

Wuliangye Yibin Co., Ltd. A Shares

     363,896       16,729,006  
   

 

 

  

Total Consumer Staples

       16,729,006  
   

 

 

  
   
     
TOTAL INVESTMENTS: 98.1%       1,781,071,424  

(Cost $1,391,223,002)

    
   
CASH AND OTHER ASSETS,
LESS LIABILITIES: 1.9%		       34,697,551  
   

 

 

  

NET ASSETS: 100.0%

       $1,815,768,975  
   

 

 

  
a

Certain securities were fair valued under the valuation policies approved by the Board of Trustees (Note 2-A).

 

b

Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. The security may be resold in transactions exempt from registration normally to qualified institutional buyers. The security has been determined to be liquid in accordance with procedures adopted by the Funds’ Board of Trustees. At June 30, 2021, the aggregate value is $233,244,730, which is 12.85% of net assets.

 

c

The securities may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the Securities Act of 1933.

 

d

Non-income producing security.

 

ADR

American Depositary Receipt

See accompanying notes to financial statements.

 

 

     matthewsasia.com  |  800.789.ASIA      41  

Table of Contents

LOGO

 

PORTFOLIO MANAGERS    
Winnie Chwang   Andrew Mattock, CFA

Lead Manager

  

Lead Manager

FUND FACTS    
    Investor   Institutional  

Ticker

   MCSMX   MICHX

CUSIP

   577125404   577125842

Inception

   5/31/11   11/30/17

NAV

   $22.40   $22.47

Initial Investment

   $2,500   $100,000

Gross Expense Ratio1

   1.52%   1.37%

After Fee Waiver and Reimbursement2

   1.43%   1.20%

Portfolio Statistics

  

Total # of Positions

   66

Net Assets

   $499.9 million

Weighted Average Market Cap

   $6.2 billion

Portfolio Turnover3

   152.9%

Benchmark

  

MSCI China Small Cap Index

OBJECTIVE

 

 

Long-term capital appreciation.

STRATEGY

 

 

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of Small Companies located in China. China includes its administrative and other districts, such as Hong Kong. The Fund defines Small Companies as companies with market capitalization no higher than the greater of $5 billion or the market capitalization of the largest company included in the Fund’s primary benchmark, the MSCI China Small Cap Index.

Matthews China Small Companies Fund

Portfolio Manager Commentary  (unaudited)

For the first half of 2021, the Matthews China Small Companies Fund returned 12.79% (Investor Class) and 12.91% (Institutional Class), while its benchmark, the MSCI China Small Cap Index, returned 17.92% over the same period. For the quarter ending June 30, 2021, the Fund returned 11.66% (Investor Class) and 11.74% (Institutional Class), while the benchmark returned 4.96%.

Market Environment

China’s macro environment remained relatively stable and the central bank’s monetary policy remained largely unchanged. Consumption industries in China largely remain on a recovery track although consumption patterns have not entirely recovered to pre-COVID levels. Industrial industries continue to face worries of raw material cost inflation but we note that this is a manageable risk. A slower pace of increase is expected in the second half of the year and a still strong consumer demand will facilitate the ability of companies to pass on costs through higher prices in our view.

China equity markets recovered in the second quarter post a volatile first quarter, driven by resilient first quarter results coming out of A-shares. Small caps rallied strongly while many of the larger internet companies had a hard quarter as regulatory concerns continued to weigh on sentiment. Investors used the opportunity of the correction seen in the first quarter of 2021 to buy back into areas of secular growth including that of health care and continued to favor cheaper areas such as the materials sectors. On the other hand, real estate in China saw weakness on continued policy tightness.

Performance Contributors and Detractors

During the first half of the year, our stock selection within the consumer discretionary and industrials sectors contributed to the Fund’s relative performance. Among individual securities, contributors to performance included Estun Automation Co. and Ginlong Technologies. Estun is 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 price 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. Chinese solar inverter manufacturer Ginlong Technologies specializes in string inverters that are predominantly used in distributed solar panel applications globally. The fast growing underlying market for solar panel installations, potential for market share gains and market share growth in ground-mounted solar power stations have helped drive the stock price higher.

On the other hand, our overweight to, and stock selection within, the information technology sector, as well as stock selection in the consumer staples sector, detracted from the Fund’s relative performance in the first half of the year. One notable detractor within the information technology sector was Alchip Technologies. Alchip is an integrated circuit (“IC”) design service firm that provides high performance chip designs to global customers. One of Alchip’s largest customers is China’s up-and-coming chip manufacturer, Phytium Technology.

(continued)

 
1

Prospectus expense ratios.

2

Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 1.20% first by waiving class specific expenses (i.e., shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non-class specific expenses (e.g., custody fees) of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 1.20% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 1.20%. If the operating expenses fall below the expense limitation within three years after Matthews has made a waiver or reimbursement, the Fund may reimburse Matthews up to an amount that does not cause the expenses for that year to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment. This agreement will remain in place until April 30, 2022 and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

3

The lesser of fiscal year 2020 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

 

42    MATTHEWS ASIA FUNDS

Table of Contents
                 
PERFORMANCE AS OF JUNE 30, 2021                                                        
 

 

     

 

       

 

             Average Annual Total Returns       

 

  
     3 Months      YTD      1 Year      3 Years      5 Years      10 Years      Since
Inception		      Inception
date		  
Investor Class (MCSMX)      11.66%        12.79%        30.59%        28.17%        29.66%        13.75%        13.17%        05/31/11  
Institutional Class (MICHX)      11.74%        12.91%        30.95%        28.45%        n.a.        n.a.        28.51%        11/30/17  
MSCI China Small Cap Index4      4.96%        17.92%        52.68%        8.45%        11.05%        4.58%        3.94% 5    

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund’s fees and expenses had not been waived. For the Fund’s most recent month-end performance, visit matthewsasia.com.

 

 

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

 

LOGO

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

 

  4

It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 93 for index definition.

 

  5

Calculated from 5/31/11

 

       
TOP TEN HOLDINGS6                     
     Sector             % of Net Assets  
KWG Living Group Holdings, Ltd.    Real Estate             4.0%  
360 DigiTech, Inc.    Financials             3.5%  
Ginlong Technologies Co., Ltd.    Industrials             2.9%  
Alchip Technologies, Ltd.    Information Technology             2.8%  
KWG Group Holdings, Ltd.    Real Estate             2.7%  
Estun Automation Co., Ltd.    Industrials             2.6%  
China Meidong Auto Holdings, Ltd.    Consumer Discretionary             2.6%  
Pharmaron Beijing Co., Ltd.    Health Care             2.5%  
China Yongda Automobiles Services Holdings, Ltd.    Consumer Discretionary             2.5%  
Pan Jit International, Inc.    Information Technology             2.4%  
% OF ASSETS IN TOP 10                28.5%  

 

  6

Holdings may combine more than one security from same issuer and related depositary receipts.

 

matthewsasia.com  |   800.789.ASIA      43  

Table of Contents

Matthews China Small Companies Fund

Portfolio Manager Commentary  (unaudited) (continued)

Unfortunately, Phytium was placed on the U.S. Department of Commerce’s entity list, which may restrict Alchip’s ability to continue to supply services and goods to this customer. Unless this issue resolves, Alchip will see a loss of revenue from this client. We continue to see the opportunity for a growing design service business for Alchip however, given more IC design activity in chips that require larger computing capabilities. This potential loss of revenue in our view will likely be offset by growing revenues from other customers.

Notable Portfolio Changes

Chinese growth stocks recovered in the second quarter of 2021, after a healthy correction in the first quarter. During the second quarter, we continued to take the opportunity to reallocate capital into areas where we see some of the most attractive investment prospects from a secular growth perspective, including in the information technology and health care sectors. Within this theme, we recently added Burning Rock Biotech to the portfolio. Burning Rock is a leading provider of next-generation sequencing (“NGS”)-based diagnostic tools, and is in the process of launching NGS cancer screening tools. We believe that disease preventative tools will proliferate in China’s healthcare industry over the next decade and that Burning Rock will benefit from increased adoption and use of their screening products.

Outlook

First quarter earnings in China point to a continued recovery in China’s economy. Encouragingly, China’s economy continues to benefit from growth coming from a broad range of different sectors and industries. As a result, cheaper parts of the market have also seen performance recovery given continued earnings delivery. Looking ahead to the rest of the year, we continue to expect corporate earnings to remain on track. While market concerns of increased regulatory scrutiny may persist over the near term, we remain focused on the longer-term fundamentals of the domestic growth engine.

Looking ahead, we expect China small companies to remain engines of growth for China’s broader economy. Among the most attractive themes from a secular growth perspective include technology upgrades, health and wellness trends, premium consumer goods and services that enhance quality of life.

We continue to focus on innovative, efficient and sustainable growth companies, with an emphasis on businesses oriented toward domestic demand and rising income levels.

 
COUNTRY ALLOCATION (%)7  
China/Hong Kong     88.1  
Taiwan     9.1  
United States     1.0  
Cash and Other Assets, Less Liabilities     1.8  

 

 
SECTOR ALLOCATION (%)7  
Information Technology     20.2  
Industrials     16.1  
Consumer Discretionary     14.4  
Health Care     13.2  
Real Estate     8.9  
Financials     8.9  
Materials     8.4  
Communication Services     3.2  
Consumer Staples     3.1  
Utilities     1.8  
Cash and Other Assets, Less Liabilities     1.8  

 

   
MARKET CAP EXPOSURE (%)7,8      
Mega Cap (over $25B)     3.5  
Large Cap ($10B-$25B)     8.9  
Mid Cap ($3B-10B)     58.7  
Small Cap (under $3B)     27.1  
Cash and Other Assets, Less Liabilities     1.8  

 

7

Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Country allocations and percentage values may be derived from different data sources and may not be consistent with other Fund literature.

 

8

The Fund defines Small Companies as companies with market capitalization no higher than the greater of $5 billion or the market capitalization of the largest company included in the Fund’s primary benchmark, the MSCI China Small Cap Index.

 

 

44    MATTHEWS ASIA FUNDS

Table of Contents

Matthews China Small Companies Fund

June 30, 2021

Schedule of Investmentsa (unaudited)

COMMON EQUITIES: 98.2%

 

     Shares     Value  
INFORMATION TECHNOLOGY: 20.2%    

Semiconductors & Semiconductor Equipment: 10.4%

 

Alchip Technologies, Ltd.

     636,000       $13,930,726  

Pan Jit International, Inc.

     3,892,000       12,026,237  

Silergy Corp.

     63,000       8,550,583  

StarPower Semiconductor, Ltd. A Shares

     124,292       6,145,440  

Flat Glass Group Co., Ltd. H Shares

     1,492,000       6,144,540  

Daqo New Energy Corp. ADRb

     80,100       5,208,102  
   

 

 

  
      52,005,628  
   

 

 

  
   

Software: 3.8%

    

Kingsoft Corp., Ltd.

     1,640,000       9,821,796  

Weimob, Inc.b,c,d

     3,078,000       6,792,344  

Kingdee International Software Group Co., Ltd.b

     652,000       2,208,234  
   

 

 

  
      18,822,374  
   

 

 

  
   

IT Services: 3.0%

    

Chinasoft International, Ltd.

     5,250,000       9,549,092  

21Vianet Group, Inc. ADRb

     235,100       5,395,545  
   

 

 

  
      14,944,637  
   

 

 

  
   

Communications Equipment: 2.1%

    

Accton Technology Corp.

     889,000       10,527,166  
   

 

 

  
   

Electronic Equipment, Instruments & Components: 0.9%

 

Kingboard Holdings, Ltd.

     830,500       4,604,547  

China High Precision Automation Group, Ltd.b,e

     195,000       251  
   

 

 

  
      4,604,798  
   

 

 

  

Total Information Technology

       100,904,603  
   

 

 

  
   
     
INDUSTRIALS: 16.1%    

Electrical Equipment: 6.0%

    

Ginlong Technologies Co., Ltd. A Shares

     511,037       14,268,866  

Zhejiang HangKe Technology, Inc., Co.
A Shares

     838,805       11,025,119  

Hongfa Technology Co., Ltd. A Shares

     481,855       4,668,533  
   

 

 

  
      29,962,518  
   

 

 

  
   

Machinery: 5.5%

    

Estun Automation Co., Ltd. A Sharesb

     2,173,700       13,104,662  

Airtac International Group

     307,000       11,825,623  

Leader Harmonious Drive Systems Co., Ltd.
A Shares

     63,389       1,375,367  

Hefei Meiya Optoelectronic Technology, Inc. A Shares

     154,200       1,328,608  
   

 

 

  
      27,634,260  
   

 

 

  
   

Transportation Infrastructure: 2.9%

    

Hainan Meilan International Airport Co., Ltd. H Sharesb

     1,735,000       7,231,931  

Yuexiu Transport Infrastructure, Ltd.

     12,216,000       7,074,680  
   

 

 

  
      14,306,611  
   

 

 

  
   

Marine: 1.5%

    

SITC International Holdings Co., Ltd.

     1,850,500       7,733,139  
   

 

 

  
   
     Shares     Value  

Professional Services: 0.2%

    

Centre Testing International Group Co., Ltd. A Shares

     216,559       $1,066,355  
   

 

 

  

Total Industrials

       80,702,883  
   

 

 

  
   
     
CONSUMER DISCRETIONARY: 14.4%    

Specialty Retail: 5.1%

    

China Meidong Auto Holdings, Ltd.

     2,344,000       12,769,753  

China Yongda Automobiles Services Holdings, Ltd.

     6,928,500       12,400,024  
   

 

 

  
      25,169,777  
   

 

 

  
   

Diversified Consumer Services: 2.3%

    

China Yuhua Education Corp., Ltd.c,d

     12,834,000       11,631,689  
   

 

 

  

Textiles, Apparel & Luxury Goods: 2.0%

    

Xtep International Holdings, Ltd.

     5,385,500       10,147,166  
   

 

 

  

Hotels, Restaurants & Leisure: 1.9%

    

Jiumaojiu International Holdings, Ltd.c,d

     1,293,000       5,284,878  

BTG Hotels Group Co., Ltd. A Shares

     1,132,300       4,174,082  
   

 

 

  
      9,458,960  
   

 

 

  
   

Household Durables: 1.3%

    

Q Technology Group Co., Ltd.d

     3,136,000       6,421,809  
   

 

 

  
   

Automobiles: 0.9%

    

Niu Technologies ADRb

     139,700       4,561,205  
   

 

 

  
   

Internet & Direct Marketing Retail: 0.9%

    

Maoyan Entertainmentb,c,d

     2,776,000       4,366,709  
   

 

 

  

Total Consumer Discretionary

       71,757,315  
   

 

 

  
   
     
HEALTH CARE: 13.2%    

Biotechnology: 6.5%

    

Shenzhen New Industries Biomedical Engineering Co., Ltd. A Shares

     1,043,765       9,942,994  

InnoCare Pharma, Ltd.b,c,d

     2,044,000       7,522,750  

Innovent Biologics, Inc.b,c,d

     505,500       5,896,587  

Legend Biotech Corp. ADRb

     127,300       5,225,665  

Burning Rock Biotech, Ltd. ADRb

     134,500       3,962,370  
   

 

 

  
      32,550,366  
   

 

 

  
   

Life Sciences Tools & Services: 2.5%

    

Pharmaron Beijing Co., Ltd. H Sharesc,d

     473,100       12,596,798  
   

 

 

  
   

Pharmaceuticals: 1.9%

    

Sihuan Pharmaceutical Holdings Group, Ltd.

     22,264,000       9,512,170  
   

 

 

  
   

Health Care Equipment & Supplies: 1.4%

    

Peijia Medical, Ltd.b,c,d

     1,487,000       6,919,552  
   

 

 

  
   

Health Care Providers & Services: 0.9%

    

Dian Diagnostics Group Co., Ltd. A Shares

     733,152       4,335,688  
   

 

 

  

Total Health Care

       65,914,574  
   

 

 

  
   
     
MATERIALS: 10.2%    

Chemicals: 8.2%

    

Sinoma Science & Technology Co., Ltd.
A Shares

     2,613,700       10,565,886  

Jiangsu Cnano Technology Co., Ltd. A Shares

     540,140       9,861,715  

ENN Natural Gas Co., Ltd. A Shares

     3,481,542       8,884,018  
 

 

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Table of Contents

Matthews China Small Companies Fund

June 30, 2021

Schedule of Investmentsa (unaudited) (continued)

COMMON EQUITIES (continued)

 

     Shares     Value  

Asia Cuanon Technology Shanghai Co., Ltd. A Shares

     519,500       $4,419,489  

China BlueChemical, Ltd. H Shares

     14,482,000       4,235,351  

Dongyue Group, Ltd.

     3,682,000       3,079,106  
   

 

 

  
      41,045,565  
   

 

 

  
   

Construction Materials: 1.2%

    

Keshun Waterproof Technologies Co., Ltd.
A Shares

     905,100       4,392,370  

Asia Cement China Holdings Corp.

     2,313,500       1,812,466  
   

 

 

  
      6,204,836  
   

 

 

  
   

Metals & Mining: 0.8%

    

MMG, Ltd.b

     8,756,000       3,846,290  
   

 

 

  

Total Materials

       51,096,691  
   

 

 

  
   
     
REAL ESTATE: 8.9%    

Real Estate Management & Development: 8.9%

 

  

KWG Living Group Holdings, Ltd.b,d

     15,573,000       19,927,249  

KWG Group Holdings, Ltd.

     10,079,000       13,479,539  

Times China Holdings, Ltd.

     9,742,000       11,141,927  
   

 

 

  

Total Real Estate

       44,548,715  
   

 

 

  
   
     
FINANCIALS: 8.9%    

Capital Markets: 3.6%

    

China Renaissance Holdings, Ltd.c,d

     2,264,200       6,851,588  

Haitong International Securities Group, Ltd.

     22,370,000       6,160,657  

China Merchants Securities Co., Ltd.
H Sharesc,d

     3,382,600       4,703,388  
   

 

 

  
      17,715,633  
   

 

 

  
   

Consumer Finance: 3.5%

    

360 DigiTech, Inc. ADRb

     421,200       17,623,008  
   

 

 

  
   

Diversified Financial Services: 1.8%

    

Chailease Holding Co., Ltd.

     1,244,000       9,037,519  
   

 

 

  

Total Financials

       44,376,160  
   

 

 

  
   
     
COMMUNICATION SERVICES: 3.2%    

Entertainment: 2.2%

    

XD, Inc.b,d

     661,200       5,822,358  

Bilibili, Inc. ADRb

     42,000       5,117,280  
   

 

 

  
      10,939,638  
   

 

 

  
   

Media: 1.0%

    

iClick Interactive Asia Group, Ltd. ADRb

     477,500       5,271,600  
   

 

 

  

Total Communication Services

       16,211,238  
   

 

 

  
   
     Shares     Value  
     
CONSUMER STAPLES: 3.1%    

Food Products: 3.1%

    

Yantai China Pet Foods Co., Ltd. A Shares

     1,073,398       $6,810,176  

China Modern Dairy Holdings, Ltd.

     20,451,000       4,524,077  

COFCO Joycome Foods, Ltd.d

     10,649,000       4,262,368  
   

 

 

  

Total Consumer Staples

       15,596,621  
   

 

 

  
   
     
TOTAL INVESTMENTS: 98.2%       491,108,800  

(Cost $415,357,839)

    
   
CASH AND OTHER ASSETS,
LESS LIABILITIES: 1.8%		       8,764,873  
   

 

 

  

NET ASSETS: 100.0%

       $499,873,673  
   

 

 

  

 

a

Certain securities were fair valued under the valuation policies approved by the Board of Trustees (Note 2-A).

 

b

Non-income producing security.

 

c

Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. The security may be resold in transactions exempt from registration normally to qualified institutional buyers. The security has been determined to be liquid in accordance with procedures adopted by the Funds’ Board of Trustees. At June 30, 2021, the aggregate value is $72,566,283, which is 14.52% of net assets.

 

d

The securities may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the Securities Act of 1933.

 

e

Security is valued using significant unobservable inputs and is classified as Level 3 in the fair value hierarchy. The aggregate value of Level 3 security is $251 and 0.00% of net assets.

 

ADR

American Depositary Receipt

See accompanying notes to financial statements.

 

 

46    MATTHEWS ASIA FUNDS

Table of Contents

LOGO

 

PORTFOLIO MANAGERS
Peeyush Mittal,CFA  

Lead Manager

  
Sharat Shroff, CFA  

Co-Manager

  
FUND FACTS
    Investor   Institutional

Ticker

   MINDX   MIDNX

CUSIP

   577130859   577130768

Inception

   10/31/05   10/29/10

NAV

  

$29.19

  

$29.60

Initial Investment

   $2,500   $100,000

Gross Expense Ratio1

  

1.15%

  

1.03%

Portfolio Statistics

    

Total # of Positions

  

63

Net Assets

  

$754.8 million

Weighted Average Market Cap

  

$49.3 billion

Portfolio Turnover2

 

57.4%

Benchmark

  

S&P Bombay Stock Exchange 100 Index

OBJECTIVE

 

 

Long-term capital appreciation.

STRATEGY

 

 

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in publicly traded common stocks, preferred stocks and convertible securities of companies located in India.

Matthews India Fund

Portfolio Manager Commentary  (unaudited)

For the first half of 2021, the Matthews India Fund returned 11.03% (Investor Class) and 11.07% (Institutional Class) while its benchmark, the S&P Bombay Stock Exchange 100 Index, returned 12.28% over the same period. For the quarter ending June 30, the Fund returned 7.87% (Investor Class) and 7.91% (Institutional Class), while its benchmark returned 6.39%.

Market Environment

Indian equity markets have been fairly resilient despite a vicious second COVID wave, punchy equity valuations and higher-than-normal inflation outlook. Overall economic sentiment at the start of the year was very robust, as consumer demand and industrial activity continued to recover from last year’s COVID-induced slowdown. Additionally, a pro-growth budget presented by India’s central government, with an emphasis on higher infrastructure spending in the coming years, helped boost consumer confidence. India’s central bank also continued with its accommodative monetary policy, despite inflationary pressures being visible across sectors. However, economic recovery was impaired as a second wave of COVID infections began to engulf India in April. The health impact of this second wave was far worse than the first wave, as it exposed the country’s inadequate health infrastructure, and consequently fatalities were much greater. The crisis began to ease somewhat after many state governments imposed localized lockdowns in the most affected cities and towns. While lockdowns in some parts of the country have continued, the month of June has seen a return to normalcy in mobility across the country.

Indian equities have provided positive returns over the last six months despite many adverse economic events. In part, this is because many Indians are diverting their financial savings from fixed deposits to equity markets given the low interest rates prevailing in the economy despite high inflation. As a result, the number of individual brokerage accounts have doubled in last 12 months.

Performance Contributors and Detractors

For the first six month of the year, our strong stock selection in health care, information technology and consumer staples sectors contributed to performance. On the other hand, stock selection in financials, consumer discretionary and materials sectors detracted.

Security selection within the health care sector continued to be a bright spot. Laurus Labs, a mid-cap pharmaceutical company focused on producing medication targeting HIV disease treatment in poor countries in Africa, contributed the most to Fund’s absolute and relative performance during the first half of the year. From being an API (active pharmaceutical ingredient) manufacturer, Laurus Labs has evolved into a fully vertically integrated manufacturer, which has helped it gain market share and improve its margins. Laurus Labs is also diversifying into other types of therapies in an effort to reduce its reliance on anti-virals, which we think is a much larger market and will likely allow the company to scale its business beyond current levels.

On the other hand, Bandhan Bank Ltd., a financial services company providing full service banking including microfinance products to traditionally underserved markets, detracted the most during the period. Bandhan Bank has had many external headwinds negatively impact its business in the last few years. However, despite the headwinds, Bandhan Bank continues to be a very well capitalized, profitable company. We expect the business will begin to normalize as COVID vaccination efforts gather steam and the impact of the pandemic starts to recede.

(continued)

 
1

Prospectus expense ratios.

2

The lesser of fiscal year 2020 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

 

     matthewsasia.com  |  800.789.ASIA      47  

Table of Contents
 
PERFORMANCE AS OF JUNE 30, 2021  
 

 

     

 

       

 

       

 

      Average Annual Total Returns       

 

  
    

3 Months

     

YTD

      1 Year     

3 Years

     

5 Years

     

10 Years

     

Since
Inception

      Inception
Date		  
Investor Class (MINDX)      7.87%        11.03%        60.37%        6.62%        8.71%        7.73%        10.84%        10/31/05  
Institutional Class (MIDNX)      7.91%        11.07%        60.59%        6.77%        8.89%        7.92%        6.73%        10/29/10  
S&P Bombay Stock Exchange 100 Index3      6.39%        12.28%        58.46%        11.73%        12.96%        6.86%        10.78% 4    

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. For the Fund’s most recent month-end performance, visit matthewsasia.com.

 

 

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

 

LOGO

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

 

  3

It is not possible to invest directly in an index. Source: Index data from S&P BSE 100 Index and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 88 for index definition.

 

  4

Calculated from 10/31/05.

 

       
TOP TEN HOLDINGS5                     
    

Sector

            

% of Net Assets

  

Reliance Industries, Ltd.

    Energy             8.0%  

HDFC Bank, Ltd.

    Financials             7.7%  

Infosys, Ltd.

    Information Technology             6.4%  

ICICI Bank, Ltd.

    Financials             5.1%  

Bajaj Finance, Ltd.

    Financials             3.9%  

Tata Consultancy Services, Ltd.

    Information Technology             3.8%  

Shriram City Union Finance, Ltd.

    Financials             3.4%  

Housing Development Finance Corp., Ltd.

    Financials             3.3%  

Info Edge India, Ltd.

    Communication Services             3.0%  

Kotak Mahindra Bank, Ltd.

    Financials             2.8%  

% OF ASSETS IN TOP 10

                47.4%  

 

  5

Holdings may combine more than one security from same issuer and related depositary receipts.

 

48    MATTHEWS ASIA FUNDS     

Table of Contents

Matthews India Fund

Portfolio Manager Commentary  (unaudited) (continued)

Notable Portfolio Changes

We made a few changes to the portfolio in the second quarter, including initiating a position in Ramco Cements Ltd., one of southern India’s largest cement producers. Ramco Cements is expected to increase its capacity in the next three to six months. We believe the large capacity expansion makes the company very well positioned to benefit from the pick up in infrastructure spending and construction activity, which we anticipate will focus slightly more in southern India as compared to previous years. We expect the additional cash flow generated would be used to de-lever the balance sheet and to positively benefit its equity shareholders.

Given the negative impact the second wave of COVID has had on India’s economy in general, and many households in particular, we have taken a more conservative approach to portfolio positioning. We have opted to remain in liquid and cash-rich businesses rather than more levered businesses. As a consequence, we decided to exit some of our smaller financial holdings, including DCB Bank Ltd. and Mahindra & Mahindra Financial Services Limited, where we believe credit quality has likely deteriorated and the road to recovery would be long.

Outlook

While the second wave of COVID infections seems to have abated in India, there is already some indications of the potential for a third wave to start soon. It is also likely that in the near term, discretionary consumption may be reduced as household savings of many have been negatively impacted due to higher health care spending in recent months. However, as vaccination efforts in India continue to gather pace, we believe COVID’s impact on human health and India’s economy will continue to recede in the coming months.

Despite near-term COVID challenges, we remain optimistic about India’s cyclical recovery, aided by increased infrastructure spending and a likely pick up in private sector capital spending. We are also seeing signs of increased manufacturing activity in India and greater acceptance of the governments’ ”Make in India” initiative. We also anticipate that India’s central bank will continue with its accommodating monetary policy, even if inflation remains elevated.

Given the existing conditions, we will continue with our conservative approach to portfolio construction, which includes investing in businesses with strong balance sheets and cash flows, and that will benefit from cyclical economic recovery ahead.

 
COUNTRY ALLOCATION (%)6  

India

     102.7  

Liabilities in Excess of Cash and Other Assets

     -2.7  

 

 
SECTOR ALLOCATION (%)6  

Financials

     31.7  

Information Technology

     18.4  

Consumer Staples

     10.6  

Consumer Discretionary

     9.0  

Health Care

     9.0  

Energy

     8.0  

Industrials

     7.0  

Materials

     5.6  

Communication Services

     3.6  

Liabilities in Excess of Cash and Other Assets

     -2.7  

 

 
MARKET CAP EXPOSURE (%)6  

Mega Cap (over $25B)

     52.3  

Large Cap ($10B–$25B)

     7.2  

Mid Cap ($3B–10B)

     21.9  

Small Cap (under $3B)

     21.3  

Liabilities in Excess of Cash and Other Assets

     -2.7  

 

6

Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Country allocations and percentage values may be derived from different data sources and may not be consistent with other Fund literature.

 

 

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Table of Contents

Matthews India Fund

June 30, 2021

Schedule of Investmentsa (unaudited)

COMMON EQUITIES: 102.7%

 

     Shares     Value  
FINANCIALS: 31.7%    

Banks: 19.9%

    

HDFC Bank, Ltd.

     2,879,832       $58,166,456  

ICICI Bank, Ltd.b

    4,511,717       38,410,163  

Kotak Mahindra Bank, Ltd.b

    925,873       21,282,163  

Bandhan Bank, Ltd.b,c,d

    3,681,002       16,390,723  

Axis Bank, Ltd.b

    1,567,694       15,823,011  
   

 

 

  
      150,072,516  
   

 

 

  
   

Consumer Finance: 7.8%

    

Bajaj Finance, Ltd.b

    360,514       29,240,844  

Shriram City Union Finance, Ltd.

     1,100,949       25,407,316  

SBI Cards & Payment Services, Ltd.b

    320,612       4,190,436  
   

 

 

  
      58,838,596  
   

 

 

  
   

Thrifts & Mortgage Finance: 3.3%

    

Housing Development Finance Corp., Ltd.

     749,900       25,026,525  
   

 

 

  
   

Capital Markets: 0.7%

    

Multi Commodity Exchange of India, Ltd.

     258,854       5,302,786  
   

 

 

  

Total Financials

       239,240,423  
   

 

 

  
   
     
INFORMATION TECHNOLOGY: 18.3%    

IT Services: 17.1%

    

Infosys, Ltd.

     2,293,098       48,510,479  

Tata Consultancy Services, Ltd.

     636,793       28,697,445  

HCL Technologies, Ltd.

     1,027,452       13,611,576  

Mindtree, Ltd.

     358,989       12,572,118  

Tech Mahindra, Ltd.

     678,939       10,018,235  

Wipro, Ltd.

     1,220,710       8,958,734  

Larsen & Toubro Infotech, Ltd.c,d

    130,490       7,156,023  
   

 

 

  
      129,524,610  
   

 

 

  
   

Software: 1.2%

    

Birlasoft, Ltd.

     1,671,464       9,006,105  
   

 

 

  

Total Information Technology

       138,530,715  
   

 

 

  
   
     
CONSUMER STAPLES: 10.5%    

Food Products: 2.7%

    

Zydus Wellness, Ltd.b

    610,395       17,266,024  

Britannia Industries, Ltd.

     61,718       3,032,994  
   

 

 

  
      20,299,018  
   

 

 

  
   

Food & Staples Retailing: 2.4%

    

Avenue Supermarts, Ltd.b,c,d

    397,387       17,892,240  
   

 

 

  
   

Personal Products: 2.0%

    

Dabur India, Ltd.

     1,687,326       12,919,473  

Marico, Ltd.

     331,274       2,366,793  
   

 

 

  
      15,286,266  
   

 

 

  
   

Household Products: 1.9%

    

Hindustan Unilever, Ltd.

     433,565       14,431,777  
   

 

 

  
   

Tobacco: 1.5%

    

VST Industries, Ltd.

     241,115       11,722,161  
   

 

 

  

Total Consumer Staples

       79,631,462  
   

 

 

  
   
     
HEALTH CARE: 9.0%    

Pharmaceuticals: 5.0%

    

Laurus Labs, Ltd.c,d

    1,854,436       17,208,264  

Neuland Laboratories, Ltd.

     336,112       9,785,875  
     Shares     Value  

Cadila Healthcare, Ltd.b

    486,545       $4,225,807  

Natco Pharma, Ltd.

     247,446       3,762,659  

Alembic Pharmaceuticals, Ltd.b

    200,285       2,654,777  
   

 

 

  
      37,637,382  
   

 

 

  
   

Health Care Providers & Services: 2.3%

    

Metropolis Healthcare, Ltd.c,d

    240,202       9,169,982  

Thyrocare Technologies, Ltd.c,d

    451,480       7,983,266  
   

 

 

  
      17,153,248  
   

 

 

  
   

Life Sciences Tools & Services: 0.9%

    

Divi’s Laboratories, Ltd.b

    115,806       6,872,616  
   

 

 

  
   

Health Care Equipment & Supplies: 0.8%

 

Poly Medicure, Ltd.b

    477,464       6,536,813  
   

 

 

  

Total Health Care

       68,200,059  
   

 

 

  
   
     
CONSUMER DISCRETIONARY: 9.0%    

Automobiles: 2.8%

    

Maruti Suzuki India, Ltd.

     77,303       7,827,979  

Eicher Motors, Ltd.b

    204,656       7,364,713  

Mahindra & Mahindra, Ltd.

     591,458       6,201,068  
   

 

 

  
      21,393,760  
   

 

 

  
   

Household Durables: 1.7%

    

Crompton Greaves Consumer Electricals, Ltd.

     1,431,534       8,381,450  

Whirlpool of India, Ltd.

     138,483       4,166,831  
   

 

 

  
      12,548,281  
   

 

 

  
   

Hotels, Restaurants & Leisure: 1.3%

    

Burger King India, Ltd.b

    2,435,173       5,216,306  

Delta Corp., Ltd.b

    1,771,185       4,232,391  
   

 

 

  
      9,448,697  
   

 

 

  
   

Multiline Retail: 1.2%

    

Trent, Ltd.

     802,019       9,180,023  
   

 

 

  
   

Auto Components: 1.0%

 

Bosch, Ltd.

     38,145       7,716,729  
   

 

 

  
   

Textiles, Apparel & Luxury Goods: 1.0%

 

Vaibhav Global, Ltd.

     696,875       7,493,148  
   

 

 

  

Total Consumer Discretionary

       67,780,638  
   

 

 

  
   
     
ENERGY: 8.0%    

Oil, Gas & Consumable Fuels: 8.0%

    

Reliance Industries, Ltd.

     2,024,412       57,566,941  

Reliance Industries, Ltd. - partially paid

     141,310       2,833,661  
   

 

 

  

Total Energy

       60,400,602  
   

 

 

  
   
     
INDUSTRIALS: 7.0%    

Machinery: 4.2%

    

Ashok Leyland, Ltd.b

    7,493,566       12,388,877  

AIA Engineering, Ltd.b

    239,658       6,903,552  

Carborundum Universal, Ltd.

     541,033       4,417,480  

Cummins India, Ltd.

     361,617       4,380,179  

Greaves Cotton, Ltd.b

    1,481,391       3,204,602  
   

 

 

  
      31,294,690  
   

 

 

  
   

Professional Services: 0.7%

    

Quess Corp., Ltd.c,d

    510,307       5,624,171  
   

 

 

  
   
 

 

50    MATTHEWS ASIA FUNDS     

Table of Contents

Matthews India Fund

June 30, 2021

Schedule of Investmentsa (unaudited) (continued)

COMMON EQUITIES (continued)

 

     Shares     Value  

Trading Companies & Distributors: 0.7%

    

IndiaMart InterMesh, Ltd.b,c,d

    57,443       $5,410,347  
   

 

 

  
   

Transportation Infrastructure: 0.7%

    

Gujarat Pipavav Port, Ltd.

     3,442,219       5,231,068  
   

 

 

  
   

Electrical Equipment: 0.7%

    

ABB India, Ltd.

     204,136       4,971,882  
   

 

 

  

Total Industrials

       52,532,158  
   

 

 

  
   
     
MATERIALS: 5.6%    

Chemicals: 3.7%

    

Pidilite Industries, Ltd.b

    377,750       10,954,921  

PI Industries, Ltd.

     249,775       9,790,326  

Asian Paints, Ltd.

     170,548       6,875,644  
   

 

 

  
      27,620,891  
   

 

 

  
   

Construction Materials: 1.9%

    

Ramco Cements, Ltd.

     704,322       9,728,691  

Ambuja Cements, Ltd.

     1,059,508       4,863,042  
   

 

 

  
      14,591,733  
   

 

 

  

Total Materials

       42,212,624  
   

 

 

  
   
     
COMMUNICATION SERVICES: 3.6%    

Interactive Media & Services: 3.0%

    

Info Edge India, Ltd.

     343,553       22,748,637  
   

 

 

  
   

Entertainment: 0.6%

    

PVR, Ltd.b

    227,559       4,090,204  
   

 

 

  

Total Communication Services

       26,838,841  
   

 

 

  
   
     
TOTAL COMMON EQUITIES       775,367,522  

(Cost $533,977,586)

    

 

NON-CONVERTIBLE CORPORATE BONDS: 0.0%

 

  
     Face Amount     Value  
CONSUMER STAPLES: 0.0%    

Food Products: 0.0%

    

Britannia Industries, Ltd. 5.500%, 06/03/2024

     INR 1,996,476       26,634  
   

 

 

  

Total Consumer Staples

       26,634  
   

 

 

  
   
     
TOTAL NON-CONVERTIBLE CORPORATE BONDS       26,634  
   

 

 

  

(Cost $27,435)

    
   
     

TOTAL INVESTMENTS: 102.7%

       775,394,156  
   

 

 

  

(Cost $534,005,021)

    
   
LIABILITIES IN EXCESS OF CASH
AND OTHER ASSETS: (2.7%)		       (20,546,633 ) 
   

 

 

  

NET ASSETS: 100.0%

       $754,847,523  
   

 

 

  
a

Certain securities were fair valued under the valuation policies approved by the Board of Trustees (Note 2-A).

 

b

Non-income producing security.

 

c

Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. The security may be resold in transactions exempt from registration normally to qualified institutional buyers. The security has been determined to be liquid in accordance with procedures adopted by the Funds’ Board of Trustees. At June 30, 2021, the aggregate value is $86,835,016, which is 11.50% of net assets.

 

d

The securities may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the Securities Act of 1933.

 

INR

Indian Rupee

See accompanying notes to financial statements.

 

 

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Table of Contents

LOGO

 

PORTFOLIO MANAGERS

Taizo Ishida   Shuntaro Takeuchi

Lead Manager

  

Lead Manager

FUND FACTS
    Investor   Institutional

Ticker

   MJFOX   MIJFX

CUSIP

   577130800   577130792

Inception

   12/31/98   10/29/10

NAV

  

$23.83

  

$23.89

Initial Investment

   $2,500   $100,000

Gross Expense Ratio1

  

0.95%

  

0.91%

Portfolio Statistics

    

Total # of Positions

  

52

Net Assets

  

$1.7 billion

Weighted Average Market Cap

  

$43.6 billion

Portfolio Turnover2

  

62.0%

Benchmark

MSCI Japan Index

OBJECTIVE

 

 

Long-term capital appreciation.

STRATEGY

 

 

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in Japan.

Matthews Japan Fund

Portfolio Manager Commentary  (unaudited)

For the first half of 2021, the Matthews Japan Fund returned -5.70% (Investor Class) and -5.65% (Institutional Class), while its benchmark, the MSCI Japan Index, returned 1.45% over the same period. For the quarter ending June 30, the Fund returned -0.33% (Investor Class) and -0.29% (Institutional Class), while its benchmark returned -0.25%.

Market Environment

Japanese equity markets lagged global peers in the second quarter, as developed markets in the U.S. and Europe saw their COVID-19 vaccinations rise early in the quarter, along with increased economic activity. While Japan’s vaccinations lagged as its state of emergency status continued, the country is quickly catching up with the vaccination ratio going above 20% in late June, compared to approximately 5% in late May.

The country’s relative performance since mid-May has been roughly in-line within the developed markets. While the velocity of a rapid deep value rally (along with a sell-off in high-quality names) has slowed, Japanese growth stocks have yet to rally, mainly due to the lag in economic activity recovery.

Performance Contributors and Detractors

For the first half of 2021, the Fund underperformed its benchmark, with our quality core growth portfolio weighed down by the market’s stark pivot toward value stocks amid a sudden surge in U.S. 10-year bond yields. The Fund delivered returns just slightly below the benchmark index during the second quarter.

Year-to-date performance was dragged down by our two key overweight sectors, information technology and health care. The industrials sector, which contains commodity price-sensitive trading companies and cyclical transport companies, was also a detractor to performance. On the other hand, the portfolio’s underweight to the consumer staples sector, along with stock selection within the consumer staples and materials sectors were notable contributors to relative performance.

Turning to individual securities, Roland Corp., a manufacturer of electronic music instruments, was the largest contributor to the Fund year to date. Roland revised its full-year earnings guidance in May as the company continued to benefit from “stay at home” demand as well as its stellar execution in securing key components amid semiconductor shortages. Over the mid to long term, we believe the ongoing shift from acoustic to digital pianos and drum sets—which command higher margins—will be significant growth drivers for the company.

Leading human resources and media marketing solution provider Recruit was also a major contributor. The company is a beneficiary of the reopening of economic activity. Recruit’s crown jewel, HR Technology, provides technology solutions that help job seekers and employers in the hiring and recruitment process. The division, which consists of Indeed.com and Glassdoor and operates in more than 60 countries, guided for 40%-50% topline growth for current fiscal year.

Japanese multinational TDK Corp., the world’s leading supplier of small- to mid-sized batteries via its core subsidiary Amperex Technology Limited, was the largest detractor to the Fund’s absolute performance year to date. The company’s near-term earnings have slowed down due to weaker-than-expected personal computer and smartphone demand. Additionally, increased investment in its mid-size battery expansion is likely to press margins downward. While we have trimmed TDK’s position in the portfolio during the year, we continue to hold a positive view due to its unique and dominant position in small- to mid-sized batteries.

(continued)

 

 

1

Prospectus expense ratios.

2

The lesser of fiscal year 2020 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

 

52    MATTHEWS ASIA FUNDS     

Table of Contents
   
PERFORMANCE AS OF JUNE 30, 2021         
 

 

     

 

       

 

       

 

      Average Annual Total Returns       

 

  
     3 Months      YTD      1 Year      3 Years      5 Years      10 Years      Since
Inception		      Inception
Date		  
Investor Class (MJFOX)      -0.33%        -5.70%        22.37%        7.17%        9.15%        9.90%        6.75%        12/31/98  
Institutional Class (MIJFX)      -0.29%        -5.65%        22.46%        7.23%        9.23%        10.01%        10.55%        10/29/10  
MSCI Japan Index3      -0.25%        1.45%        25.25%        7.63%        10.58%        7.47%        4.26% 4    

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. For the Fund’s most recent month-end performance, visit matthewsasia.com.

 

 

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

 

LOGO

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

 

  3

It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 88 for index definitions.

 

  4

Calculated from 12/31/98.

 

       
TOP TEN HOLDINGS5                       
     Sector               % of Net Assets  
Sony Group Corp.    Consumer Discretionary             4.8%  
Shin-Etsu Chemical Co., Ltd.    Materials             4.1%  
Recruit Holdings Co., Ltd.    Industrials             3.6%  
ORIX Corp.    Financials             3.1%  
Toyota Motor Corp.    Consumer Discretionary             3.1%  
Advantest Corp.    Information Technology             3.0%  
FANUC Corp.    Industrials             2.8%  
Hoya Corp.    Health Care             2.8%  
Toyota Industries Corp.    Consumer Discretionary             2.5%  
Ibiden Co., Ltd.    Information Technology             2.5%  
% OF ASSETS IN TOP 10                32.3%  

 

  5

Holdings may combine more than one security from same issuer and related depositary receipts.

 

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Table of Contents
 
COUNTRY ALLOCATION (%)6  

Japan

     96.6  

Cash and Other Assets, Less Liabilities

     3.4  

 

   
SECTOR ALLOCATION (%)6      

Consumer Discretionary

     20.3  

Information Technology

     17.7  

Industrials

     17.5  

Health Care

     13.9  

Communication Services

     9.6  

Materials

     8.6  

Financials

     8.0  

Consumer Staples

     1.0  
Cash and Other Assets, Less Liabilities     3.4  

 

   
MARKET CAP EXPOSURE (%)6      

Mega Cap (over $25B)

     43.4  

Large Cap ($10B-$25B)

     20.2  

Mid Cap ($3B-10B)

     16.3  

Small Cap (under $3B)

     16.7  

Cash and Other Assets, Less Liabilities

     3.4  

 

6

Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Country allocations and percentage values may be derived from different data sources and may not be consistent with other Fund literature.

Matthews Japan Fund

Portfolio Manager Commentary  (unaudited) (continued)

M3, Inc., an operator of an internet medical services platform for doctors, also detracted from absolute returns. While fundamentals remain intact for its CRO (contract research organization) platform and career businesses, valuation multiples have significantly expanded over the past 12 months, which spurred profit taking amid the sell-off in high-quality growth stocks.

Notable Portfolio Changes

Our portfolio actions during the quarter were driven by our continuing shift to increase our exposure to cyclical growth companies as economic activity started to improve—a process that began in July of 2020.

With respect to new holdings during the second quarter, we initiated a position in Toyota Motor Corp. for the first time since early 2017. The company is viewed as a laggard in the ongoing shift to electric vehicles, and has underperformed global peers over the past year. However, we believe Toyota is in fact ahead of peers in terms of electrification technology, and initiated our position in view of the company’s planned launch of key electric vehicle models. In May, Toyota announced that on a global basis, it expects to sell approximately eight million electrified vehicles by 2030, of which two million will be BEVs (battery electric vehicles) and FCEVs (fuel cell electric vehicles).

We also initiated a position in Ushio Inc., an industrial light source manufacturer. Ushio specializes in optical components and boasts a high market share in niche markets: UV (ultraviolet light) lamps for legacy semiconductor lithography, UV lamps for FPD (flat panel display) lithography and steppers for PCB (printed circuit board) production. After several years of underperformance and slow growth, we view the company as turning the corner under its new management team. We believe EUV (extreme ultraviolet) light source used in lithography for FC-PKG (flip chip package) will be a key contributor to structural growth going forward, in addition to the cyclical recovery of Ushio’s cinema and industrial-related businesses.

To fund these positions, we exited Disco, Nihon M&A Center and Oracle Japan.

Outlook

Looking ahead, our base case scenario is that the global economy will continue its path to recovery towards pre-COVID levels and the bond yields to normalize. Therefore, we have continued to shift our portfolio towards a cyclical earnings recovery, and did not trade into low-quality names for the sake of short-term fix.

As we wrote in the 2020 year-end commentary, we think 2021 will not be such a one-way street like 2020, where growth-oriented names performed strongly in a recessionary environment coupled with lower interest rates and ample money supply. With profit recovery already “baked into” current consensus estimates and valuation levels, upside surprise in profits will be more important in investment returns going forward. We will continue to look for investment opportunities in high-quality companies that can continue to execute well, but at the same time we will also seek opportunities in cyclical areas that have a potential to achieve high growth via lower and easier competition.

Going forward, we believe Japan can still enjoy higher prices as countries linked to the global economy, like Japan, should fare better as prospects for exports improve. From a structural point of view, we continue to believe the earnings capability of Japanese companies has improved meaningfully over the past economic cycle, driven by better corporate governance and a higher focus on capital efficiency. We believe multiyear trends such as productivity growth and innovation in health care, technology and material science—where Japanese corporations historically excelled versus global peers—not only remain intact, but will accelerate.

 

 

54    MATTHEWS ASIA FUNDS     

Table of Contents

Matthews Japan Fund

June 30, 2021

Schedule of Investmentsa (unaudited)

COMMON EQUITIES: 96.6%

 

     Shares     Value  
CONSUMER DISCRETIONARY: 20.3%    

Household Durables: 4.8%

 

  

Sony Group Corp.

     818,600       $79,377,402  
   

 

 

  
   

Multiline Retail: 4.1%

    

Pan Pacific International Holdings Corp.

     1,948,500       40,519,032  

Marui Group Co., Ltd.

     1,430,800       26,995,593  
   

 

 

  
      67,514,625  
   

 

 

  
   

Automobiles: 3.1%

 

  

Toyota Motor Corp.

     584,600       51,102,281  
   

 

 

  
   

Specialty Retail: 2.9%

    

Nitori Holdings Co., Ltd.

     169,900       30,003,855  

Hikari Tsushin, Inc.

     107,100       18,822,406  
   

 

 

  
      48,826,261  
   

 

 

  
   

Leisure Products: 2.9%

    

Roland Corp.

     481,800       24,396,449  

Bandai Namco Holdings, Inc.

     345,200       23,891,096  
   

 

 

  
      48,287,545  
   

 

 

  
   

Auto Components: 2.5%

    

Toyota Industries Corp.

     480,700       41,568,624  
   

 

 

  

Total Consumer Discretionary

       336,676,738  
   

 

 

  
   
     
INFORMATION TECHNOLOGY: 17.7%    

Electronic Equipment, Instruments & Components: 6.7%

 

  

Ibiden Co., Ltd.

     763,400       41,088,851  

Keyence Corp.

     76,300       38,426,467  

TDK Corp.

     267,700       32,406,341  
   

 

 

  
      111,921,659  
   

 

 

  
   

Semiconductors & Semiconductor Equipment: 5.0%

 

Advantest Corp.

     556,400       49,957,387  

SUMCO Corp.

     704,200       17,250,130  

Renesas Electronics Corp.b

    1,527,100       16,481,015  
   

 

 

  
      83,688,532  
   

 

 

  
   

Software: 3.3%

    

Sansan, Inc.b

    244,700       21,511,487  

Freee KKb

    219,900       20,075,457  

Appier Group, Inc.b

    911,800       12,910,312  
   

 

 

  
      54,497,256  
   

 

 

  
   

IT Services: 2.7%

    

OBIC Co., Ltd.

     218,800       40,692,244  

Hennge KKb

    98,800       3,357,563  
   

 

 

  
      44,049,807  
   

 

 

  
   

Total Information Technology

       294,157,254  
   

 

 

  
   
     
INDUSTRIALS: 17.5%    

Machinery: 6.0%

    

FANUC Corp.

     192,700       46,209,041  

SMC Corp.

     55,100       32,596,871  

Japan Steel Works, Ltd.

     789,200       20,262,381  
   

 

 

  
      99,068,293  
   

 

 

  
   

Professional Services: 5.7%

    

Recruit Holdings Co., Ltd.

     1,218,200       59,739,063  

SMS Co., Ltd.

     1,203,900       35,975,712  
   

 

 

  
      95,714,775  
   

 

 

  
     Shares     Value  

Building Products: 3.5%

    

AGC, Inc.

     765,500       $32,067,119  

Daikin Industries, Ltd.

     140,000       26,088,971  
   

 

 

  
      58,156,090  
   

 

 

  
   

Electrical Equipment: 2.3%

    

Nidec Corp.

     209,400       24,078,955  

Ushio, Inc.

     803,000       14,679,803  
   

 

 

  
      38,758,758  
   

 

 

  
   

Total Industrials

       291,697,916  
   

 

 

  
   
     
HEALTH CARE: 13.9%    

Health Care Equipment & Supplies: 8.2%

    

Hoya Corp.

     347,300       45,937,496  

Olympus Corp.

     2,064,400       41,062,846  

Terumo Corp.

     806,000       32,645,002  

Sysmex Corp.

     145,600       17,273,218  
   

 

 

  
      136,918,562  
   

 

 

  
   

Health Care Technology: 2.2%

    

JMDC, Inc.b

    533,700       26,636,153  

M3, Inc.

     129,100       9,406,013  
   

 

 

  
      36,042,166  
   

 

 

  
   

Pharmaceuticals: 2.0%

    

Daiichi Sankyo Co., Ltd.

     898,000       19,372,639  

Chugai Pharmaceutical Co., Ltd.

     353,400       14,007,576  
   

 

 

  
      33,380,215  
   

 

 

  
   

Biotechnology: 1.5%

 

PeptiDream, Inc.b

    508,200       24,836,135  
   

 

 

  

Total Health Care

       231,177,078  
   

 

 

  
   
     
COMMUNICATION SERVICES: 9.6%    

Entertainment: 3.8%

    

Capcom Co., Ltd.

     1,120,600       32,753,599  

Nintendo Co., Ltd.

     52,200       30,206,732  
   

 

 

  
      62,960,331  
   

 

 

  
   

Wireless Telecommunication Services: 2.5%

    

SoftBank Group Corp.

     585,100       40,805,941  
   

 

 

  
   

Media: 2.2%

    

Direct Marketing MiX, Inc.

     606,800       22,502,168  

Kadokawa Corp.

     359,100       14,584,419  
   

 

 

  
      37,086,587  
   

 

 

  
   

Interactive Media & Services: 1.1%

    

Kakaku.com, Inc.

     634,700       19,094,387  
   

 

 

  

Total Communication Services

       159,947,246  
   

 

 

  
   
     
MATERIALS: 8.6%    

Chemicals: 8.6%

    

Shin-Etsu Chemical Co., Ltd.

     405,500       67,824,210  

JSR Corp.

     1,272,900       38,667,065  

Sumitomo Bakelite Co., Ltd.

     809,700       35,824,606  
   

 

 

  

Total Materials

       142,315,881  
   

 

 

  
   
 

 

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Table of Contents

Matthews Japan Fund

June 30, 2021

Schedule of Investmentsa (unaudited) (continued)

COMMON EQUITIES (continued)

 

    Shares     Value  
     
FINANCIALS: 8.0%    

Diversified Financial Services: 4.7%

    

ORIX Corp.

     3,043,400       $51,438,361  

eGuarantee, Inc.

     1,301,200       27,401,956  
   

 

 

  
      78,840,317  
   

 

 

  
   

Insurance: 2.0%

    

Dai-ichi Life Holdings, Inc.

     1,820,100       33,488,407  
   

 

 

  
   

Banks: 1.3%

    

Sumitomo Mitsui Financial Group, Inc.

     600,200       20,690,080  
   

 

 

  

Total Financials

       133,018,804  
   

 

 

  
   
     
CONSUMER STAPLES: 1.0%    

Food Products: 1.0%

    

Morinaga Milk Industry Co., Ltd.

     328,500       17,121,066  
   

 

 

  

Total Consumer Staples

       17,121,066  
   

 

 

  
   
     
TOTAL INVESTMENTS: 96.6%       1,606,111,983    

(Cost $1,344,882,927)

    
   
CASH AND OTHER ASSETS,
LESS LIABILITIES: 3.4%		       56,034,790  
   

 

 

  

NET ASSETS: 100.0%

       $1,662,146,773  
   

 

 

  

 

a

Certain securities were fair valued under the valuation policies approved by the Board of Trustees (Note 2-A).

 

b

Non-income producing security.

See accompanying notes to financial statements.

 

 

56    MATTHEWS ASIA FUNDS     

Table of Contents

LOGO

 

PORTFOLIO MANAGERS
Michael J. Oh, CFA  

Lead Manager

    
Elli Lee  

Co-Manager

    
FUND FACTS
    Investor   Institutional  

Ticker

   MAKOX   MIKOX

CUSIP

   577130305   577130826

Inception

   1/3/95   10/29/10

NAV

   $6.86   $6.92

Initial Investment

   $2,500   $100,000

Gross Expense Ratio1

   1.19%   1.05%

Portfolio Statistics

Total # of Positions

   32

Net Assets

  

$160.8 million

Weighted Average
Market Cap

   133.7 billion

Portfolio Turnover2

   39.6%

Benchmark

Korea Composite Stock Price Index

OBJECTIVE

 

 

Long-term capital appreciation.

STRATEGY

 

 

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in the common and preferred stocks of companies located in South Korea.

Matthews Korea Fund

Portfolio Manager Commentary  (unaudited)

For the first half of 2021, the Matthews Korea Fund returned 12.09% (Investor Class) and 12.16% (Institutional Class), while its benchmark, the Korea Composite Stock Price Index, returned 10.63% over the same period. For the quarter ending June 30, 2021, the Matthews Korea Fund returned 7.19% (Investor Class) and 7.29% (Institutional Class), while the benchmark returned 7.37%.

Market Environment

Sentiment towards South Korea’s economy improved on prospects for a continuing recovery in global economic growth. South Korean equities rose modestly year to date after posting Asia’s strongest performance in the fourth quarter and for 2020 as a whole. A combination of low valuations, a rebound in earnings and a cyclical bounce coming out of COVID-19 proved to be a confluence of upside catalysts that propelled South Korean stock prices higher during the second quarter of the year.

During the quarter, South Korean energy stocks were some of the strongest in the region followed by companies within communication services and industrials. Information technology, while registering slightly positive returns, was South Korea’s weakest sector followed by consumer staples and health care.

Performance Contributors and Detractors

The Fund’s relative outperformance year to date was driven by strong stock selection, most notably within the communication services and information technology sectors. Kakao Corp. was the top contributor to the Fund’s absolute performance year to date. Kakao is South Korea’s dominant chat platform, and has successfully added various platform features such as fintech, e-commerce and mobility services. The company continues to tap into underserved advertisement opportunities for platform merchants. Kakao’s share price appreciated strongly ahead of public listings of two of the company’s financial platform subsidiaries on the Korea Stock Exchange during the second half of 2021.

KB Financial Group, one of South Korea’s largest banks, was another significant contributor to absolute performance. While KB Financial’s stock trades at a deep discount to its historical valuation and that of its regional peers, company fundamentals remain solid. KB Financials’ credit costs are well controlled and we believe there is room for net interest income to improve with the potential for limited interest rate cuts.

Samsung Electronics, a multinational electronics manufacturer that is a world leader in smartphones and various components such as lithium-ion batteries, PC memory chips, image sensors and displays, was a detractor to absolute performance. Despite enjoying both solid PC memory prices and demand, investors’ concern about potential memory demand deterioration from the fourth quarter of 2021 into 2022 weighed on the stock. We believe Samsung Electronics is trading at an attractive valuation, and improving capital management practices such as improved shareholder policies along with sensible mergers and acquisitions can rerate the stock.

Notable Portfolio Changes

During the second quarter, we added HYBE Corp. into the portfolio. HYBE is an artist management company that owns globally strong intellectual property (“IP”), including music copyrights with K-pop artists such as BTS and Seventeen. The company has built a unique social media platform that enables fans to communicate with the artists. Through this platform, HYBE has been able to generate a solid earnings stream, even during the pandemic in 2020 to 2021. It continues to add strong IP both organically and from external sources.

(continued)

 
1

Prospectus expense ratios.

2

The lesser of fiscal year 2020 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

 

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Table of Contents
                 
PERFORMANCE AS OF June 30, 2021                                                        
 

 

     

 

       

 

       

 

      Average Annual Total Returns       

 

  
     3 Months      YTD      1 Year      3 Years      5 Years      10 Years      Since
Inception		      Inception
Date		  
Investor Class (MAKOX)      7.19%        12.09%        64.55%        13.01%        11.47%        8.74%        7.12%        01/03/95  
Institutional Class (MIKOX)      7.29%        12.16%        64.96%        13.10%        11.57%        8.87%        9.97%        10/29/10  
Korea Composite Stock Price Index3      7.37%        10.63%        69.36%        14.14%        13.55%        5.79%        4.74% 4    

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. For the Fund’s most recent month-end performance, visit matthewsasia.com.

 

 

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

 

LOGO

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

 

  3

Korea Composite Stock Price Index performance data may be readjusted periodically by the Korea Exchange due to certain factors, including the declaration of dividends. It is not possible to invest directly in an index. Source: Index data from Korea Composite Stock Price Index and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 93 for index definition.

 

  4

Calculated from 1/3/95.

 

       
TOP TEN HOLDINGS5                     
     Sector             % of Net Assets  
Samsung Electronics Co., Ltd., Pfd.    Information Technology             15.8%  
Samsung Electronics Co., Ltd.    Information Technology             6.0%  
Kakao Corp.    Communication Services             4.8%  
SK Hynix, Inc.    Information Technology             4.5%  
LG Household & Health Care, Ltd., Pfd.    Consumer Staples             4.2%  
LG Chem, Ltd., Pfd.    Materials             4.1%  
KB Financial Group, Inc.    Financials             4.1%  
Shinhan Financial Group Co., Ltd.    Financials             3.9%  
Samsung SDI Co., Ltd.    Information Technology             3.8%  
Hana Financial Group, Inc.    Financials             3.7%  
% OF ASSETS IN TOP 10                54.9%  

 

  5

Holdings may combine more than one security from same issuer and related depositary receipts.

 

58    MATTHEWS ASIA FUNDS     

Table of Contents

Matthews Korea Fund

Portfolio Manager Commentary  (unaudited) (continued)

 

We also added SK Telecom Co. to the portfolio. SK Telecom is the largest wireless telecom carrier in South Korea, and is the largest shareholder of SK Hynix—a global leader in semiconductor manufacturing specializing in computer memory chips. SK Telecom recently announced a change in corporate structure by splitting its core telecom business from its other investment holding company. We believe this corporate action will further unlock value from SK Telecom’s investment assets and positively impact the company’s future decision-making process.

Outlook

Looking ahead, we expect global consumption to gradually recover from the pandemic throughout the coming year. We remain constructive on companies in South Korea that may benefit from the global recovery, especially those companies focused on innovation. On the other hand, a slower-than-expected vaccination program in South Korea could dampen domestic consumption over the short term.

We believe active security selection is essential to capturing South Korea’s long-term growth potential. As bottom-up investors, we look for companies that can grow organically without the assistance of strong macroeconomic tailwinds, with an emphasis on those companies that can benefit from domestic consumption and are effectively competing and innovating in global markets.

 
COUNTRY ALLOCATION (%)6  
South Korea     94.6  
Cash and Other Assets, Less Liabilities     5.4  

 

 
SECTOR ALLOCATION (%)6  
Information Technology     37.2  
Financials     12.4  
Consumer Discretionary     11.4  
Communication Services     11.2  
Materials     6.0  
Consumer Staples     6.0  
Industrials     4.4  
Health Care     3.4  
Energy     2.6  
Cash and Other Assets, Less Liabilities     5.4  

 

 
MARKET CAP EXPOSURE (%)6  
Mega Cap (over $25B)     55.8  
Large Cap ($10B-$25B)     21.2  
Mid Cap ($3B-10B)     9.1  
Small Cap (under $3B)     8.5  
Cash and Other Assets, Less Liabilities     5.4  

 

6

Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Country allocations and percentage values may be derived from different data sources and may not be consistent with other Fund literature.

 

 

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Table of Contents

Matthews Korea Fund

June 30, 2021

Schedule of Investmentsa  (unaudited)

COMMON EQUITIES: 66.8%

 

     Shares     Value  
INFORMATION TECHNOLOGY: 21.4%    

Semiconductors & Semiconductor Equipment: 10.0%

 

  

SK Hynix, Inc.

     64,651       $7,297,070  

LEENO Industrial, Inc.

     24,422       3,803,081  

Hana Materials, Inc.

     73,371       3,007,661  

Koh Young Technology, Inc.

     98,050       2,071,398  
   

 

 

  
      16,179,210  
   

 

 

  
   

Technology Hardware, Storage & Peripherals: 6.0%

 

  

Samsung Electronics Co., Ltd.

     134,635       9,638,002  
   

 

 

  
   

Electronic Equipment, Instruments & Components: 5.4%

 

  

Samsung SDI Co., Ltd.

     9,872       6,112,131  

Park Systems Corp.

     15,152       1,755,792  

SOLUM Co., Ltd.b

     30,737       768,019  
   

 

 

  
      8,635,942  
   

 

 

  

Total Information Technology

       34,453,154  
   

 

 

  
   
     
FINANCIALS: 12.4%    

Banks: 11.6%

    

KB Financial Group, Inc.

     131,405       6,521,636  

Shinhan Financial Group Co., Ltd.

     173,144       6,251,275  

Hana Financial Group, Inc.

     144,861       5,936,608  
   

 

 

  
      18,709,519  
   

 

 

  
   

Capital Markets: 0.8%

    

Kiwoom Securities Co., Ltd.

     10,575       1,228,758  
   

 

 

  

Total Financials

       19,938,277  
   

 

 

  
   
     
COMMUNICATION SERVICES: 11.2%    

Interactive Media & Services: 8.3%

    

Kakao Corp.

     53,431       7,739,083  

NAVER Corp.

     15,034       5,578,647  
   

 

 

  
      13,317,730  
   

 

 

  
   

Entertainment: 1.6%

    

HYBE Co., Ltd.b

     7,136       1,852,301  

NCSoft Corp.

     1,097       798,202  
   

 

 

  
      2,650,503  
   

 

 

  
   

Wireless Telecommunication Services: 1.3%

    

SK Telecom Co., Ltd.

     7,399       2,102,666  
   

 

 

  

Total Communication Services

       18,070,899  
   

 

 

  
   
     
CONSUMER DISCRETIONARY: 7.7%    

Auto Components: 4.2%

    

Hyundai Mobis Co., Ltd.

     16,969       4,400,592  

Hankook Tire & Technology Co., Ltd.

     51,425       2,359,597  
   

 

 

  
      6,760,189  
   

 

 

  
   

Automobiles: 3.5%

    

Kia Corp.

     71,204       5,674,452  
   

 

 

  

Total Consumer Discretionary

       12,434,641  
   

 

 

  
   
     
INDUSTRIALS: 4.4%    

Construction & Engineering: 2.3%

    

Samsung Engineering Co., Ltd.b

     176,397       3,739,161  
   

 

 

  
     Shares     Value  

Machinery: 2.1%

    

Hyundai Mipo Dockyard Co., Ltd.b

     42,074       $3,265,838  
   

 

 

  

Total Industrials

       7,004,999  
   

 

 

  
   
     
HEALTH CARE: 3.4%    

Pharmaceuticals: 3.4%

    

Yuhan Corp.

     57,675       3,230,905  

DongKook Pharmaceutical Co., Ltd.

     90,522       2,268,432  
   

 

 

  

Total Health Care

       5,499,337  
   

 

 

  
   
     
ENERGY: 2.6%    

Oil, Gas & Consumable Fuels: 2.6%

    

S-Oil Corp.

     46,716       4,254,011  
   

 

 

  

Total Energy

       4,254,011  
   

 

 

  
   
     
MATERIALS: 1.9%    

Metals & Mining: 1.9%

    

POSCO

     9,621       2,973,367  
   

 

 

  

Total Materials

       2,973,367  
   

 

 

  
   
     
CONSUMER STAPLES: 1.8%    

Personal Products: 1.3%

    

Amorepacific Corp.

     9,055       2,025,865  
   

 

 

  
   

Food Products: 0.5%

    

Orion Corp.

     7,535       792,938  
   

 

 

  

Total Consumer Staples

       2,818,803  
   

 

 

  
   
     
TOTAL COMMON EQUITIES       107,447,488  
   

 

 

  

(Cost $68,775,031)

    
   

PREFERRED EQUITIES: 27.8%

 

 
INFORMATION TECHNOLOGY: 15.8%

 

Technology Hardware, Storage & Peripherals: 15.8%

 

  

Samsung Electronics Co., Ltd., Pfd.

     387,535       25,364,196  
   

 

 

  

Total Information Technology

       25,364,196  
   

 

 

  
   
     
CONSUMER STAPLES: 4.2%    

Personal Products: 4.2%

    

LG Household & Health Care, Ltd., Pfd.

     10,024       6,808,988  
   

 

 

  

Total Consumer Staples

       6,808,988  
   

 

 

  
   
     
MATERIALS: 4.2%    

Chemicals: 4.2%

    

LG Chem, Ltd., Pfd.

     19,559       6,662,526  
   

 

 

  

Total Materials

       6,662,526  
   

 

 

  
   
 

 

60    MATTHEWS ASIA FUNDS     

Table of Contents

Matthews Korea Fund

June 30, 2021

Schedule of Investmentsa (unaudited) (continued)

PREFERRED EQUITIES (continued)

 

     Shares     Value  
     
CONSUMER DISCRETIONARY: 3.6%    

Automobiles: 3.6%

    

Hyundai Motor Co., Ltd., Pfd.

     56,892       5,833,322  
   

 

 

  

Total Consumer Discretionary

       5,833,322  
   

 

 

  
   
     
TOTAL PREFERRED EQUITIES       44,669,032  
   

 

 

  

(Cost $20,926,837)

 

   
   
TOTAL INVESTMENTS: 94.6%

 

     $152,116,520  

(Cost $89,701,868)

 

   
CASH AND OTHER ASSETS,
LESS LIABILITIES: 5.4%		       8,712,539  
   

 

 

  

NET ASSETS: 100.0%

       $160,829,059  
   

 

 

  
a

Certain securities were fair valued under the valuation policies approved by the Board of Trustees (Note 2-A).

 

b

Non-income producing security.

 

Pfd.

Preferred

See accompanying notes to financial statements.

 

 

     matthewsasia.com  |  800.789.ASIA      61  

Table of Contents

LOGO

 

PORTFOLIO MANAGERS
Robert J. Horrocks, PhD   Kenneth Lowe, CFA

Lead Manager

   Lead Manager
Satya Patel   Siddarth Bhargava

Co-Manager

     Co-Manager
FUND FACTS
    Investor   Institutional

Ticker

   MACSX   MICSX

CUSIP

   577130206   577130842

Inception

   9/12/94   10/29/10

NAV

   $18.70   $18.67

Initial Investment

   $2,500   $100,000

Gross Expense Ratio1

  

1.09%

  

0.96%

Portfolio Statistics

  

Total # of Positions

   57

Net Assets

   $1.5 billion

Weighted Average Market Cap

   $142.5 billion

Portfolio Turnover2

   36.3%

Benchmark

  

MSCI AC Asia ex Japan Index

OBJECTIVE

 

 

Long-term capital appreciation. The Fund also seeks to provide some current income.

STRATEGY

 

 

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in dividend-paying common stock, preferred stock and other equity securities, and convertible securities as well as fixed-income securities, of any duration or quality, including high yield securities, of companies located in Asia, which consists of all countries and markets in Asia, including developed, emerging and frontier countries and markets in the Asian region.

Matthews Asian Growth and Income Fund

Portfolio Manager Commentary (unaudited)

For the first half of 2021, the Matthews Asian Growth and Income Fund returned 4.29% (Investor Class) and 4.37% (Institutional Class), while its benchmark, the MSCI All Country Asia ex Japan Index returned 6.51% over the same period. For the quarter ending June 30, the Fund returned 2.03% (Investor Class) and 2.10% (Institutional Class), while the benchmark returned 3.66%.

Market Environment

Asian equity markets started the year strongly as the steadily rising path of asset prices spurred by aggressive policy stimulus and expectations for an economic reopening and growth rebound was the dominant narrative for market participants. The belief in the goldilocks scenario of accommodative policy alongside robust growth shifted in the middle of the first quarter as concerns around growing inflation began to take hold. Rising prices in shipping costs to commodities helped to spark a slight reversal in styles, as the much awaited “value” rally began while “growth” stocks faded. The reality of lofty valuations and expectations weighed on this part of the market, albeit the growth index in Asia remains in positive territory year to date.

Taiwan was the strongest performing market in Asia over the first half, rising over 18% as the technology cycle continued to display strength, while India also gained double digits on hopes that the worst of the pandemic is over. Contrary to this was the majority of Southeast Asia, where many markets fell as renewed COVID outbreaks occurred in countries such as the Philippines and Indonesia, weighing on expectations for a swift recovery and reinforcing how divergent these paths may be across countries. China rose only slightly during the first half due to ongoing regulatory risks, as the Chinese government clamps down on monopolistic practices and perceived data security risks.

Performance Contributors and Detractors

The largest contributor to absolute performance for the came from the technology sector, as portfolio holding Taiwan Semiconductor Manufacturing Co. (TSMC) rallied. The company enjoys a strong competitive position as the world’s leading semiconductor foundry with superior technology, buoyed by the current backdrop of decidedly strong silicon demand driven by structural trends including high-performance computing and 5G adoption. This led management to announce a US$100 billion capital expenditure plan for the next three years, demonstrating the enormous scale of demand it enjoys. Similarly, South Korean semiconductor equipment company Leeno Industrial rallied as a beneficiary of such ongoing investment in the sector, as it is the global leader in pins and sockets used in testing chips, allowing it to raise prices and grow volumes. Elsewhere within technology, services provider Tata Consultancy Services Limited rose on guidance for the next year, targeting double digit revenue growth as it believes it can win large deals across verticals as information technology spending recovers. Despite this, the Fund’s relative underweight to the IT sector and specifically Taiwan was a drag on relative performance, as the country’s technology-dominated equity index rose significantly over the first half.

The portfolio’s holdings within the industrials sector also benefited performance, with power-tool manufacturer Techtronic Industries Co., Ltd. rising. The company continued to gain market share from competitors and was helped by the stay-at-home do-it-yourself boom, growth of its new outdoor cordless equipment and excitement over its role in U.S. infrastructure spending. Within the communication services sector, Chinese games company Netease, Inc.gained on double digit earnings growth. In our view, management has done an excellent job in growing its game offerings to broaden out by genre and start to grow the business internationally. We believe this should continue as it aims to launch titles based on intellectual property with global appeal.

Although the consumer discretionary sector overall had positive attribution for the Fund, it was also an area where we saw some of our weakest performers. The largest drag to absolute perfomrance for the first half of the year came from Chinese white-goods manufacturer Midea Group on concerns that rising raw material prices will hurt margins and due to a temporary slowdown in China’s monthly air conditioner sales data. Indonesian home improvement retailer PT ACE Hardware Indonesia also dropped on continuing weak same-store sales growth, as foot traffic within its stores is still below pre-pandemic levels and recovery may take longer than expected due to renewed lockdowns in Indonesia.

(continued)

 
1

Prospectus expense ratios.

2

The lesser of fiscal year 2020 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

 

62    MATTHEWS ASIA FUNDS

Table of Contents
                 
PERFORMANCE AS OF JUNE 30, 2021                                                        
 

 

     

 

       

 

       

 

      Average Annual Total Returns       

 

  
     3 Months      YTD      1 Year      3 Years      5 Years      10 Years      Since
Inception		      Inception
Date		  
Investor Class (MACSX)      2.03%        4.29%        30.01%        10.43%        7.82%        5.64%        9.21%        9/12/94  
Institutional Class (MICSX)      2.10%        4.37%        30.13%        10.59%        7.97%        5.80%        5.84%        10/29/10  
MSCI AC Asia ex Japan Index3      3.66%        6.51%        40.03%        12.54%        14.82%        7.34%        5.55% 4    

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund’s fees and expenses had not been waived. For the Fund’s most recent month-end performance, visit matthewsasia.com.

 

               
INCOME DISTRIBUTION HISTORY                                                         
       2021           2020  
       June        December        Total           June        December        Total  
Investor (MACSX)      $ 0.12          n.a        $ 0.12       $ 0.11        $ 0.06        $ 0.16  
Inst’l (MICSX)      $ 0.14          n.a        $ 0.14       $ 0.12        $ 0.07        $ 0.18  

Note: This table does not include capital gains distributions. Totals may differ by $0.02 due to rounding. For income distribution history, visit matthewsasia.com.

 

   

30-DAY YIELD:

 

0.97% (Investor Class); 1.11% (Institutional Class)

 

The 30-Day Yield represents net investment income earned by the Fund over the 30-day period ended 6/30/21, expressed as an annual percentage rate based on the Fund’s share price at the end of the 30-day period. The 30-Day Yield should be regarded as an estimate of the Fund’s rate of investment income, and it may not equal the Fund’s actual income distribution rate.

 

Source: BNY Mellon Investment Servicing (US) Inc.

    

DIVIDEND YIELD: 2.67%

 

The dividend yield (trailing) for the portfolio is the weighted average sum of the dividends paid by each equity security held by the Fund over the 12 months ended 6/30/21 divided by the current price of each equity as of 6/30/21. The annualized dividend yield for the Fund is for the equity-only portion of the portfolio. Please note that this is based on gross equity portfolio holdings and does not reflect the actual yield an investor in the Fund would receive. Past yields are no guarantee of future yields.

 

Source: FactSet Research Systems, Bloomberg, MICM

 

 

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

 

LOGO

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

 

  3

It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 88 for index definition.

 

  4

Calculated from 8/31/94.

 

       
TOP TEN HOLDINGS5                     
     Sector      Country      % of Net Assets  
Taiwan Semiconductor Manufacturing Co., Ltd.    Information Technology      Taiwan        7.2%  
Tencent Holdings, Ltd.    Communication Services      China/Hong Kong        5.8%  
Samsung Electronics Co., Ltd.    Information Technology      South Korea        4.1%  
AIA Group, Ltd.    Financials      China/Hong Kong        3.8%  
Macquarie Korea Infrastructure Fund    Financials      South Korea        2.4%  
Housing Development Finance Corp., Ltd.    Financials      India        2.2%  
Techtronic Industries Co., Ltd.    Industrials      China/Hong Kong        2.0%  
JD.com, Inc.    Consumer Discretionary      China/Hong Kong        1.9%  
Yum China Holdings, Inc.    Consumer Discretionary      China/Hong Kong        1.9%  
Topsports International Holdings, Ltd.    Consumer Discretionary      China/Hong Kong        1.8%  
% OF ASSETS IN TOP 10                33.1%  

 

  5

Holdings may combine more than one security from same issuer and related depositary receipts.

 

matthewsasia.com  |   800.789.ASIA      63  

Table of Contents
 
COUNTRY ALLOCATION (%)6,7  
China/Hong Kong     48.6  
South Korea     11.7  
Taiwan     10.2  
India     7.7  
Singapore     6.5  
France     2.9  
Australia     2.6  
Indonesia     2.5  
United States     1.6  
Philippines     1.4  
Malaysia     1.2  
Thailand     1.1  
Cash and Other Assets, Less Liabilities     2.0  

 

 
SECTOR ALLOCATION (%)7  
Consumer Discretionary     18.8  
Information Technology     18.7  
Financials     18.6  
Communication Services     10.4  
Industrials     9.2  
Consumer Staples     6.2  
Real Estate     6.1  
Health Care     5.9  
Utilities     3.0  
Materials     1.1  
Cash and Other Assets, Less Liabilities     2.0  

 

 
MARKET CAP EXPOSURE (%)7  
Mega Cap (over $25B)     53.0  
Large Cap ($10B-$25B)     14.4  
Mid Cap ($3B-10B)     23.1  
Small Cap (under $3B)     6.3  
Cash and Other Assets, Less Liabilities     2.0  

 

 
ASSET TYPE BREAKDOWN (%)7,8  
Common Equities and ADRs     86.0  
Convertible Corporate Bonds     10.9  
Preferred Equities     1.1  
Cash and Other Assets, Less Liabilities     2.0  

 

6

Not all countries where the Fund may invest are included in the benchmark index.

 

7

Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Country allocations and percentage values may be derived from different data sources and may not be consistent with other Fund literature.

 

8

Bonds are not included in the MSCI All Country Asia ex Japan Index.

Matthews Asian Growth and Income Fund

Portfolio Manager Commentary  (unaudited) (continued)

Other detractors to absolute performance included gold miner Northern Star Resources Ltd., which struggled against a declining gold price and Chinese life insurer Ping An Insurance Group, which fell on weaker than expected new business value growth, while its proposed improvement in agency productivity has disappointed. It is also worth noting that the portfolio’s underweight in the health care sector hurt relative returns. This is a sector that we have been adding to as the investable universe expands.

Notable Portfolio Changes

We added three new holdings to the portfolio during the quarter. The first of these was Taiwanese financial company Chailease Holdings Co. The business operates across Taiwan, China and Southeast Asia, offering equipment and vehicle leasing amongst other lending products to small- and medium-sized enterprises. Financial products are underpenetrated amongst this cohort as access to financing remains challenging and Chailease enjoys a strong competitive position, good customer relationships, and healthy spreads. Chailease’s management has also managed asset-quality issues well throughout economic cycles, leading to fairly stable profitability and an attractive return on equity. We believe that there is solid growth momentum and improving efficiencies that should lead to double digit earnings growth accompanied by a healthy ~3% dividend yield.

We also added a position in Indian consumer durables company Crompton Greaves Consumer Electicals Ltd. A leader in fans, pumps, lighting and home appliances, management has been focusing its energy on continuing to solidify the company’s brand as consumer behaviors evolve. We believe that a combination of increased digitalization and new product pipeline will allow the company to sustain double-digit growth and benefit from India’s rising domestic demand. Within convertible bonds, we initiated a position in Chinese pharmaceutical research and development (R&D) service platform Pharmaron Beijing Co. We believe that the issue has an attractive risk-reward skew as the underlying equity is likely to grow over 30% as more drug discovery and development is outsourced to leaders such as Pharmaron. Furthermore, it is a strong credit as its balance sheet is net cash with robust cash flow generation.

These new positions were funded through the sale of our holdings in Macquarie Group Ltd., Taiwan Secom Co., Ltd. and a Kakao Corp. convertible bond.

Outlook

Both markets and the macroeconomic growth backdrop have become more challenging to decipher in recent months as debates around critical issues ensue. It is undoubted that the degree of both monetary and fiscal stimulus across the globe is almost unfathomably large. However, the emergence of new coronavirus variants alongside the inability or unwillingness of large swathes of the global population to become vaccinated continues to muddy the waters of how strong a recovery will be and quite how divergent it may be by country.

Added to this is the question over how transitory the recent surge in inflation is. Supply bottlenecks are playing a significant role in driving inflation up, exacerbated by apparent labor shortages in specific areas and low interest rates spurring asset prices, including housing, higher. Identifying how sustained these trends are likely to be is difficult, particularly as the pandemic may have structurally altered some business models and supply chains. This creates problems for policymakers in evaluating how quickly to taper quantitative easing and potentially increase interest rates to maintain stability.

The above are always important factors for future market returns, but arguably no more so than today as valuations are at extremes, bond yields seem unsustainably low and expectations for earnings growth are high. In Asia, policy is generally more “normal” while growth is more secular in nature and not as reliant upon a rebound from an end to the pandemic. However the fundamental factors of high expectations and valuations are present with an added complication of elevated regulatory and geopolitical risks in China.

We believe that the current environment may lead to heightened volatility and choppy markets. But it should be noted that it remains clear to us that there are parts of the equity market in Asia that are increasingly attractive. As capital has migrated toward both extremes of the spectrum of high beta cyclical stocks and those that could be deemed “conceptual growth,” we believe that this creates opportunities for long-term investors like ourselves. Our focus will continue seekthose high-quality compounders that are less susceptible to the whims of policymakers and inflation trends, with an aim of producing attractive risk-adjusted returns through the market cycle.

 

 

64    MATTHEWS ASIA FUNDS

Table of Contents

Matthews Asian Growth and Income Fund

June 30, 2021

Schedule of Investmentsa (unaudited)

COMMON EQUITIES: 86.0%

 

     Shares     Value  
CHINA/HONG KONG: 38.9%    

Tencent Holdings, Ltd.

     1,131,200       $85,170,887  

AIA Group, Ltd.

     4,546,400       56,400,723  

Techtronic Industries Co., Ltd.

     1,701,500       29,651,994  

JD.com, Inc. A Sharesb

     718,000       28,592,967  

Yum China Holdings, Inc.

     415,400       27,520,250  

Topsports International Holdings, Ltd.c,d

     16,123,000       26,364,237  

NetEase, Inc. ADR

     228,000       26,277,000  

Link REIT

     2,595,200       25,109,444  

HKT Trust & HKT, Ltd.

     18,204,000       24,795,220  

Guangdong Investment, Ltd.

     17,150,000       24,632,786  

CK Hutchison Holdings, Ltd.

     3,152,172       24,539,058  

Minth Group, Ltd.

     4,976,000       23,599,267  

BOC Hong Kong Holdings, Ltd.

     6,936,000       23,508,265  

Zhongsheng Group Holdings, Ltd.

     2,768,000       23,025,167  

Midea Group Co., Ltd. A Shares

     2,049,583       22,585,030  

Jiangsu Expressway Co., Ltd. H Shares

     19,856,000       22,472,390  

Inner Mongolia Yili Industrial Group Co., Ltd. A Shares

     3,808,175       21,650,055  

Ping An Insurance Group Co. of China, Ltd. H Shares

     2,072,000       20,254,625  

ENN Natural Gas Co., Ltd. A Shares

     7,775,714       19,841,663  

Ever Sunshine Lifestyle Services Group, Ltd.d

     6,476,000       16,077,840  
   

 

 

  

Total China/Hong Kong

       572,068,868  
   

 

 

  
   
     
SOUTH KOREA: 10.6%    

Samsung Electronics Co., Ltd.

     840,833       60,192,002  

Macquarie Korea Infrastructure Fund

     3,159,191       35,199,676  

LEENO Industrial, Inc.

     152,104       23,686,175  

Coway Co., Ltd.

     305,288       21,301,981  

LG Household & Health Care, Ltd.

     10,214       15,981,058  
   

 

 

  

Total South Korea

       156,360,892  
   

 

 

  
   
     
TAIWAN: 10.2%    

Taiwan Semiconductor Manufacturing Co., Ltd.

     4,891,187       105,346,545  

Advantech Co., Ltd.

     1,980,884       24,510,433  

Chailease Holding Co., Ltd.

     2,881,000       20,930,139  
   

 

 

  

Total Taiwan

       150,787,117  
   

 

 

  
   
     
INDIA: 7.7%    

Housing Development Finance Corp., Ltd.

     963,271       32,147,388  

Sanofi India, Ltd.

     224,736       23,206,263  

Tata Consultancy Services, Ltd.

     503,832       22,705,480  

ITC, Ltd.

     5,358,283       14,634,246  

Embassy Office Parks, REIT

     2,327,600       10,969,729  

Crompton Greaves Consumer Electricals, Ltd.

     1,552,775       9,091,300  
   

 

 

  

Total India

       112,754,406  
   

 

 

  
   
     
SINGAPORE: 6.5%    

United Overseas Bank, Ltd.

     1,360,600       26,201,616  

Ascendas, REIT

     10,324,584       22,688,486  

Singapore Technologies Engineering, Ltd.

     7,823,325       22,573,612  

Venture Corp., Ltd.

     1,065,100       15,237,267  

Ascendas India Trust

     8,946,700       9,256,764  
   

 

 

  

Total Singapore

       95,957,745  
   

 

 

  
   
    Shares     Value  
   
FRANCE: 2.9%  

Pernod Ricard SA

     104,688       $23,268,198  

LVMH Moet Hennessy Louis Vuitton SE

     24,758       19,476,054  
   

 

 

  

Total France

 

     42,744,252  
   

 

 

  
   
   
AUSTRALIA: 2.6%  

Aristocrat Leisure, Ltd.

     684,360       22,092,880  

Northern Star Resources, Ltd.

     2,259,188       16,591,762  
   

 

 

  

Total Australia

 

     38,684,642  
   

 

 

  
   
   
INDONESIA: 2.5%  

PT Bank Rakyat Indonesia Persero

     75,457,900       20,516,636  

PT Ace Hardware Indonesia

     187,925,900       16,228,334  
   

 

 

  

Total Indonesia

 

     36,744,970  
   

 

 

  
   
   
UNITED STATES: 1.6%  

Broadcom, Inc.

     48,500       23,126,740  
   

 

 

  

Total United States

 

     23,126,740  
   

 

 

  
   
   
PHILIPPINES: 1.4%  

Bank of the Philippine Islands

     11,310,504       20,537,703  
   

 

 

  

Total Philippines

 

     20,537,703  
   

 

 

  
   
   
THAILAND: 1.1%  

Digital Telecommunications Infrastructure Fund F Shares

     40,991,400       16,243,082  
   

 

 

  

Total Thailand

 

     16,243,082  
   

 

 

  
   
     
TOTAL COMMON EQUITIES       1,266,010,417  
   

 

 

  

(Cost $946,117,297)

  

CONVERTIBLE CORPORATE BONDS: 10.9%

     Face Amount*     Value  
CHINA/HONG KONG: 9.7%    

Pharmaron Beijing Co., Ltd., Cnv.
0.000%, 06/18/26d

     22,000,000       24,442,000  

ESR Cayman, Ltd., Cnv.
1.500%, 09/30/25d

     20,647,000       22,185,201  

Luye Pharma Group, Ltd., Cnv.
1.500%, 07/09/24d

     20,084,000       20,851,008  

China Education Group Holdings, Ltd., Cnv.

 

  

2.000%, 03/28/24d

     HKD 122,000,000       20,599,668  

China Conch Venture Holdings International, Ltd., Cnv.

 

  

0.000%, 09/05/23d

     HKD 142,000,000       20,145,152  

Hansoh Pharmaceutical Group Co., Ltd., Cnv.

 

  

0.000%, 01/22/26d

     19,739,000       18,544,790  

Pinduoduo, Inc., Cnv.
0.000%, 12/01/25

     15,952,000       16,382,704  
   

 

 

  

Total China/Hong Kong

       143,150,523  
   

 

 

  
 

 

     matthewsasia.com  |  800.789.ASIA      65  

Table of Contents

Matthews Asian Growth and Income Fund

June 30, 2021

Schedule of Investmentsa (unaudited) (continued)

 

CONVERTIBLE CORPORATE BONDS (continued)  

 

     Face Amount*     Value  
MALAYSIA: 1.2%    

Cerah Capital, Ltd., Cnv.

    

0.000%, 08/08/24d

     18,228,000       $18,118,632  
   

 

 

  

Total Malaysia

       18,118,632  
   

 

 

  
   
   
TOTAL CONVERTIBLE CORPORATE BONDS

 

     161,269,155  
   

 

 

  

(Cost $159,632,030)

    

PREFERRED EQUITIES: 1.1%

     Shares     Value  
SOUTH KOREA: 1.1%    

LG Household & Health Care, Ltd., Pfd.

     24,282       16,494,000  
   

 

 

  

Total South Korea

       16,494,000  
   

 

 

  
   
     
TOTAL PREFERRED EQUITIES       16,494,000  
   

 

 

  

(Cost $10,852,168)

    
   
     
TOTAL INVESTMENTS: 98.0%       1,443,773,572  

(Cost $1,116,601,495)

    
   
CASH AND OTHER ASSETS, LESS LIABILITIES: 2.0%        29,140,563  
   

 

 

  

NET ASSETS: 100.0%

       $1,472,914,135  
   

 

 

  

 

a

Certain securities were fair valued under the valuation policies approved by the Board of Trustees (Note 2-A).

 

b

Non-income producing security.

 

c

Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. The security may be resold in transactions exempt from registration normally to qualified institutional buyers. The security has been determined to be liquid in accordance with procedures adopted by the Funds’ Board of Trustees. At June 30, 2021, the aggregate value is $26,364,237, which is 1.79% of net assets.

 

d

The securities may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the Securities Act of 1933.

*

All Values in USD unless otherwise specified.

 

ADR

American Depositary Receipt

 

Cnv.

Convertible

 

HKD

Hong Kong Dollar

 

Pfd.

Preferred

 

REIT

Real Estate Investment Trust

 

USD

U.S. Dollar

See accompanying notes to financial statements.

 

 

66    MATTHEWS ASIA FUNDS

Table of Contents

LOGO

 

PORTFOLIO MANAGERS
Yu Zhang, CFA    

Lead Manager

    

Robert Horrocks, PhD

  S. Joyce Li, CFA

Co-Manager

  Co-Manager
Sherwood Zhang, CFA  

Co-Manager

  
FUND FACTS
    Investor   Institutional

Ticker

   MAPIX   MIPIX

CUSIP

   577125107   577130750

Inception

   10/31/06   10/29/10

NAV

  

$23.08

  

$23.08

Initial Investment

   $2,500   $100,000

Gross Expense Ratio1

  

1.03%

  

0.93%

After Fee Waiver and Reimbursement2

  

1.02%

  

0.93%

Portfolio Statistics

Total # of Positions

  

65

Net Assets

  

$5.7 billion

Weighted Average Market Cap

  

$83.3 billion

Portfolio Turnover3

  

37.7%

Benchmark

    

MSCI AC Asia Pacific Index

OBJECTIVE

 

 

Total return with an emphasis on providing current income.

STRATEGY

 

 

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in dividend-paying equity securities of companies located in Asia. Asia consists of all countries and markets in Asia, and includes developed, emerging and frontier countries and markets in the Asian region. The Fund may also invest in convertible debt and equity securities of companies located in Asia.

 

Matthews Asia Dividend Fund

Portfolio Manager Commentary  (unaudited)

For the first half of 2021, the Matthews Asia Dividend Fund returned 2.55% (Investor Class) and 2.66% (Institutional Class), while its benchmark, the MSCI All Country Asia Pacific Index, returned 5.14% over the same period. For the quarter ending June 30, the Fund returned 4.68% (Investor Class) and 4.77% (Institutional Class), while the benchmark returned 2.66%.

Market Environment

The first half of 2021 was positive for Asia, led by India and Taiwan. A semi-synchronized global economic recovery gained momentum throughout the period providing support to cyclically oriented names, despite interruption from waves of COVID-19 resurgence. South Korean equities also performed strongly in the first half of 2021. A combination of low valuations and a cyclical recovery in earnings coming out of the COVID-19 pandemic has proven to be a confluence of upside catalysts. Meanwhile, Japan and most of ASEAN (Association of South East Asian Nations) markets were lackluster. Japan’s equity market experienced strong factor rotation from growth to value in the first quarter.

Performance Contributors and Detractors

During the first half of 2021, Japan detracted the most from the Fund’s relative performance. Several of our Japanese dividend growth stocks, after a strong run in 2020, underperformed during the growth to value rotation seen in the first quarter. On the other hand, Vietnam was the top contributor to relative performance in the first half of 2021. During the COVID-fear induced market selloff earlier this year, we initiated positions in several Vietnamese stocks, including within the banking, real estate, consumer staples and materials sectors. These Vietnamese stocks, each a leader in its respective industry, bounced back strongly during the second quarter once the market digested the COVID situation and re-focused on the companies’ long-term structural growth strength.

From a sector perspective, stock selection in industrials detracted the most from relative performance, as the resurgence of COVID cases in the region delayed the recovery pace for our holdings in infrastructure asset businesses, including toll road and airport. On the other hand, stock selection in health care and material companies added most to relative performance.

By individual securities, the two largest detractors to Fund performance were China’s Minth Group, a leading auto parts manufacturer and Japan’s Daifuku Co., a material handling equipment manufacturer due to market concerns about supply constraint as well as cost pressure caused by semiconductor shortages and global transportation logistics bottlenecks. We believe these are short-term issues to be resolved over the next few quarters and view this as a healthy correction after strong share performances posted by both companies in the second half of 2020. On the other hand, Pharmaron Beijing Co., a Chinese contract research organization company providing research and development (R&D) outsourcing services to global pharmaceutical firms, and Minda Industries Limited, an Indian auto-parts business, were the top two contributors to the performance, following their strong earnings delivery during the period.

(continued)

 

 

1

Prospectus expense ratios.

2

Matthews has contractually agreed to waive a portion of its advisory fee and administrative and shareholder services fee if the Fund’s average daily net assets are over $3 billion, as follows: for every $2.5 billion average daily net assets of the Fund that are over $3 billion, the advisory fee rate and the administrative and shareholder services fee rate for the Fund with respect to such excess average daily net assets will be each reduced by 0.01%, in each case without reducing such fee rate below 0.00%. Any amount waived by Matthews pursuant to this agreement may not be recouped by Matthews. This agreement will remain in place until April 30, 2022 and may be terminated (i) at any time by the Board of Trustees upon 60 days’ prior written notice to Matthews; or (ii) by Matthews at the annual expiration date of the agreement upon 60 days’ prior written notice to the Trust, in each case without payment of any penalty.

3

The lesser of fiscal year 2020 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

 

matthewsasia.com  |   800.789.ASIA      67  

Table of Contents
 
PERFORMANCE AS OF JUNE 30, 2021  
 

 

     

 

       

 

       

 

      Average Annual Total Returns       

 

  
     3 Months      YTD      1 Year      3 Years      5 Years      10 Years      Since
Inception		      Inception
Date		  
Investor Class (MAPIX)      4.68%        2.55%        38.22%        10.59%        11.46%        8.60%        9.82%        10/31/06  
Institutional Class (MIPIX)      4.77%        2.66%        38.33%        10.72%        11.57%        8.73%        8.58%        10/29/10  
MSCI AC Asia Pacific Index4      2.66%        5.14%        34.71%        10.66%        12.94%        7.28%        5.88% 5    

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund’s fees and expenses had not been waived. For the Fund’s most recent month-end performance, visit matthewsasia.com.

 

                   
INCOME DISTRIBUTION HISTORY                                                               
    2021

 

           2020

 

  
    Q1      Q2      Q3      Q4      Total           Q1      Q2      Q3      Q4      Total  
Investor (MAPIX)   $ 0.08      $ 0.04        n.a.        n.a.      $ 0.12       $ 0.04      $ 0.12      $ 0.06      $ 0.00      $ 0.22  
Inst’l (MIPIX)   $ 0.08      $ 0.05        n.a.        n.a.      $ 0.14       $ 0.05      $ 0.12      $ 0.06      $ 0.00      $ 0.23  

Note: This table does not include capital gains distributions. Totals may differ by $0.02 due to rounding and a return of capital. For distribution history please visit matthewsasia.com.

 

   

30-DAY YIELD:

Investor Class: 0.72% (0.71% excluding waivers)

Institutional Class: 0.86% (0.85% excluding waivers)

The 30-Day Yield represents net investment income earned by the Fund over the 30-day period ended 6/30/21, expressed as an annual percentage rate based on the Fund’s share price at the end of the 30-day period. The 30-Day Yield should be regarded as an estimate of the Fund’s rate of investment income, and it may not equal the Fund’s actual income distribution rate.

Source: BNY Mellon Investment Servicing (US) Inc.

    

DIVIDEND YIELD: 1.78%

 

The dividend yield (trailing) for the portfolio is the weighted average sum of the dividends paid by each equity security held by the Fund over the 12 months ended 6/30/21 divided by the current price of each equity as of 6/30/21. The annualized dividend yield for the Fund is for the equity-only portion of the portfolio. Please note that this is based on gross equity portfolio holdings and does not reflect the actual yield an investor in the Fund would receive. Past yields are no guarantee of future yields.

 

Source: FactSet Research Systems, Bloomberg, MICM.

 

 

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

 

 

LOGO

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

 

  4

It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 88 for index definition.

 

  5

Calculated from 10/31/06.

 

       
TOP TEN HOLDINGS6                     
     Sector      Country      % of Net Assets  
Minth Group, Ltd.    Consumer Discretionary      China/Hong Kong        5.1%  
Taiwan Semiconductor Manufacturing Co., Ltd.    Information Technology      Taiwan        4.7%  
Pharmaron Beijing Co., Ltd.    Health Care      China/Hong Kong        3.0%  
Breville Group, Ltd.    Consumer Discretionary      Australia        2.9%  
Tencent Holdings, Ltd.    Communication Services      China/Hong Kong        2.9%  
LG Chem, Ltd., Pfd.    Materials      South Korea        2.8%  
Shenzhou International Group Holdings, Ltd.    Consumer Discretionary      China/Hong Kong        2.2%  
Link REIT    Real Estate      China/Hong Kong        2.2%  
OPT Machine Vision Tech Co., Ltd.    Information Technology      China/Hong Kong        2.2%  
Lixil Corp.    Industrials      Japan        2.1%  
% OF ASSETS IN TOP 10                30.1%  

 

  6

Holdings may combine more than one security from same issuer and related depositary receipts.

 

68    MATTHEWS ASIA FUNDS

Table of Contents

Matthews Asia Dividend Fund

Portfolio Manager Commentary  (unaudited) (continued)

Notable Portfolio Changes

During the second quarter, we continued to adopt a barbell approach, adding both cyclical dividend payers and structural dividend growers. One dividend payer position we initiated was in Japan’s AGC Inc., a global producer of glass and chemical products. The company is moving away from commodity type of products towards specialty products with high technological barrier and enhanced return on invested capital, such as life science services and advanced semiconductor manufacturing materials. We believe AGC is an undervalued stock that possess both cyclical recovery drivers and structural growth opportunities. On the dividend growth side, we initiated a position in Autel Intelligent Technology Corp., an automotive after-market diagnostics equipment manufacturer listed on the Chinese A-share market. Under its own “Autel” brand name, the company has been successfully penetrating key overseas markets, including the U.S., thanks to its excellent product quality and competitive pricing. With a continuing emphasis on R&D (Autel is spending about 20% of sales in R&D) we believe the company’s market-share gain momentum can be further sustained, and the monetization potential of its diagnostics software could provide further upside to the profit margin. With a 50%-dividend payout ratio, Autel is already sharing its rapid business growth via a rising dividend payment to all shareholders.

To fund these new positions, we exited several holdings, including names like Chongqing Brewery (expensive valuation multiples) and Pigeon Corp. (slowing down growth profiles).

Outlook

After a rather disruptive rotation in the first half, equity markets have more or less re-adjusted to the new environment, pricing in a rising inflation expectation and potential tapering of loose monetary policy. Looking ahead, despite the lingering COVID resurgence impact, we remain constructive on Asian equities, supported by a broadening economic recovery and solid corporate earnings growth. Compared to major global markets, Asia (as represented by the MSCI Asia Pacific Index) still trades at a reasonable valuation level of 15.4x forward P/E with consensus earnings growth of 26%. Heading into the second half of 2021 and beyond, we believe cyclical businesses are likely to lead the early earnings recovery phase, while structural growth drivers such as domestic consumption and industrial upgrade could return to drive further earnings growth. We believe maintaining a balanced portfolio exposure between dividend growth stocks and high-dividend-yielding stocks makes more sense in the current environment.

 
COUNTRY ALLOCATION (%)7,8  

Japan

     33.0  

China/Hong Kong

     23.8  

South Korea

     12.3  

Australia

     8.3  

Taiwan

     4.7  

India

     3.9  

Vietnam

     3.9  

Singapore

     3.6  

Indonesia

     1.3  

Philippines

     1.2  

Bangladesh

     1.0  
Cash and Other Assets, Less Liabilities     2.7  

 

SECTOR ALLOCATION (%)8  

Consumer Discretionary

     21.5  

Information Technology

     16.4  

Financials

     13.1  

Industrials

     12.0  

Communication Services

     9.5  

Health Care

     9.4  

Real Estate

     7.1  

Materials

     6.1  

Consumer Staples

     2.3  

Cash and Other Assets, Less Liabilities

     2.7  

 

MARKET CAP EXPOSURE (%)8  

Mega Cap (over $25B)

     34.6  

Large Cap ($10B-$25B)

     18.4  

Mid Cap ($3B-10B)

     28.6  

Small Cap (under $3B)

     15.2  

Cash and Other Assets, Less Liabilities

     2.7  

 

7

Not all countries where the Fund may invest are included in the benchmark index.

 

8

Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Country allocations and percentage values may be derived from different data sources and may not be consistent with other Fund literature.

 

 

     matthewsasia.com  |  800.789.ASIA      69  

Table of Contents

Matthews Asia Dividend Fund

June 30, 2021

Schedule of Investmentsa (unaudited)

COMMON EQUITIES: 92.6%

 

    

Shares

     Value  
CHINA/HONG KONG: 28.5%    

Minth Group, Ltd.†

    61,819,000       $293,183,895  

Tencent Holdings, Ltd.

     2,218,000       166,998,787  

Pharmaron Beijing Co., Ltd. A Shares

     3,819,564       127,914,279  

Shenzhou International Group Holdings, Ltd.

     5,008,700       126,483,671  

Link REIT

     12,912,300       124,930,902  

OPT Machine Vision Tech Co., Ltd. A Shares

     1,765,748       122,904,512  

China Education Group Holdings, Ltd.b

    44,063,000       98,283,037  

Postal Savings Bank of China Co., Ltd. H Sharesb,c

    145,712,000       97,990,349  

AIA Group, Ltd.

     6,731,800       83,511,875  

Jinxin Fertility Group, Ltd.b,c

    26,764,000       67,456,586  

Autel Intelligent Technology Corp., Ltd. A Shares

     4,454,615       59,918,743  

HKBN, Ltd.

     46,397,623       56,172,180  

Yuexiu Transport Infrastructure, Ltd.†

    93,902,000       54,381,682  

MINISO Group Holding, Ltd. ADRd

    2,581,900       53,677,701  

Baidu, Inc. ADRd

    245,300       50,016,670  

Pharmaron Beijing Co., Ltd. H Sharesb,c

    1,609,500       42,854,675  
   

 

 

  

Total China/Hong Kong

       1,626,679,544  
   

 

 

  
   
     
JAPAN: 28.4%    

Lixil Corp.

     4,632,900       119,887,294  

MISUMI Group, Inc.

     3,489,900       118,104,334  

KATITAS Co., Ltd.†

    4,186,900       117,713,652  

Anritsu Corp.

     4,887,900       91,046,824  

Disco Corp.

     291,800       88,721,546  

Hoya Corp.

     624,900       82,655,749  

BELLSYSTEM24 Holdings, Inc.†

    5,045,500       79,344,202  

Daifuku Co., Ltd.

     872,100       79,124,028  

Dai-ichi Life Holdings, Inc.

     4,239,400       78,001,624  

Nintendo Co., Ltd.

     133,500       77,252,848  

AGC, Inc.

     1,832,200       76,751,635  

Shiseido Co., Ltd.

     1,033,300       76,214,933  

Oriental Land Co., Ltd.

     531,100       75,663,486  

Olympus Corp.

     3,801,900       75,623,345  

ORIX Corp.

     4,397,400       74,323,141  

TDK Corp.

     569,900       68,989,068  

Bandai Namco Holdings, Inc.

     969,200       67,077,781  

Japan Steel Works, Ltd.

     2,074,900       53,272,193  

Rakus Co., Ltd.

     1,725,200       46,894,142  

MANI, INC.

     2,038,000       46,730,062  

Mitsubishi Pencil Co., Ltd.

     2,403,000       31,145,865  
   

 

 

  

Total Japan

       1,624,537,752  
   

 

 

  
   
     
AUSTRALIA: 8.3%    

Breville Group, Ltd.†

    7,461,473       167,315,029  

IDP Education, Ltd.

     5,145,961       94,775,807  

QBE Insurance Group, Ltd.

     9,879,699       79,724,834  

Sydney Airportd

    18,253,479       79,202,146  

Treasury Wine Estates, Ltd.

     3,312,124       29,001,939  

PEXA Group, Ltd.d

    1,954,952       25,114,571  
   

 

 

  

Total Australia

       475,134,326  
   

 

 

  
   
   

Shares

     Value  
     
SOUTH KOREA: 7.6%    

POSCO

     354,669     $ 109,610,341  

Hugel, Inc.d

    445,972       95,079,703  

KB Financial Group, Inc.

     1,880,798       93,344,091  

Hyundai Mobis Co., Ltd.

     290,948       75,451,905  

Samsung Electronics Co., Ltd.

     870,241       62,297,208  
   

 

 

  

Total South Korea

       435,783,248  
   

 

 

  
   
     
TAIWAN: 4.7%    

Taiwan Semiconductor Manufacturing Co., Ltd.

     7,426,469       159,951,532  

Taiwan Semiconductor Manufacturing Co., Ltd. ADR

     885,740       106,430,518  
   

 

 

  

Total Taiwan

       266,382,050  
   

 

 

  
   
     
INDIA: 4.0%    

Minda Industries, Ltd.†

    13,619,268       117,537,492  

HDFC Bank, Ltd.

     5,355,089       108,161,362  
   

 

 

  

Total India

       225,698,854  
   

 

 

  
   
     
VIETNAM: 3.9%    

Hoa Phat Group JSC

     34,687,575       77,742,044  

Vinhomes JSCb,c,d

    13,141,600       67,370,192  

Asia Commercial Bank JSCd

    35,169,605       54,523,639  

Vietnam Dairy Products JSC

     6,241,900       24,520,891  
   

 

 

  

Total Vietnam

       224,156,766  
   

 

 

  
   
     
SINGAPORE: 3.7%    

BOC Aviation, Ltd.b,c

    8,865,900       74,795,258  

NetLink NBN Trustb

    93,023,700       65,757,870  

Ascendas India Trust

     57,288,600       59,274,040  

Keppel DC, REIT

     4,590,680       8,508,394  
   

 

 

  

Total Singapore

       208,335,562  
   

 

 

  
   
     
INDONESIA: 1.3%    

PT Bank Rakyat Indonesia Persero

     282,382,100       76,778,319  
   

 

 

  

Total Indonesia

       76,778,319  
   

 

 

  
   
     
PHILIPPINES: 1.2%    

Globe Telecom, Inc.

     1,786,250       67,127,186  
   

 

 

  

Total Philippines

       67,127,186  
   

 

 

  
   
     
BANGLADESH: 1.0%    

GrameenPhone, Ltd.

     14,140,431       58,293,512  
   

 

 

  

Total Bangladesh

       58,293,512  
   

 

 

  
   
     
TOTAL COMMON EQUITIES       5,288,907,119  
   

 

 

  

(Cost $4,016,334,510)

    
   
 

 

70    MATTHEWS ASIA FUNDS

Table of Contents

Matthews Asia Dividend Fund

June 30, 2021

Schedule of Investmentsa (unaudited) (continued)

PREFERRED EQUITIES: 4.7%

 

    

Shares

     Value  
SOUTH KOREA: 4.7%    

LG Chem, Ltd., Pfd.

     468,568       $159,611,750  

Samsung Electronics Co., Ltd., Pfd.

     1,671,655       109,409,947  
   

 

 

  

Total South Korea

       269,021,697  
   

 

 

  
   
   
TOTAL PREFERRED EQUITIES

 

     269,021,697  
   

 

 

  

(Cost $103,553,274)

    
   
     
TOTAL INVESTMENTS: 97.3%       5,557,928,816  

(Cost $4,119,887,784)

    
   
CASH AND OTHER ASSETS,
LESS LIABILITIES: 2.7%

 

     157,129,772  
   

 

 

  

NET ASSETS: 100.0%

       $5,715,058,588  
   

 

 

  

 

a

Certain securities were fair valued under the valuation policies approved by the Board of Trustees (Note 2-A).

 

b

The securities may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the Securities Act of 1933.

 

c

Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. The security may be resold in transactions exempt from registration normally to qualified institutional buyers. The security has been determined to be liquid in accordance with procedures adopted by the Funds’ Board of Trustees. At June 30, 2021, the aggregate value is $350,467,060, which is 6.13% of net assets.

 

d

Non-income producing security.

 

†

Affiliated Issuer, as defined under the Investment Company Act of 1940 (ownership of 5% or more of the outstanding voting securities of this issuer)

 

ADR

American Depositary Receipt

 

JSC

Joint Stock Co.

 

Pfd.

Preferred

 

REIT

Real Estate Investment Trust

See accompanying notes to financial statements.

 

 

matthewsasia.com  |   800.789.ASIA      71  

Table of Contents

LOGO

 

PORTFOLIO MANAGERS
Sherwood Zhang, CFA  

Lead Manager

    
Yu Zhang, CFA   S. Joyce Li, CFA

Co-Manager

   Co-Manager
FUND FACTS        
    Investor   Institutional

Ticker

   MCDFX   MICDX

CUSIP

   577125305   577130735

Inception

   11/30/09   10/29/10

NAV

  

$21.64

  

$21.63

Initial Investment

   $2,500   $100,000

Gross Expense Ratio1

  

1.15%

  

1.02%

Portfolio Statistics

  

Total # of Positions

   48

Net Assets

  

$454.0 million

Weighted Average Market Cap

  

$82.8 billion

Portfolio Turnover2

  

81.8%

Benchmark

    

MSCI China Index

OBJECTIVE

 

 

Total return with an emphasis on providing current income.

STRATEGY

 

 

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in dividend-paying equity securities of companies located in China. China includes its administrative and other districts, such as Hong Kong. The Fund may also invest in convertible debt and equity securities of companies located in China.

Matthews China Dividend Fund

Portfolio Manager Commentary  (unaudited)

For the first half of 2021, the Matthews China Dividend Fund returned 12.11% (Investor Class) and 12.14% (Institutional Class), while its benchmark, the MSCI China Index, returned 1.89% over the same period. For the quarter ending June 30, the Fund returned 10.97% (Investor Class) and 11.01% (Institutional Class), while the benchmark returned 2.32%.

Market Environment

Chinese equity markets recovered in the second quarter, post a volatile first quarter, driven by resilient first quarter results coming out of the A-shares. Many investors anticipated a strong market rally approaching the Chinese Communist Party’s 100-year anniversary, however this optimistic scenario was never truly realized. During May, the Chinese government began to release the 7th population census data, which was delayed by a month. One clear trend within the census data is that the Chinese population continues to age, and birth rates have been trending down. The once-a-decade census data has many long-term implications, and Chinese authorities seem eager to take action to reverse the aging population trend. Later in May, the Chinese government announced that married couples will now be allowed to have three children, further relaxing its family planning policy. In addition, a series of surprisingly harsh and negative policy measures targeting the after-school tutoring industry has been rumored to be implemented starting this summer. The intention of these measures seems directly related to the escalating education cost of children, which many families cited as a key reason for not having more kids.

Performance Contributors and Detractors

During the first half of 2021, the Fund’s significant outperformance relative to its benchmark was mostly driven by security selection, especially in the information technology, real estate and consumer discretionary sectors. On the other hand, our security selection in the materials sector and underweight to the health care sector have been the biggest drags on relative performance.

SITC International Holdings Co., Ltd., the leading intra-Asia regional container shipping company, has continued to benefit from escalating shipping rates globally, making it the top contributor to absolute performance during the first half of the year. Shimao Service Holdings, a property management company, and China Suntien Green Energy Corporation, a natural gas utility company with business exposure in wind energy, are the second- and third-highest performance contributors. It is worth mentioning that both companies had periods of significant share price sell-off last year due to reasons not related to their business fundamentals. As a long-term investor, we added to our positions during the sell-offs, and we are pleased to see these holdings become top performance contributors during the period.

On the contrary, recent portfolio addition Haier Smart Home Co., a company engaged in the research, development, production and sale of smart home appliances, was the largest performance detractor for the first half. As various commodity prices have increased, investors are worried about whether the company’s profit margin will be under pressure. For now, we believe Haier still has room to improve its margin compared with industry peers, and its global presence increases the company’s ability to pass on its increased costs. Cathay Media and Education Group Inc., which operates both for-profit higher education and TV drama production businesses, is the second largest performance detractor, as its anticipated tuition cap set by the Chinese government could be lower than the market anticipated—we are closely monitoring this situation.

(continued)

 

 

72    MATTHEWS ASIA FUNDS

 

1.

Prospectus expense ratios.

2.

The lesser of fiscal year 2020 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

Table of Contents
                 
PERFORMANCE AS OF JUNE 30, 2021                                                        
 

 

     

 

       

 

       

 

      Average Annual Total Returns       

 

  
    

3 Months

     

YTD

      1 Year     

3 Year

     

5 Year

     

10 Years

     

Since
Inception

      Inception
Date		  
Investor Class (MCDFX)      10.97%        12.11%        33.88%        11.82%        16.18%        10.96%        11.66%        11/30/09  
Institutional Class (MICDX)      11.01%        12.14%        33.99%        11.96%        16.33%        11.14%        10.99%        10/29/10  
MSCI China Index3      2.32%        1.89%        27.54%        10.53%        16.75%        7.93%        7.39% 4    

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. For the Fund’s most recent month-end performance, visit matthewsasia.com.

 

               
INCOME DISTRIBUTION HISTORY                                                         
       2021           2020  
      

June

       

December

       

Total

          

June

       

December

       

Total

  

Investor (MCDFX)

      $ 0.38          n.a.        $ 0.38       $ 0.36        $ 0.04        $ 0.40  

Inst’l (MICDX)

      $ 0.39          n.a.        $ 0.39       $ 0.38        $ 0.05        $ 0.42  

Note: This table does not include capital gains distributions. Totals may differ by $0.02 due to rounding. For income distribution history, visit matthewsasia.com.

 

   

30 DAY YIELD:

 

0.71% (Investor Class); 0.87% (Institutional Class)

 

The 30-Day Yield represents net investment income earned by the Fund over the 30-day period ended 6/30/21, expressed as an annual percentage rate based on the Fund’s share price at the end of the 30-day period. The 30-Day Yield should be regarded as an estimate of the Fund’s rate of investment income, and it may not equal the Fund’s actual income distribution rate.

 

Source: BNY Mellon Investment Servicing (US) Inc.

    

DIVIDEND YIELD: 2.50%

 

The dividend yield (trailing) for the portfolio is the weighted average sum of the dividends paid by each equity security held by the Fund over the 12 months ended 6/30/21 divided by the current price of each equity as of 6/30/21. The annualized dividend yield for the Fund is for the equity-only portion of the portfolio. Please note that this is based on gross equity portfolio holdings and does not reflect the actual yield an investor in the Fund would receive. Past yields are no guarantee of future yields.

 

Source: FactSet Research Systems, Bloomberg, MICM.

 

 

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

LOGO

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

 

  3

It is not possible to invest directly in an index. Source: Index data from Morgan Stanley Capital International and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 88 for index definition.

 

  4

Calculated from 11/30/09.

 

 

       
TOP TEN HOLDINGS5                     
     Sector             % of Net Assets  
Tencent Holdings, Ltd.    Communication Services             6.8%  
Shimao Services Holdings, Ltd.    Real Estate             3.9%  
Shanghai Baosight Software Co., Ltd.    Information Technology             3.4%  
China Suntien Green Energy Corp., Ltd.    Energy             3.3%  
China Education Group Holdings, Ltd.    Consumer Discretionary             2.9%  
Pharmaron Beijing Co., Ltd.    Health Care             2.9%  
Postal Savings Bank of China Co., Ltd.    Financials             2.8%  
Bosideng International Holdings, Ltd.    Consumer Discretionary             2.8%  
Silergy Corp.    Information Technology             2.7%  
SITC International Holdings Co., Ltd.    Industrials             2.7%  
% OF ASSETS IN TOP 10                34.2%  

 

  5

Holdings may combine more than one security from same issuer and related depositary receipts.

 

matthewsasia.com  |   800.789.ASIA      73  

Table of Contents
 
COUNTRY ALLOCATION (%)6,7  

China/Hong Kong

     94.0  

Taiwan

     1.5  

Cash and Other Assets, Less Liabilities

     4.5  

 

   
SECTOR ALLOCATION (%)7      

Consumer Discretionary

     21.2  

Communication Services

     12.8  

Information Technology

     11.2  

Industrials

     11.2  

Consumer Staples

     9.0  

Real Estate

     8.1  

Financials

     8.0  

Health Care

     5.4  

Materials

     3.3  

Energy

     3.3  

Utilities

     2.1  

Cash and Other Assets, Less Liabilities

     4.5  

 

 
MARKET CAP EXPOSURE (%)7  

Mega Cap (over $25B)

     25.2  

Large Cap ($10B–$25B)

     21.5  

Mid Cap ($3B–10B)

     34.1  

Small Cap (under $3B)

     14.7  

Cash and Other Assets, Less Liabilities

     4.5  

 

6

Not all countries where the Fund may invest are included in the benchmark index.

 

7

Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Country allocations and percentage values may be derived from different data sources and may not be consistent with other Fund literature.

Matthews China Dividend Fund

Portfolio Manager Commentary  (unaudited) (continued)

Notable Portfolio Changes

During the second quarter, we initiated a position in the Chinese e-commerce giant Alibaba Group Holding as the company’s valuation was still depressed by last year’s failed Ant Financial IPO. We appreciate Alibaba’s still-healthy cash flow generation and dominant position in e-commerce, online payment and cloud computing in China. Additionally, the company’s share buyback program is becoming recurring—we see this as almost equivalent to a recurring dividend payout policy.

During the sell-off in Taiwan’s equity markets in May trigged by a COVID-19 outbreak, we rotated capital from semiconductor company MediaTek Inc. and used the proceeds to partly fund new investments in E Ink Corporation and Silergy Corp. MediaTek has performed very well since we initiated the position, but we think the company’s attractive fundamentals and growth prospects have largely been reflected in its valuation. E Ink is the leading supplier of displays for e-readers globally, and as people spend more time looking at computer screens, we believe they will become more concerned regarding potential resultant eye health issues, especially among children. We believe E Ink’s unique display solution is well-suited to alleviate the issue. Silergy is a leading China-based logic chip design house. We believe the company has ample market share to gain from global competitors, as the import substitution trend continues in China’s chip industry.

We also exited our positions in Excellence Commercial and Facilities Property Management Group Ltd. and HKBN Ltd., as we are increasingly less convinced of their growth potential.

Outlook

We remain constructive on China’s equity earnings growth outlook and continue to actively seek out investments at reasonable valuations. China is one of the first countries to normalize monetary policies post the COVID-19 pandemic, and therefore it may have more monetary and fiscal flexibility to support the economy as needed. However, in the near term, due to high base effect and increased regulatory risk, there could be down-side risk to Chinese corporates’ earnings. When these potential earnings downgrades are fully discounted, the market should refocus on structural growth drivers to corporate earnings.

 

 

74    MATTHEWS ASIA FUNDS     

Table of Contents

Matthews China Dividend Fund

June 30, 2021

Schedule of Investmentsa (unaudited)

COMMON EQUITIES: 95.5%

 

     Shares     Value  
CONSUMER DISCRETIONARY: 21.1%    

Diversified Consumer Services: 4.9%

    

China Education Group Holdings, Ltd.b

    5,950,000       $13,271,545  

EC Healthcare

     4,992,000       8,988,339  
   

 

 

  
      22,259,884  
   

 

 

  
   

Specialty Retail: 3.6%

    

China Yongda Automobiles Services Holdings, Ltd.

     4,851,500       8,682,791  

Topsports International Holdings, Ltd.b,c

    4,884,000       7,986,289  
   

 

 

  
      16,669,080  
   

 

 

  
   

Automobiles: 3.3%

    

BYD Co., Ltd. H Shares

     360,000       10,805,862  

Yadea Group Holdings, Ltd.b,c

    1,908,000       4,098,183  
   

 

 

  
      14,904,045  
   

 

 

  
   

Textiles, Apparel & Luxury Goods: 2.8%

    

Bosideng International Holdings, Ltd.

     17,810,000       12,725,932  
   

 

 

  
   

Internet & Direct Marketing Retail: 2.5%

    

Alibaba Group Holding, Ltd.d

    398,300       11,293,334  
   

 

 

  
   

Auto Components: 2.2%

    

Minth Group, Ltd.

     2,080,000       9,864,645  
   

 

 

  
   

Household Durables: 1.6%

    

Haier Smart Home Co., Ltd. D Shares

     3,852,281       7,324,910  
   

 

 

  
   

Multiline Retail: 0.2%

    

MINISO Group Holding, Ltd. ADRd

    47,600       989,604  
   

 

 

  

Total Consumer Discretionary

       96,031,434  
   

 

 

  
   
     
COMMUNICATION SERVICES: 12.8%    

Interactive Media & Services: 7.2%

    

Tencent Holdings, Ltd.

     408,600       30,764,520  

Kanzhun, Ltd. ADRd

    50,567       2,004,981  
   

 

 

  
      32,769,501  
   

 

 

  
   

Entertainment: 3.3%

    

BAIOO Family Interactive, Ltd.b,c

    29,400,000       6,167,086  

XD, Inc.b,d

    581,600       5,121,421  

Cathay Media and Education Group, Inc.b,c

    5,412,303       3,763,340  
   

 

 

  
      15,051,847  
   

 

 

  
   

Diversified Telecommunication Services: 2.3%

 

  

CITIC Telecom International Holdings, Ltd.

     30,741,000       10,172,261  
   

 

 

  

Total Communication Services

       57,993,609  
   

 

 

  
   
     
INDUSTRIALS: 11.2%    

Machinery: 5.1%

    

Yangzijiang Shipbuilding Holdings, Ltd.

     9,016,100       9,472,745  

Weichai Power Co., Ltd. A Shares

     2,947,581       8,131,074  

Leader Harmonious Drive Systems Co., Ltd. A Shares

     256,210       5,559,051  
   

 

 

  
      23,162,870  
   

 

 

  
   

Marine: 2.7%

    

SITC International Holdings Co., Ltd.

     2,913,000       12,173,270  
   

 

 

  
   

Industrial Conglomerates: 2.1%

    

CK Hutchison Holdings, Ltd.

     1,201,000       9,349,556  
   

 

 

  
   
     Shares     Value  

Road & Rail: 0.7%

    

Full Truck Alliance Co., Ltd. ADRd

    161,800       $3,297,484  
   

 

 

  
   

Air Freight & Logistics: 0.6%

    

JD Logistics, Inc.b,c,d

    542,900       2,957,726  
   

 

 

  

Total Industrials

       50,940,906  
   

 

 

  
   
     
INFORMATION TECHNOLOGY: 11.2%    

Electronic Equipment, Instruments & Components: 3.5%

 

  

OPT Machine Vision Tech Co., Ltd. A Shares

     130,130       9,057,671  

E Ink Holdings, Inc.

     2,606,000       6,979,202  
   

 

 

  
      16,036,873  
   

 

 

  
   

Software: 3.5%

    

Shanghai Baosight Software Co., Ltd. B Shares

     4,746,313       15,605,839  
   

 

 

  
   

Semiconductors & Semiconductor Equipment: 2.7%

    

Silergy Corp.

     90,000       12,215,118  
   

 

 

  
   

IT Services: 1.5%

    

TravelSky Technology, Ltd. H Shares

     3,203,000       6,901,133  
   

 

 

  

Total Information Technology

       50,758,963  
   

 

 

  
   
     
CONSUMER STAPLES: 9.0%    

Beverages: 4.0%

    

Tsingtao Brewery Co., Ltd. H Shares

     904,000       9,721,773  

Yantai Changyu Pioneer Wine Co., Ltd. B Shares

     4,053,176       8,303,582  
   

 

 

  
      18,025,355  
   

 

 

  
   

Food Products: 3.6%

    

Uni-President China Holdings, Ltd.

     7,931,000       8,750,605  

WH Group, Ltd.b,c

    8,467,500       7,600,450  
   

 

 

  
      16,351,055  
   

 

 

  
   

Food & Staples Retailing: 1.4%

    

Jiajiayue Group Co., Ltd. A Shares

     2,334,885       6,266,414  
   

 

 

  

Total Consumer Staples

       40,642,824  
   

 

 

  
   
     
REAL ESTATE: 8.1%    

Real Estate Management & Development: 6.1%

 

  

Shimao Services Holdings, Ltd.b,c

    5,107,000       17,602,307  

Powerlong Commercial Management Holdings, Ltd.b

    1,787,500       6,257,105  

K Wah International Holdings, Ltd.

     7,782,000       3,777,533  
   

 

 

  
      27,636,945  
   

 

 

  
   

Equity REITs: 2.0%

    

Fortune REIT

     8,460,000       9,063,752  
   

 

 

  

Total Real Estate

       36,700,697  
   

 

 

  
   
     
FINANCIALS: 8.0%    

Banks: 6.3%

    

Postal Savings Bank of China Co., Ltd. H Sharesb,c

    19,207,000       12,916,579  

Ping An Bank Co., Ltd. A Shares

     2,277,400       7,962,846  

BOC Hong Kong Holdings, Ltd.

     2,308,000       7,822,531  
   

 

 

  
      28,701,956  
   

 

 

  
   
 

 

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Table of Contents

Matthews China Dividend Fund

June 30, 2021

Schedule of Investmentsa (unaudited) (continued)

COMMON EQUITIES (continued)

 

     Shares     Value  

Insurance: 1.7%

    

New China Life Insurance Co., Ltd. H Shares

     2,174,800       $7,415,557  
   

 

 

  

Total Financials

       36,117,513  
   

 

 

  
   
     
HEALTH CARE: 5.4%    

Life Sciences Tools & Services: 2.9%

    

Pharmaron Beijing Co., Ltd. H Sharesb,c

    496,900       13,230,499  
   

 

 

  
   

Pharmaceuticals: 2.5%

    

CSPC Pharmaceutical Group, Ltd.

     7,958,000       11,494,960  
   

 

 

  

Total Health Care

       24,725,459  
   

 

 

  
   
     
ENERGY: 3.3%    

Oil, Gas & Consumable Fuels: 3.3%

    

China Suntien Green Energy Corp., Ltd. H Shares

     30,884,000       15,146,481  
   

 

 

  

Total Energy

       15,146,481  
   

 

 

  
   
     
MATERIALS: 3.3%    

Construction Materials: 1.9%

    

Huaxin Cement Co., Ltd. B Shares

     4,577,692       8,556,379  
   

 

 

  
   

Containers & Packaging: 1.4%

    

Greatview Aseptic Packaging Co., Ltd.

     14,514,000       6,542,638  
   

 

 

  

Total Materials

       15,099,017  
   

 

 

  
   
     
UTILITIES: 2.1%    

Gas Utilities: 2.1%

    

Kunlun Energy Co., Ltd.

     10,138,000       9,332,930  
   

 

 

  

Total Utilities

       9,332,930  
   

 

 

  
   
     
TOTAL INVESTMENTS: 95.5%       433,489,833  

(Cost $335,739,701)

    
   
CASH AND OTHER ASSETS,
LESS LIABILITIES: 4.5%		       20,528,061  
   

 

 

  

NET ASSETS: 100.0%

       $454,017,894  
   

 

 

  
a

Certain securities were fair valued under the valuation policies approved by the Board of Trustees (Note 2-A).

 

b

The securities may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the Securities Act of 1933.

 

c

Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. The security may be resold in transactions exempt from registration normally to qualified institutional buyers. The security has been determined to be liquid in accordance with procedures adopted by the Funds’ Board of Trustees. At June 30, 2021, the aggregate value is $76,322,459, which is 16.81% of net assets.

 

d

Non-income producing security.

 

ADR

American Depositary Receipt

 

REIT

Real Estate Investment Trust

See accompanying notes to financial statements.

 

 

76    MATTHEWS ASIA FUNDS     

Table of Contents

LOGO

 

PORTFOLIO MANAGERS
Teresa Kong, CFA  

Lead Manager

  
Satya Patel   Wei Zhang

Co-Manager

  

Co-Manager

FUND FACTS
    Investor   Institutional

Ticker

   MAINX   MINCX

CUSIP

   577125503   577125602

Inception

   11/30/11   11/30/11

NAV

   $10.87   $10.87

Initial Investment

   $2,500   $100,000

Gross Expense Ratio1

   1.15%   1.00%

After Fee Waiver and Reimbursement2

   1.12%   0.90%

Portfolio Statistics

    

Total # of Positions

 

55

Net Assets

 


$140.0 million

Modified Duration3

 

4.2

Portfolio Turnover4

 

39.7%

Benchmark

  
50% Markit iBoxx Asian Local Bond Index, 50% J.P. Morgan Asia Credit Index

OBJECTIVE

 

 

Total return over the long term with an emphasis on income.

STRATEGY

 

 

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in debt and debt-related instruments issued by governments, quasi-governmental entities, supra-national institutions, and companies in Asia. Asia consists of all countries and markets in Asia, such as China and India, and includes developed, emerging, and frontier countries and markets in the Asian region. The Fund’s investments in debt securities may be denominated in any currency, may be of any quality or may be unrated, and may have no stated maturity or duration target.

Matthews Asia Total Return Bond Fund

Portfolio Manager Commentary (unaudited)

For the first half of 2021, the Matthews Asia Total Return Bond Fund returned –1.63% (Investor Class) and –1.56% (Institutional Class) while its benchmark, the 50% Markit iBoxx Asian Local Bond Index/50% J.P. Morgan Asia Credit Index (JACI), returned –1.61%. For the quarter ending June 30, the Fund returned 1.09% (Investor Class) and 1.14% (Institutional Class) compared to the benchmark return of 1.36%.

Market Discussion

Unlike many other market cycles, this cycle was uniquely quick in its ups and downs, probably as it was driven by an unprecedented pandemic. With barely a year since COVID-19 lockdowns and recession, the global economy is showing signs of a full expansion. Global purchasing managers index (PMI) hit 55.5 in June—an indication of growth or expansion within the manufacturing and services sectors of the economy compared to the prior month. Inflation is rising, with U.S. consumer price index (CPI) hitting 5.0% in May, driven mostly by goods and commodities inflation. Oil prices rose 18% in the second quarter. The rapid lockdowns and re-opening have thus created supply shortages, driving up goods prices.

Expectations of normalization of life drove normalization of markets. The second quarter of the year was a generally good one for bonds and equities. The JP Morgan Asia Credit Index (JACI) returned 1.4% on the quarter, while MSCI Emerging Markets returned 5.2%. Asian currencies appreciated slightly, returning 0.4% as measured by the Asian trade-weighted currency basket.

In light of these data points, the Fed decided to signal a downshift of its easing stance at the June Federal Open Market Committee. In its own words, it is “talking about talking about tapering”—probably the most dovish language to describe a move towards tightening stance. As the market digested this “dovish hawkish” news, 10-year U.S. Treasuries declined in the quarter—starting the quarter at 1.74% and ending it at 1.47%.

Performance Contributors and Detractors

For the first two quarters of 2021, our short duration stance and local currency underweight relative to the benchmark generally contributed to performance, led by our positions in Singapore and Thailand. On the other hand, our underweight to investment grade credit detracted from performance. Within, U.S. dollar-denominated corporate exposures, Chinese real estate developers and internet platforms such as South Korea’s KaKao Corp., contributed to performance. Exposure to Pan Brothers, an Indonesian textile manufacturer, and China’s Huarong Finance detracted from performance.

In general, the Fund’s local currency positions performed in line with the benchmark during the second quarter. Exposure to Indonesia and Malaysian local bonds contributed to performance while exposures to Singapore and South Korea detracted during the same period. The portfolio’s currency performance was neutral—our position in the Thai baht contributed positively while our position in the Singapore dollar detracted.

(continued)

 

 

 

1

Prospectus expense ratios.

2

Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 0.90% first by waiving class specific expenses (i.e., shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non-class specific expenses (e.g. custody fees) of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 0.90% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 0.90%. Pursuant to this agreement, any amount waived for prior fiscal years with respect to the Fund is not subject to recoupment. This agreement will remain in place until April 30, 2022 and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

3

Modified duration measures the percent change in value of the fixed income portion of the portfolio in response to a 1% change in interest rates. In a multi-currency denominated portfolio with sensitivities to different interest rate regimes, modified duration will not accurately reflect the change in value of the overall portfolio from a change in any one interest rate regime.

4

The lesser of fiscal year 2020 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

 

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Table of Contents
 
PERFORMANCE AS OF JUNE 30, 2021  
 

 

    

 

      

 

       

 

      Average Annual Total Returns       

 

  
    3 Months     YTD      1 Year      3 Years      5 Years      Since
Inception		      Inception
Date		  
Investor Class (MAINX)     1.09%       -1.63%        7.57%        5.20%        4.80%        4.57%        11/30/11  
Institutional Class (MINCX)     1.14%       -1.56%        7.78%        5.39%        5.04%        4.78%        11/30/11  
50% Markit iBoxx Asian Local Bond Index, 50% J.P. Morgan Asia Credit Index5     1.36%       -1.61%        4.27%        6.22%        4.12%        4.35%     

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund’s fees and expenses had not been waived. For the Fund’s most recent month-end performance visit matthewsasia.com.

 

 
INCOME DISTRIBUTION HISTORY  

2021

    Jan.      Feb.      Mar.      Apr.      May      June      July      Aug.      Sept.      Oct.      Nov.      Dec.      Total  
Investor (MAINX)    $ 0.03      $ 0.02      $ 0.03      $ 0.04      $ 0.03      $ 0.04        n.a.        n.a.        n.a.        n.a.        n.a.        n.a.      $ 0.20  
Inst’l (MINCX)    $ 0.03      $ 0.02      $ 0.03      $ 0.04      $ 0.04      $ 0.04        n.a.        n.a.        n.a.        n.a.        n.a.        n.a.      $ 0.20  

2020

                                                                                           
Investor (MAINX)      n.a.      $ 0.06      $ 0.04      $ 0.00      $ 0.03      $ 0.04      $ 0.04      $ 0.04      $ 0.04      $ 0.04      $ 0.03      $ 0.08      $ 0.44  
Inst’l (MINCX)      n.a.      $ 0.07      $ 0.04      $ 0.01      $ 0.03      $ 0.04      $ 0.04      $ 0.04      $ 0.04      $ 0.04      $ 0.04      $ 0.09      $ 0.46  

Note: This table does not include capital gains distributions. Totals may differ by $0.02 due to rounding. For income distribution history, visit matthewsasia.com.

 

   

30-DAY YIELD:

 

Investor Class: 7.49% (7.49% excluding waivers)

Institutional Class: 7.59% (7.59% excluding waivers)

 

The 30-Day Yield represents net investment income earned by the Fund over the 30-day period ended 6/30/21, expressed as an annual percentage rate based on the Fund’s share price at the end of the 30-day period. The 30-Day Yield should be regarded as an estimate of the Fund’s rate of investment income, and it may not equal the Fund’s actual income distribution rate.

 

Source: BNY Mellon Investment Servicing (US) Inc.

    

YIELD TO WORST: 8.85%

 

Yield to worst is the lowest yield that can be received on a bond assuming that the issuer does not default. It is calculated by utilizing the worst case assumptions for a bond with respect to certain income-reducing factors, including prepayment, call or sinking fund provisions. It does not represent the yield that an investor should expect to receive. Past yields are no guarantee of future yields.

 

Source: FactSet Research Systems

 

 

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

LOGO

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions or redemption of Fund shares. Values are in US$.

 

  5

It is not possible to invest directly in an index. Source: Index data from HSBC, Markit iBoxx and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 88 for index definitions. The Markit iBoxx Asian Local Bond Index performance reflects the returns of the discontinued predecessor HSBC Asian Local Bond Index up to December 31, 2012 and the returns of the successor Markit iBoxx Asian Local Bond Index thereafter.

 

       
TOP TEN HOLDINGS                     
     Sector      Currency      % of Net Assets  
Network i2i, Ltd., 5.650%, 04/15/2068    Communication Services      U.S. Dollar        4.7%  
Viet Nam Debt & Asset Trading Corp., 1.000%, 10/10/2025    Financials      U.S. Dollar        4.0%  
Wanda Properties International Co., Ltd., 7.250%, 01/29/2024    Real Estate      U.S. Dollar        3.8%  
Luye Pharma Group, Ltd., Cnv., 1.500%, 07/09/2024    Health Care      U.S. Dollar        3.5%  
ABJA Investment Co. Pte, Ltd., 5.450%, 01/24/2028    Materials      U.S. Dollar        3.4%  
Franshion Brilliant, Ltd., 6.000%, 08/08/2068    Real Estate      U.S. Dollar        3.4%  
China Development Bank, 3.800%, 01/25/2036    Foreign Government Bonds      China Renminbi        3.3%  
Sino-Ocean Land Treasure III, Ltd., 4.900%, 03/21/2068    Real Estate      U.S. Dollar        3.1%  
Periama Holdings LLC, 5.950%, 04/19/2026    Materials      U.S. Dollar        3.0%  
Kasikornbank Public Co., Ltd., 5.275%, 04/14/2068    Financials      U.S. Dollar        2.9%  
% OF ASSETS IN TOP 10                35.1%  

 

78    MATTHEWS ASIA FUNDS     

Table of Contents

Matthews Asia Total Return Bond Fund

Portfolio Manager Commentary  (unaudited) (continued)

The U.S. dollar-denominated holdings performed positively relative to the benchmark. Within our U.S. dollar-denominated investments, the largest contributors to performance came from the convertible bonds of Kakao Corp., a South Korean online messaging and e-commerce platform, and high yield bonds of basic industry companies. On the other hand, the biggest detractor came from Huarong Finance. We initiated a position in Huarong, a Chinese asset manager, after its bonds sold off on news of possible losses from non-core overseas investments and the delay of its annual results. We believe the bonds were oversold given the data vacuum regarding the extent of the losses. In our base case, Huarong will likely experience some combination of asset sales and government support such that bondholders be made whole over the next few quarters.

Notable Portfolio Changes

In terms of currency, we sold the portfolio’s Indian rupee exposure and added Korean won exposure in the quarter. We expect inflation and rising commodity prices to disproportionately hurt India. We added the Korean won to take advantage of the cyclical global recovery as the country is heavily tied to the global semiconductor and trade cycle.

We also added exposure to Chinese real estate and internet sectors. Within real estate, we added CIFI Holdings, a high-quality developer that we previously held. Within Chinese internet, we initiated convertible bond positions in Meituan, a web-based shopping platform company, and Weimob, an e-commerce and marketing solutions company. We believe regulatory risks and competition within the internet space have put price pressure on these names; however, in the long term, we believe their businesses will scale to drive profitability. We also added embattled Huarong Finance for the special situations opportunity as the company works through asset sales and/or a corporate restructuring.

We exited Krungthai Bank bonds given its unfavorably upside vs. downside skew with new waves of COVID resurgence in Thailand pushing out expectations of an economic rebound. We also exited Philippines government bonds as the bonds had done well and hit our price targets.

Outlook

The Fed is taking an extremely patient stance considering that we are in the full expansion part of the cycle, which typically calls for tightening of monetary policy to counteract its excesses. Given that signs point towards re-starting of economic activity around the world, we expect the Fed to be on a more hawkish path going forward, but that its tightening will generally lag the expansionary trend of the economy. Therefore, the U.S. economy will have room to grow and we believe asset prices can do well in this environment. We do anticipate U.S. Treasuries to go up from here, with fair value around the 2%–2.5% range given current economic conditions.

In Asia, we expect to see relatively muted movements in interest rates for most countries. With the Fed potentially tapering, it may put pressure on Asian central banks to consider whether their policy is overly accommodative. Developed Asian rates will probably follow Treasuries higher, but also lag in terms of the pace of rise.

In terms of currency, we do not see a clear trend yet. Global expansion and rising commodity prices should mean a weaker U.S. dollar and stronger high volatility Asia currencies. However, as our base case is for Asia government yields to lag those of U.S., lower carry of Asia currencies might counteract what might otherwise be a weaker U.S. dollar. While a general recovery in risk sentiment helps all Asian currencies, we are mindful of idiosyncratic risks between each country with regards to the speed of each country’s recovery from COVID, ability to manage ongoing virus spread, as well as country-specific macro fundamentals.

 
CURRENCY ALLOCATION (%)6,7  
US Dollar     55.1  
China Renminbi     10.1  
South Korean Won     9.2  
Singapore Dollar     6.1  
Indonesian Rupiah     5.9  
Malaysian Ringgit     5.0  
Thailand Baht     3.9  
Philippines Peso     3.5  
Indian Rupee     1.2  

 

 
COUNTRY ALLOCATION (%)6,7,8  
China/Hong Kong     51.9  
India     14.8  
Indonesia     9.4  
Malaysia     6.8  
Thailand     4.6  
Philippines     4.0  
Vietnam     4.0  
South Korea     1.0  
New Zealand     0.8  
Cash and Other Assets, Less Liabilities     2.8  

 

 
SECTOR ALLOCATION (%)6,7  
Real Estate     25.0  
Financials     20.2  
Foreign Government Bonds     17.3  
Communication Services     7.6  
Consumer Discretionary     7.0  
Health Care     6.8  
Materials     6.4  
Energy     3.2  
Industrials     2.2  
Information Technology     1.5  
Cash and Other Assets, Less Liabilities     2.8  

Please note: Foreign Government Bonds category includes Supranationals.

 

 
ASSET TYPE BREAKDOWN (%)6,7  
Non-Convertible Corporate Bonds     64.1  
Government Bonds     18.0  
Convertible Corporate Bonds     15.1  
Cash and Other Assets, Less Liabilities     2.8  

 

6

Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Country allocations and percentage values may be derived from different data sources and may not be consistent with other Fund literature.

 

7

Cash and other assets may include forward currency exchange contracts and certain derivative instruments that have been marked-to-market.

 

8

Not all countries where the Fund may invest are included in the benchmark index.

 

 

matthewsasia.com  |   800.789.ASIA      79  

Table of Contents

Matthews Asia Total Return Bond Fund

June 30, 2021

Schedule of Investmentsa (unaudited)

NON-CONVERTIBLE CORPORATE BONDS: 60.8%

 

     Face Amount*     Value  
CHINA/HONG KONG: 37.3%    

Wanda Properties International Co., Ltd.

 

7.250%, 01/29/24b

     5,300,000       $5,280,411  

Franshion Brilliant Ltd. 6.000%c, 02/08/26b,d

     4,700,000       4,711,750  

Sino-Ocean Land Treasure III, Ltd. 4.900%c, 09/21/22b,d

     5,000,000       4,399,997  

China SCE Group Holdings, Ltd. 7.000%, 05/02/25b

     4,000,000       4,051,186  

Powerlong Real Estate Holdings, Ltd. 5.950%, 04/30/25b

     3,900,000       4,027,429  

KWG Group Holdings, Ltd. 7.400%, 01/13/27b

     4,000,000       3,996,607  

Times China Holdings, Ltd. 6.200%, 03/22/26b

     3,900,000       3,823,122  

CIFI Holdings Group Co., Ltd. 4.800%, 05/17/28b

     3,600,000       3,523,500  

King Talent Management, Ltd. 5.600%c, 12/04/22b,d

     3,500,000       3,151,785  

CITIC Telecom International Finance, Ltd. 6.100%, 03/05/25b

     1,631,000       1,762,362  

China Cinda Asset Management Co., Ltd.

 

5.500%, 03/14/28

     CNY 10,000,000       1,667,663  

FWD Group, Ltd.
6.375%c, 09/13/24b,d

     1,600,000       1,642,418  

Agricultural Bank of China, Ltd. 4.300%, 04/11/29b

     CNY 10,000,000       1,573,278  

Huarong Finance 2017 Co., Ltd. 4.000%c, 11/07/22b,d

     2,500,000       1,550,000  

China Cinda Asset Management Co., Ltd.

 

3.900%, 03/05/30

     CNY 10,000,000       1,524,249  

Huarong Finance 2019 Co., Ltd. 4.250%c, 09/30/25b,d

     2,800,000       1,400,000  

FWD Group, Ltd.
0.000%c, 06/15/22b,d

     1,200,000       1,127,979  

Times China Holdings, Ltd. 6.750%, 07/08/25b

     1,100,000       1,113,961  

Honghua Group, Ltd.
6.375%, 08/01/22b

     1,100,000       1,072,488  

Huarong Finance 2017 Co., Ltd. 4.500%c, 01/24/22b,d

     1,100,000       742,500  
   

 

 

  

Total China/Hong Kong

       52,142,685  
   

 

 

  
   
     
INDIA: 14.8%    

Network i2i, Ltd.
5.650%c, 01/15/25d,e

     5,000,000       5,356,250  

ABJA Investment Co. Pte, Ltd. 5.450%, 01/24/28b

     4,440,000       4,769,225  

Periama Holdings LLC 5.950%, 04/19/26b

     3,900,000       4,223,310  

Tata Motors, Ltd.
5.875%, 05/20/25b

     3,500,000       3,744,440  

ICICI Bank UK PLC
5.375%c, 09/26/28b

     SGD 1,750,000       1,350,599  

Network i2i, Ltd.
5.650%c, 01/15/25b,d

     1,200,000       1,285,500  
   

 

 

  

Total India

       20,729,324  
   

 

 

  
   
    Face Amount*     Value  
     
INDONESIA: 3.6%    

Indika Energy Capital III Pte, Ltd. 5.875%, 11/09/24b

     3,300,000       $3,337,950  

PB International BV
7.625%, 01/26/22b

     5,100,000       1,657,489  
   

 

 

  

Total Indonesia

       4,995,439  
   

 

 

  
   
     
THAILAND: 2.9%    

Kasikornbank Public Co., Ltd. 5.275%c, 10/14/25b,d

     3,900,000       4,126,200  
   

 

 

  

Total Thailand

       4,126,200  
   

 

 

  
   
     
PHILIPPINES: 2.2%    

Royal Capital BV
5.000%c, 02/05/26b,d

     1,890,000       2,004,345  

Royal Capital BV
4.875%c, 05/05/24b,d

     1,041,000       1,084,201  
   

 

 

  

Total Philippines

       3,088,546  
   

 

 

  
   
   
TOTAL NON-CONVERTIBLE CORPORATE BONDS

 

     85,082,194  
   

 

 

  

(Cost $88,064,025)

    
   

FOREIGN GOVERNMENT OBLIGATIONS: 21.3%

 

  
 
INDONESIA: 5.8%

 

Indonesia Government Bond
9.000%, 03/15/29

     IDR 38,000,000,000       3,033,448  

Indonesia Government Bond
8.250%, 05/15/29

     IDR 34,550,000,000       2,653,249  

Indonesia Government Bond
7.000%, 09/15/30

     IDR 18,000,000,000       1,281,910  

Indonesia Government Bond
8.375%, 04/15/39

     IDR 15,000,000,000       1,145,173  
   

 

 

  

Total Indonesia

       8,113,780  
   

 

 

  
   
 
MALAYSIA: 4.8%

 

Malaysia Government Bond 4.642%, 11/07/33

     MYR 13,000,000       3,399,643  

Malaysia Government Bond 3.478%, 06/14/24

     MYR 4,800,000       1,195,543  

Malaysia Government Investment Issue

 

4.119%, 11/30/34

     MYR 4,500,000       1,099,456  

Malaysia Government Investment Issue

 

3.422%, 09/30/27

     MYR 4,000,000       984,818  
   

 

 

  

Total Malaysia

       6,679,460  
   

 

 

  
   
 
VIETNAM: 4.0%

 

Viet Nam Debt & Asset Trading Corp. 1.000%, 10/10/25b

     6,219,000       5,566,005  
   

 

 

  

Total Vietnam

       5,566,005  
   

 

 

  
   
 
CHINA/HONG KONG: 3.3%

 

China Development Bank 3.800%, 01/25/36

     CNY 30,000,000       4,667,807  
   

 

 

  

Total China/Hong Kong

       4,667,807  
   

 

 

  
   
 
PHILIPPINES: 1.8%

 

Republic of Philippines 3.900%, 11/26/22

     PHP 123,000,000       2,535,543  
   

 

 

  

Total Philippines

       2,535,543  
   

 

 

  
   
 

 

80    MATTHEWS ASIA FUNDS     

Table of Contents

Matthews Asia Total Return Bond Fund

June 30, 2021

Schedule of Investmentsa (unaudited) (continued)

FOREIGN GOVERNMENT OBLIGATIONS (continued)

 

    Face Amount*     Value  
 
THAILAND: 1.6%

 

Thailand Government Bond 1.600%, 12/17/29

     THB 72,000,000       $2,247,716  
   

 

 

  

Total Thailand

       2,247,716  
   

 

 

  
   
   
TOTAL FOREIGN GOVERNMENT OBLIGATIONS

 

     29,810,311  
   

 

 

  

(Cost $28,827,296)

    
   

CONVERTIBLE CORPORATE BONDS: 15.1%

 

  
 
CHINA/HONG KONG: 11.3%

 

Luye Pharma Group, Ltd., Cnv. 1.500%, 07/09/24b

     4,700,000       4,879,493  

Pharmaron Beijing Co., Ltd., Cnv. 0.000%, 06/18/26b

     2,100,000       2,333,100  

Hansoh Pharmaceutical Group Co., Ltd., Cnv.

 

0.000%, 01/22/26b

     2,400,000       2,254,800  

NIO, Inc., Cnv.
0.500%, 02/01/27e

     1,700,000       1,596,300  

Baozun, Inc., Cnv.
1.625%, 05/01/24

     1,400,000       1,411,375  

Weimob Investment, Ltd., Cnv. 0.000%, 06/07/26b

     1,000,000       1,070,620  

iQIYI, Inc., Cnv.
2.000%, 04/01/25

     1,000,000       931,706  

Meituan, Cnv.
0.000%, 04/27/28b

     700,000       760,550  

Pinduoduo, Inc., Cnv.
0.000%, 12/01/25

     650,000       667,550  
   

 

 

  

Total China/Hong Kong

       15,905,494  
   

 

 

  
   
 
MALAYSIA: 2.0%

 

Cerah Capital, Ltd., Cnv. 0.000%, 08/08/24b

     2,800,000       2,783,200  
   

 

 

  

Total Malaysia

       2,783,200  
   

 

 

  
   
 
SOUTH KOREA: 1.0%

 

Kakao Corp., Cnv.
0.000%, 04/28/23b

     800,000       1,368,560  
   

 

 

  

Total South Korea

       1,368,560  
   

 

 

  
   
    Face Amount*     Value  
 
NEW ZEALAND: 0.8%

 

Xero Investments, Ltd., Cnv.
0.000%, 12/02/25b

     1,100,000       $1,093,400  
   

 

 

  

Total New Zealand

       1,093,400  
   

 

 

  
   
   
TOTAL CONVERTIBLE CORPORATE BONDS

 

     21,150,654  
   

 

 

  

(Cost $20,606,015)

    
   
   
TOTAL INVESTMENTS: 97.2%

 

     136,043,159  

(Cost $137,497,336)

    
   
CASH AND OTHER ASSETS,
LESS LIABILITIES: 2.8%

 

     3,928,336  
   

 

 

  

NET ASSETS: 100.0%

 

     $139,971,495  
   

 

 

  

 

a

Certain securities were fair valued under the valuation policies approved by the Board of Trustees (Note 2-A).

 

b

The securities may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the Securities Act of 1933.

 

c

Security is a fix-to-float security, which carries a fixed coupon until a certain date, upon which it switches to a floating rate. Reference rate and spread are provided if the rate is currently floating.

 

d

Perpetual security with no stated maturity date. First call date is disclosed.

 

e

Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. The security may be resold in transactions exempt from registration normally to qualified institutional buyers. The security has been determined to be liquid in accordance with procedures adopted by the Funds’ Board of Trustees. At June 30, 2021, the aggregate value is $6,952,550, which is 4.97% of net assets.

 

*

All Values in USD unless otherwise specified.

 

3M MYR-KLIBOR

Three Month Kuala Lumpur Interbank Offered Rate

 

6M THB-THBFIX

Six Month Thai Baht Interest Rate Fixing

Cnv.

Convertible

 

CNY

Chinese Renminbi (Yuan)

 

IDR

Indonesian Rupiah

 

INR

Indian Rupee

 

KRW

Korean Won

 

MYR

Malaysian Ringgit

 

OTC

Over-the-counter PHP Philippine Peso

 

PHP

Philippine Peso

 

SGD

Singapore Dollar

 

THB

Thai Baht

 

USD

U.S. Dollar

 

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

 

Currency Purchased      Currency Sold      Counterparty      Settlement
Date		     Appreciation
(Depreciation)		  
USD 1,670,000      KRW 1,864,555,000     

Bank of America, N.A.

        07/12/21     $ 16,558  
USD 2,500,000      SGD 3,331,500     

Bank of America, N.A.

        07/12/21       22,496  
USD 999,680      THB 31,200,000     

Bank of America, N.A.

        07/12/21       26,236  
INR 45,518,200      USD 610,000     

Bank of America, N.A.

        07/27/21       245  
USD 2,860,000      INR 210,681,900     

Bank of America, N.A.

        07/27/21       35,467  
CNY 29,495,250      USD 4,500,000     

Bank of America, N.A.

        07/28/21       52,680  
                

 

 

  
                   153,682  
                

 

 

  
PHP 79,794,000      USD 1,650,000     

Bank of America, N.A.

        07/12/21       (17,192 ) 
PHP 36,262,500      USD 750,000     

Bank of America, N.A.

        07/12/21       (7,968 ) 
SGD 12,893,812      USD 9,740,000     

Bank of America, N.A.

        07/12/21       (151,384 ) 
KRW 13,486,088,000      USD 12,320,000     

Bank of America, N.A.

        07/12/21       (360,866 ) 
SGD 1,958,040      USD 1,480,000     

Bank of America, N.A.

        07/12/21       (23,884 ) 

 

     matthewsasia.com  |  800.789.ASIA      81  

Table of Contents

Matthews Asia Total Return Bond Fund

June 30, 2021

Schedule of Investmentsa (unaudited) (continued)

 

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS (continued)

 

Currency Purchased      Currency Sold      Counterparty      Settlement
Date		     Appreciation
(Depreciation)		  
USD 1,390,000      SGD 1,870,245     

Bank of America, N.A.

        07/12/21     $ (827 ) 
USD 1,670,000      KRW 1,887,016,500     

Bank of America, N.A.

        07/12/21       (3,360 ) 
KRW 2,871,204,000      USD 2,570,000     

Bank of America, N.A.

        07/12/21       (23,886 ) 
KRW 1,849,680,000      USD 1,680,000     

Bank of America, N.A.

        07/12/21       (39,749 ) 
THB 89,924,250      USD 2,990,000     

Bank of America, N.A.

        07/12/21       (184,353 ) 
THB 23,361,000      USD 780,000     

Bank of America, N.A.

        07/12/21       (51,134 ) 
INR 292,456,350      USD 3,940,000     

Bank of America, N.A.

        07/27/21       (19,147 ) 
                

 

 

  
                   (883,750 ) 
                

 

 

  

Net Unrealized Depreciation

             $ (730,068 ) 
                

 

 

  

OTC INTEREST RATE SWAPS*

 

Floating Rate
Paid by Fund

      Fixed Rate
Received by Fund		   

Counterparty

     

Termination
Date

     

Notional
Amount (000)

     

Value

     

Upfront
Premium
Paid
(Received)

     

Unrealized
Appreciation

  
Rate   Frequency      Rate     Frequency

3M MYR-KLIBOR, 1.940%

     Quarterly        3.300 %    Quarterly      Bank of America, N.A.        06/19/2024        MYR 13,000      $ 86,309        —      $ 86,309  

6M THB-THBFIX, 0.288%

     Semi-annual        1.610 %    Semi-annual      Bank of America, N.A.        06/21/2024        THB 281,000        241,319        —        241,319  

6M THB-THBFIX, 0.334%

     Semi-annual        1.265 %    Semi-annual      Bank of America, N.A.        09/04/2024        THB 210,000        131,060        —        131,060  
                  

 

 

  

Total

                    $ 458,688        —      $ 458,688  
                  

 

 

  

 

*

Swaps are not centrally cleared.

See accompanying notes to financial statements.

 

82    MATTHEWS ASIA FUNDS     

Table of Contents

LOGO

 

PORTFOLIO MANAGERS
Teresa Kong, CFA   Satya Patel

Lead Manager

  

Lead Manager

FUND FACTS        
    Investor   Institutional

Ticker

   MCRDX   MICPX

CUSIP

   577130677   577130669

Inception

   4/29/16   4/29/16

NAV

   $9.84   $9.84

Initial Investment

   $2,500   $100,000

Gross Expense Ratio1

   1.14%   0.98%

After Fee Waiver and Reimbursement2

   1.14%   0.90%

Portfolio Statistics

  

Total # of Positions

     42

Net Assets

     $96.4 million

Modified Duration3

     2.7

Portfolio Turnover4

       48.5%

Benchmark

    

J.P. Morgan Asia Credit Index

OBJECTIVE

 

 

Total return over the long term.

STRATEGY

 

 

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in debt and debt-related instruments issued by companies as well as governments, quasi-governmental entities, and supra-national institutions in Asia. Debt and debt-related instruments typically include bonds, debentures, bills, securitized instruments (which are vehicles backed by pools of assets such as loans or other receivables), notes, certificates of deposit and other bank obligations, bank loans, senior secured bank debt, convertible debt securities, exchangeable bonds, credit-linked notes, inflation-linked instruments, repurchase agreements, payment-in-kind securities and derivative instruments with fixed income characteristics. Asia consists of all countries and markets in Asia, such as China and Indonesia, in addition to the developed, emerging, and frontier countries and markets in the Asian region.

Matthews Asia Credit Opportunities Fund

Portfolio Manager Commentary  (unaudited)

For the first half of 2021, the Matthews Asia Credit Opportunities Fund returned –2.14 (Investor Class) and –2.06% (Institutional Class) while its benchmark, the J.P. Morgan Asia Credit Index, returned –0.12%. For the quarter ending June 30, the Fund returned 0.61% (Investor Class) and 0.65% (Institutional Class) compared to the benchmark return of 1.07% over the same period.

Market Discussion

After a dramatic first quarter of ups and downs, the second quarter felt like a period of normalization. The market was coming to terms with froth in the most expensive parts of the growth market, adjusting their valuations lower and simultaneously repricing new growth opportunities higher, including cyclicals, as the global economy recovers. These cyclical industries, such as semiconductors, commodities and basic materials, were boosted by increased coronavirus vaccination across the developed world and the rapid resumption of economic activity.

The good performance of asset classes was driven by the market coming to terms with the growth and value rotations in terms of valuation. Moreover, the market is understanding that the global economy is improving rather than deteriorating, and that the policy stance from global central banks and governments will continue to be supportive. These factors meant that it was generally a good second quarter for equities as well as bonds. The MSCI Emerging Markets Index returned 5.2% while the J.P. Morgan Asia Credit Index (JACI) returned 1.1% on the quarter.

Within China, concerns about certain highly levered Chinese developers led to market repricing of China property developer risk. This is most apparent in more highly levered property developers in China, which came under pressure in June and drove high yield credit spreads around 20 basis points (0.20%) wider in the quarter.

Performance Contributors and Detractors

For the first half of 2021, our holdings in the real estate sector, which consists mainly of Chinese real estate developers, and in the communications sector contributed to performance. On the other hand, detractors over the same period came largely from distress in two holdings within the Indonesian textile industry, PB International (Pan Brothers) and Sri Rjeki Isman Tbk PT. Both companies had trouble refinancing their bank loans as Indonesian banks grew more skeptical of the industry after the default of Duniatex, another textile manufacturer in Indonesia.

During the second quarter, real estate developers and basic industry were top contributors to relative performance. Positioning in the tech sector and lack of exposure to governments/quasi-sovereigns detracted from performance. The top contributors to performance came from convertible bonds, such as Kakao Corp., a South Korean social media and e-commerce platform and NIO Inc., a Chinese electronic vehicle maker. The top detractors came from exposure to Huarong Finance, a Chinese asset manager, and Sri Rejeki Isman Tbk PT, an Indonesian textile manufacturer. We initiated a position in Huarong after the bonds sold off on news of possible losses from non-core overseas investments and the delayed publication of annual results. We believe the bonds were oversold given we deem this to be one

(continued)

 
1

Prospectus expense ratios.

2

Matthews has contractually agreed (i) to waive fees and reimburse expenses to the extent needed to limit Total Annual Fund Operating Expenses (excluding Rule 12b-1 fees, taxes, interest, brokerage commissions, short sale dividend expenses, expenses incurred in connection with any merger or reorganization or extraordinary expenses such as litigation) of the Institutional Class to 0.90% first by waiving class specific expenses (i.e., shareholder service fees specific to a particular class) of the Institutional Class and then, to the extent necessary, by waiving non-class specific expenses (e.g., custody fees) of the Institutional Class, and (ii) if any Fund-wide expenses (i.e., expenses that apply to both the Institutional Class and the Investor Class) are waived for the Institutional Class to maintain the 0.90% expense limitation, to waive an equal amount (in annual percentage terms) of those same expenses for the Investor Class. The Total Annual Fund Operating Expenses After Fee Waiver and Expense Reimbursement for the Investor Class may vary from year to year and will in some years exceed 0.90%. Pursuant to this agreement, any amount waived for prior fiscal years with respect to the Fund is not subject to recoupment. This agreement will remain in place until April 30, 2022 and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

3

Modified duration measures the percent change in value of the fixed income portion of the portfolio in response to a 1% change in interest rates. In a multi-currency denominated portfolio with sensitivities to different interest rate regimes, modified duration will not accurately reflect the change in value of the overall portfolio from a change in any one interest rate regime.

4

The lesser of fiscal year 2020 long-term purchase costs or sales proceeds divided by the average monthly market value of long-term securities.

 

     matthewsasia.com  |  800.789.ASIA      83  

Table of Contents

 

               
PERFORMANCE AS OF JUNE 30, 2021                                                 
 

 

     

 

       

 

       

 

      Average Annual Total Retuns       

 

       

 

  
     3 Months      YTD      1 Year      3 Years      5 Years      Since
Inception		      Inception
Date		  
Investor Class (MCRDX)      0.61%        -2.14%        4.57%        4.09%        4.06%        4.21%        4/29/16  
Institutional Class (MICPX)      0.65%        -2.06%        4.79%        4.35%        4.31%        4.45%        4/29/16  
J.P. Morgan Asia Credit Index5      1.07%        -0.12%        3.85%        6.39%        4.27%        4.55%     

Performance assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund’s fees and expenses had not been waived. For the Fund’s most recent month-end performance, visit matthewsasia.com.

 

 
INCOME DISTRIBUTION HISTORY  

2021

    Jan.      Feb.      Mar.      Apr.      May      June      July      Aug.      Sept.      Oct.      Nov.      Dec.      Total  

Investor (MCRDX)

    $ 0.05      $ 0.03      $ 0.04      $ 0.04      $ 0.03      $ 0.03        n.a.        n.a.        n.a.        n.a.        n.a.        n.a.      $ 0.21  

Inst’l (MICPX)

    $ 0.05      $ 0.03      $ 0.04      $ 0.04      $ 0.03      $ 0.03        n.a.        n.a.        n.a.        n.a.        n.a.        n.a.      $ 0.22  

2020

                                                                                           

Investor (MCRDX)

      n.a.      $ 0.04      $ 0.03      $ 0.04      $ 0.04      $ 0.04      $ 0.04      $ 0.04      $ 0.04      $ 0.03      $ 0.04      $ 0.06      $ 0.44  

Inst’l (MICPX)

      n.a.      $ 0.04      $ 0.03      $ 0.04      $ 0.04      $ 0.04      $ 0.04      $ 0.04      $ 0.04      $ 0.04      $ 0.04      $ 0.06      $ 0.46  

Note: This table does not include capital gains distributions. Totals may differ by $0.02 due to rounding. For income distribution history, visit matthewsasia.com.

 

   

30 DAY YIELD:

 

Investor Class: 1.68% (1.68% excluding waivers)

Institutional Class: 1.85% (1.85% excluding waivers)

 

The 30-Day Yield represents net investment income earned by the Fund over the 30-day period ended 6/30/21, expressed as an annual percentage rate based on the Fund’s share price at the end of the 30-day period. The 30-Day Yield should be regarded as an estimate of the Fund’s rate of investment income, and it may not equal the Fund’s actual income distribution rate.

 

Source: BNY Mellon Investment Servicing (US) Inc.

    

YIELD TO WORST: 11.77%

 

Yield to worst is the lowest yield that can be received on a bond assuming that the issuer does not default. It is calculated by utilizing the worst case assumptions for a bond with respect to certain income-reducing factors, including prepayment, call or sinking fund provisions. It does not represent the yield that an investor should expect to receive. Past yields are no guarantee of future yields.

 

Source: FactSet Research Systems

 

 

GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT SINCE INCEPTION—INVESTOR CLASS

 

LOGO

 

Plotted monthly. The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gains distributions, or redemption of Fund shares. Values are in US$.

 

  5

It is not possible to invest directly in an index. Source: Index data from J.P. Morgan and Bloomberg; total return calculations performed by BNY Mellon Investment Servicing (US) Inc. Please see page 88 for index definition.

 

       
TOP TEN HOLDINGS                     
     Sector      Currency      % of Net Assets  
Network i2i, Ltd., 5.650%, 04/15/2068    Communication Services      U.S. Dollar        5.8%  
Viet Nam Debt & Asset Trading Corp., 1.000%, 10/10/2025    Financials      U.S. Dollar        5.3%  
Sino-Ocean Land Treasure III, Ltd., 4.900%, 03/21/2068    Real Estate      U.S. Dollar        5.1%  
King Talent Management, Ltd., 5.600%, 06/04/2068    Financials      U.S. Dollar        5.0%  
Honghua Group, Ltd., 6.375%, 08/01/2022    Energy      U.S. Dollar        4.9%  
Tata Motors, Ltd., 5.875%, 05/20/2025    Consumer Discretionary      U.S. Dollar        4.7%  
Luye Pharma Group, Ltd., Cnv., 1.500%, 07/09/2024    Health Care      U.S. Dollar        4.4%  
Indika Energy Capital III Pte, Ltd., 5.875%, 11/09/2024    Energy      U.S. Dollar        4.2%  
Times China Holdings, Ltd., 6.200%, 03/22/2026    Real Estate      U.S. Dollar        3.5%  
ABJA Investment Co. Pte, Ltd., 5.450%, 01/24/2028    Materials      U.S. Dollar        3.2%  
% OF ASSETS IN TOP 10                46.1%  

 

84    MATTHEWS ASIA FUNDS     

Table of Contents

Matthews Asia Credit Opportunities Fund

Portfolio Manager Commentary  (unaudited) (continued)

of China’s systematically important financial institutions. In our base case, Huarong may experience some combination of asset sales, government bailout and corporate restructuring such that bondholders will be made whole.

Notable Portfolio Changes

During the second quarter, we added exposures to the Chinese real estate and internet sectors. Within real estate, we added CIFI Holdings, a high-quality developer we previously held. Within Chinese internet, we initiated positions in the convertible bonds of Meituan, a web-based shopping platform company, and Weimob, an e-commerce and marketing solutions company. We believe regulatory risks and competition within the internet space have put price pressure on these names; however, over the long term, we believe their businesses will scale to drive profitability. We also added Huarong Finance for the special situations opportunity as the company works through asset sales or a corporate restructuring.

We exited Indonesia textile manufacturer Sri Rejeki Isman Tbk PT in the quarter. Sri Rejeki Isman had shown reasonable operating results throughout the COVID-crisis. However, the company failed to refinance its bank loans earlier in the year and seemed to signal a lack of willingness, rather than ability, to treat debtholders fairly. As a result, we exited the position. We also exited Thailand’s state-owned commercial bank Krungthai Bank in the quarter as the economic recovery in Thailand seemed continually pushed out with new waves of COIVD resurgence.

Outlook

Looking ahead, with new confirmed COVID cases subsiding in major economies such as U.S. and Europe, we believe the U.S. and global economies will be on better footing in the next 12 months. We will continue to monitor the effectiveness of vaccines against new variants of the coronavirus. Due to the difference in administrative organizational capabilities of different countries, we still expect to see greater dispersion going forward. The likelihood and timing of the Fed “tapering” continues to be a point of focus, though we do not expect the Fed to move rapidly into a hawkish taper.

Within this global context, China has always marched to the beat of its own drum. China was the first to control COVID, and thus required the least policy easing to support its economy. Having seen its economy rebounding, China policymakers are no longer in crisis-fighting mode and are looking more to normalize their policies compared to policymakers in the rest of the world. We see anti-trust, consumer protection and privacy legislations curbing the powers of big internet platforms. More industries could be implicated including the real estate sector, which has already seen financial leverage curbs and price controls since 2018, and the financial sector, as it grapples with possible bad debts stemming from the COVID-crisis and the previous shadow-banking excesses. Another key uncertainty is U.S.—China relations. Diplomatic tensions over various human rights issues, for instance, continue to ratchet up, with the risk of the U.S. government expanding prohibitions against U.S. commercial and financial dealings with Chinese companies and industries. While we are more cautious regarding China, we see changes in macro and industrial trends presenting opportunities for us as active investors.

 
CURRENCY ALLOCATION (%)6,7  
US Dollar     100.0  

 

 
COUNTRY ALLOCATION (%)6,7,8  
China/Hong Kong     52.0  
India     16.6  
Indonesia     9.7  
Vietnam     6.6  
Thailand     2.9  
Australia     2.2  
Malaysia     2.0  
South Korea     0.9  
Philippines     0.8  
New Zealand     0.8  
Cash and Other Assets, Less Liabilities     5.5  

 

 
SECTOR ALLOCATION (%)6,7  
Real Estate     27.4  
Financials     21.7  
Energy     11.2  
Consumer Discretionary     9.5  
Health Care     7.6  
Communication Services     7.2  
Materials     6.2  
Information Technology     1.6  
Foreign Government Bonds     1.3  
Industrials     0.8  
Cash and Other Assets, Less Liabilities     5.5  

 

 
ASSET TYPE BREAKDOWN (%)6,7  
Non-Convertible Corporate Bonds     72.2  
Convertible Corporate Bonds     15.6  
Government Bonds     6.6  
Cash and Other Assets, Less Liabilities     5.5  

 

6

Source: FactSet Research Systems. Percentage values in data are rounded to the nearest tenth of one percent, so the values may not sum to 100% due to rounding. Country allocations and percentage values may be derived from different data sources and may not be consistent with other Fund literature.

 

7

Cash and other assets may include forward currency exchange contracts and certain derivative instruments that have been marked-to-market.

 

8

Not all countries where the Fund may invest are included in the benchmark index.

 

 

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Table of Contents

Matthews Asia Credit Opportunities Fund

June 30, 2021

Schedule of Investmentsa (unaudited)

NON-CONVERTIBLE CORPORATE BONDS: 72.2%

 

     Face Amount*     Value  
CHINA/HONG KONG: 40.1%

 

Sino-Ocean Land Treasure III, Ltd.
4.900%b, 09/21/22c,d

     5,600,000       $4,927,997  

King Talent Management, Ltd.
5.600%b, 12/04/22c,d

     5,300,000       4,772,703  

Honghua Group, Ltd.
6.375%, 08/01/22d

     4,800,000       4,679,946  

Times China Holdings, Ltd.
6.200%, 03/22/26d

     3,400,000       3,332,978  

China SCE Group Holdings, Ltd.
7.000%, 05/02/25d

     2,700,000       2,734,551  

KWG Group Holdings, Ltd.
7.400%, 01/13/27d

     2,700,000       2,697,710  

Wanda Group Overseas, Ltd.
7.500%, 07/24/22d

     2,500,000       2,399,969  

Wanda Properties International Co., Ltd.
7.250%, 01/29/24d

     2,400,000       2,391,130  

CIFI Holdings Group Co., Ltd.
4.800%, 05/17/28d

     2,400,000       2,349,000  

Powerlong Real Estate Holdings, Ltd.
4.900%, 05/13/26d

     2,400,000       2,343,000  

Franshion Brilliant Ltd.
6.000%b, 02/08/26c,d

     1,700,000       1,704,250  

Huarong Finance 2017 Co., Ltd.
4.000%b, 11/07/22c,d

     1,600,000       992,000  

Huarong Finance 2019 Co., Ltd. 4.250%b, 09/30/25c,d

     1,900,000       950,000  

FWD Group, Ltd.
0.000%b, 06/15/22c,d

     1,000,000       939,983  

FWD Group, Ltd.
6.375%b, 09/13/24c,d

     900,000       923,860  

Huarong Finance 2017 Co., Ltd.
4.500%b, 01/24/22c,d

     700,000       472,500  
   

 

 

  

Total China/Hong Kong

       38,611,577  
   

 

 

  
   
 
INDIA: 16.6%

 

Tata Motors, Ltd.
5.875%, 05/20/25d

     4,200,000       4,493,328  

Network i2i, Ltd.
5.650%b, 01/15/25c,e

     3,000,000       3,213,750  

ABJA Investment Co. Pte, Ltd.
5.450%, 01/24/28d

     2,900,000       3,115,034  

Periama Holdings LLC
5.950%, 04/19/26d

     2,600,000       2,815,540  

Network i2i, Ltd.
5.650%b, 01/15/25c,d

     2,200,000       2,356,750  
   

 

 

  

Total India

       15,994,402  
   

 

 

  
   
 
INDONESIA: 9.7%

 

Indika Energy Capital III Pte, Ltd.
5.875%, 11/09/24d

     4,000,000       4,046,000  

PT Adaro Indonesia
4.250%, 10/31/24d

     2,000,000       2,061,000  

PB International BV
7.625%, 01/26/22d

     5,300,000       1,722,489  

Theta Capital Pte, Ltd.
6.750%, 10/31/26d

     1,500,000       1,475,849  
   

 

 

  

Total Indonesia

       9,305,338  
   

 

 

  
   
 
THAILAND: 2.8%

 

Kasikornbank Public Co., Ltd.
5.275%b, 10/14/25c,d

     2,600,000       2,750,800  
   

 

 

  

Total Thailand

       2,750,800  
   

 

 

  
   
     Face Amount*     Value  
AUSTRALIA: 2.2%

 

Australia & New Zealand Banking Group, Ltd.
6.750%b, 06/15/26c,d

     1,800,000       $2,116,134  
   

 

 

  

Total Australia

       2,116,134  
   

 

 

  
   
 
PHILIPPINES: 0.8%

 

Royal Capital BV
4.875%b, 05/05/24c,d

     782,000       814,453  
   

 

 

  

Total Philippines

       814,453  
   

 

 

  
   
   
TOTAL NON-CONVERTIBLE CORPORATE BONDS

 

     69,592,704  
   

 

 

  

(Cost $72,891,182)

    
   

CONVERTIBLE CORPORATE BONDS: 15.6%

 

 
CHINA/HONG KONG: 11.9%

 

Luye Pharma Group, Ltd., Cnv.
1.500%, 07/09/24d

     4,100,000       4,256,579  

Pharmaron Beijing Co., Ltd., Cnv.
0.000%, 06/18/26d

     1,400,000       1,555,400  

Hansoh Pharmaceutical Group Co., Ltd., Cnv.
0.000%, 01/22/26d

     1,600,000       1,503,200  

NIO, Inc., Cnv.
0.500%, 02/01/27e

     1,100,000       1,032,900  

Baozun, Inc., Cnv.
1.625%, 05/01/24

     900,000       907,312  

Weimob Investment, Ltd., Cnv.
0.000%, 06/07/26d

     700,000       749,434  

iQIYI, Inc., Cnv.
2.000%, 04/01/25

     600,000       559,024  

Meituan, Cnv.
0.000%, 04/27/28d

     500,000       543,250  

Pinduoduo, Inc., Cnv.
0.000%, 12/01/25

     400,000       410,800  
   

 

 

  

Total China/Hong Kong

       11,517,899  
   

 

 

  
   
 
MALAYSIA: 2.0%

 

Cerah Capital, Ltd., Cnv.
0.000%, 08/08/24d

     1,900,000       1,888,600  
   

 

 

  

Total Malaysia

       1,888,600  
   

 

 

  
   
 
SOUTH KOREA: 0.9%

 

Kakao Corp., Cnv.
0.000%, 04/28/23d

     500,000       855,350  
   

 

 

  

Total South Korea

       855,350  
   

 

 

  
   
 
NEW ZEALAND: 0.8%

 

Xero Investments, Ltd., Cnv.
0.000%, 12/02/25d

     800,000       795,200  
   

 

 

  

Total New Zealand

       795,200  
   

 

 

  
   
   
TOTAL CONVERTIBLE CORPORATE BONDS

 

     15,057,049  
   

 

 

  

(Cost $14,661,286)

    
   
 

 

86    MATTHEWS ASIA FUNDS     

Table of Contents

Matthews Asia Credit Opportunities Fund

June 30, 2021

Schedule of Investmentsa (unaudited) (continued)

FOREIGN GOVERNMENT OBLIGATIONS: 6.7%

 

     Face Amount*     Value  
VIETNAM: 6.7%

 

Viet Nam Debt & Asset Trading Corp. 1.000%, 10/10/25d

     5,689,000       $5,091,655  

Socialist Republic of Vietnam
5.500%, 03/12/28

     1,290,000       1,296,450  
   

 

 

  

Total Vietnam

       6,388,105  
   

 

 

  
   
   
TOTAL FOREIGN GOVERNMENT OBLIGATIONS

 

     6,388,105  
   

 

 

  

(Cost $5,978,783)

    
   
   
TOTAL INVESTMENTS: 94.5%

 

     91,037,858  

(Cost $93,531,251)

    
   
CASH AND OTHER ASSETS,
LESS LIABILITIES: 5.5%

 

     5,328,688  
   

 

 

  

NET ASSETS: 100.0%

 

     $96,366,546  
   

 

 

  

 

a

Certain securities were fair valued under the valuation policies approved by the Board of Trustees (Note 2-A).

 

b

Security is a fix-to-float security, which carries a fixed coupon until a certain date, upon which it switches to a floating rate. Reference rate and spread are provided if the rate is currently floating.

 

c

Perpetual security with no stated maturity date. First call date is disclosed.

 

d

The securities may be resold to qualified foreign investors and foreign institutional buyers under Regulation S of the Securities Act of 1933.

 

e

Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. The security may be resold in transactions exempt from registration normally to qualified institutional buyers. The security has been determined to be liquid in accordance with procedures adopted by the Funds’ Board of Trustees. At June 30, 2021, the aggregate value is $4,246,650, which is 4.41% of net assets.

*

All Values in USD unless otherwise specified.

 

Cnv.

Convertible

 

USD

U.S. Dollar

See accompanying notes to financial statements.

 

 

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Table of Contents

Index Definitions

 

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, Kuwait, 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 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, Hungary, 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 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 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 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 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 ex-exchanges, and 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 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, and 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 S&P Bombay Stock Exchange (BSE) 100 Index is a free float–adjusted market capitalization-weighted index of the 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 Korea Composite Stock Price Index (KOSPI) is a market capitalization–weighted index of all common stocks listed on the Korea Stock Exchange.

The Markit iBoxx Asian Local Bond Index (ALBI) tracks the total return performance of a bond portfolio consisting of local currency denominated, high quality and liquid bonds in Asia ex Japan. The ALBI includes bonds from the following countries: China, Hong Kong, India, Indonesia, Hong Kong, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand.

The J.P. Morgan Asia Credit Index (JACI) tracks the total return performance of the Asia fixed-rate dollar bond market. JACI is a market capitalization-weighted index comprising sovereign, quasi-sovereign and corporate bonds and is partitioned by country, sector and credit rating. JACI includes bonds from the following countries: China, Hong Kong, India, Indonesia, Malaysia, Philippines, Singapore, South Korea and Thailand.

 

 

88    MATTHEWS ASIA FUNDS     

Table of Contents

Disclosures

 

Fund Holdings: The Fund holdings shown in this report are as of June 30, 2021. Holdings are subject to change at any time, so holdings shown in this report may not reflect current Fund holdings. The Funds file complete schedules of portfolio holdings with the Securities and Exchange Commission (the “SEC”) for the first and third quarters of each fiscal year on Form N-PORT. The Funds’ Form N-PORTs are available on the SEC’s website at www.sec.gov. Complete schedules of investments are also available without charge, upon request, from the Funds by calling us at 800.789.ASIA (2742).

Proxy Voting Record: The Funds’ Statement of Additional Information containing a description of the policies and procedures that the Funds have used to vote proxies relating to portfolio securities, along with each Fund’s proxy voting record relating

to portfolio securities held during the most recent 12-month period ended June 30, is available upon request, at no charge, at the Funds’ website at matthewsasia.com or by calling 800.789.ASIA (2742), or on the SEC’s website at www.sec.gov.

Shareholder Reports and Prospectuses: To reduce the Funds’ expenses, we try to identify related shareholders in a household and send only one copy of the Funds’ prospectus and financial reports to that address. This process, called “householding,” will continue indefinitely unless you instruct us otherwise. At any time you may view the Funds’ current prospectus, summary prospectus and financial reports on our website. If you prefer to receive individual copies of the Funds’ prospectus or financial reports, please call us at 800.789.ASIA (2742).

 

 

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Table of Contents

Disclosure of Fund Expenses (unaudited)

We believe it is important for you to understand the impact of fees regarding your investment. All mutual funds have operating expenses. As a shareholder of a mutual fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a fund’s gross income, directly reduce the investment return of the fund. A fund’s operating expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing fees (in dollars) of investing in your fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.

This table illustrates your fund’s costs in two ways:

Actual Fund Return: This section helps you to estimate the actual operating expenses, after any applicable fee waivers, that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return for the past six month period, the “Expense Ratio” column shows the period’s annualized expense ratio, and the “Operating Expenses Paid During Period” column shows the dollar amount that would have been paid by an investor who started with $1,000 in the fund at the beginning of the period. You may use the information here, together with your account value, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your fund in the first line under the heading entitled “Operating Expenses Paid During Period.”

Hypothetical 5% Return: This section is intended to help you compare your fund’s costs with those of other mutual funds. It assumes that the fund had an annual return of 5% before operating expenses, but that the expense ratio is unchanged. In this case, because the return used is not the fund’s actual return, the results do not apply to your investment. This example is useful in making comparisons to other mutual funds because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on an assumed 5% annual return. You can assess your fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.

Please note that the operating expenses shown in the table are meant to highlight and help you compare your ongoing costs only and do not reflect any transactional costs such as sales charges (loads), redemption fees, or exchange fees.

Matthews Asia Funds does not charge any sales loads, exchange fees, or 12b-1 fees, but these may be present in other funds to which you compare this data. Therefore, the hypothetical portions of the table are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.

 

90    MATTHEWS ASIA FUNDS     

Table of Contents

June 30, 2021

Disclosure of Fund Expenses (unaudited) (continued)

 

    INVESTOR           INSTITUTIONAL  
    

Beginning
Account

Value
1/1/21

     

Ending
Account

Value
6/30/21

      Expense
Ratio1		      Operating
Expenses
Paid During
Period
1/1/21–
6/30/212		            Beginning
Account
Value
1/1/21		      Ending
Account
Value
6/30/21		      Expense
Ratio1		      Operating
Expenses
Paid During
Period
1/1/21–
6/30/212		  
GLOBAL EMERGING MARKETS STRATEGIES                                                                              

Matthews Emerging Markets Equity Fund

                        

Actual Fund Return

     $1,000.00        $1,093.30        1.03%        $5.35         $1,000.00        $1,093.20        0.90%        $4.67  

Hypothetical 5% Returns

     $1,000.00        $1,019.69        1.03%        $5.16               $1,000.00        $1,020.33        0.90%        $4.51  

Matthews Emerging Markets Small Companies Fund3

 

                      

Actual Fund Return

     $1,000.00        $1,184.70        1.36%        $7.37         $1,000.00        $1,185.90        1.20%        $6.50  

Hypothetical 5% Returns

     $1,000.00        $1,018.05        1.36%        $6.80               $1,000.00        $1,018.84        1.20%        $6.01  
ASIA GROWTH STRATEGIES                                                                              

Matthews Asia Growth Fund

                        

Actual Fund Return

     $1,000.00        $1,058.60        1.04%        $5.31         $1,000.00        $1,059.00        0.90%        $4.59  

Hypothetical 5% Returns

     $1,000.00        $1,019.64        1.04%        $5.21               $1,000.00        $1,020.33        0.90%        $4.51  

Matthews Pacific Tiger Fund

                        

Actual Fund Return

     $1,000.00        $1,055.80        1.02%        $5.20         $1,000.00        $1,056.40        0.88%        $4.49  

Hypothetical 5% Returns

     $1,000.00        $1,019.74        1.02%        $5.11               $1,000.00        $1,020.43        0.88%        $4.41  

Matthews Asia ESG Fund

                        

Actual Fund Return

     $1,000.00        $1,144.60        1.36%        $7.23         $1,000.00        $1,145.40        1.20%        $6.38  

Hypothetical 5% Returns

     $1,000.00        $1,018.05        1.36%        $6.80               $1,000.00        $1,018.84        1.20%        $6.01  

Matthews Asia Innovators Fund

                        

Actual Fund Return

     $1,000.00        $1,050.20        1.05%        $5.34         $1,000.00        $1,050.90        0.90%        $4.58  

Hypothetical 5% Returns

     $1,000.00        $1,019.59        1.05%        $5.26               $1,000.00        $1,020.33        0.90%        $4.51  

Matthews China Fund

                        

Actual Fund Return

     $1,000.00        $1,070.00        1.04%        $5.34         $1,000.00        $1,071.30        0.89%        $4.57  

Hypothetical 5% Returns

     $1,000.00        $1,019.64        1.04%        $5.21               $1,000.00        $1,020.38        0.89%        $4.46  

Matthews China Small Companies Fund

                        

Actual Fund Return

     $1,000.00        $1,127.90        1.41%        $7.44         $1,000.00        $1,129.10        1.20%        $6.33  

Hypothetical 5% Returns

     $1,000.00        $1,017.80        1.41%        $7.05               $1,000.00        $1,018.84        1.20%        $6.01  

Matthews India Fund

                        

Actual Fund Return

     $1,000.00        $1,110.30        1.11%        $5.81         $1,000.00        $1,110.70        0.98%        $5.13  

Hypothetical 5% Returns

     $1,000.00        $1,019.29        1.11%        $5.56               $1,000.00        $1,019.93        0.98%        $4.91  

Matthews Japan Fund

                        

Actual Fund Return

     $1,000.00        $943.00        0.95%        $4.58         $1,000.00        $943.50        0.88%        $4.24  

Hypothetical 5% Returns

     $1,000.00        $1,020.08        0.95%        $4.76               $1,000.00        $1,020.43        0.88%        $4.41  

Matthews Korea Fund

                        

Actual Fund Return

     $1,000.00        $1,120.90        1.10%        $5.78         $1,000.00        $1,121.60        0.99%        $5.21  

Hypothetical 5% Returns

     $1,000.00        $1,019.34        1.10%        $5.51               $1,000.00        $1,019.89        0.99%        $4.96  
ASIA GROWTH AND INCOME STRATEGIES                                                                              

Matthews Asian Growth and Income Fund

                        

Actual Fund Return

     $1,000.00        $1,042.90        1.06%        $5.37         $1,000.00        $1,043.70        0.94%        $4.76  

Hypothetical 5% Returns

     $1,000.00        $1,019.54        1.06%        $5.31               $1,000.00        $1,020.13        0.94%        $4.71  

Matthews Asia Dividend Fund

                        

Actual Fund Return

     $1,000.00        $1,025.50        0.99%        $4.97         $1,000.00        $1,026.60        0.89%        $4.47  

Hypothetical 5% Returns

     $1,000.00        $1,019.89        0.99%        $4.96               $1,000.00        $1,020.38        0.89%        $4.46  

Matthews China Dividend Fund

                        

Actual Fund Return

     $1,000.00        $1,121.10        1.09%        $5.73         $1,000.00        $1,121.40        0.96%        $5.05  

Hypothetical 5% Returns

     $1,000.00        $1,019.39        1.09%        $5.46               $1,000.00        $1,020.03        0.96%        $4.81  

 

1

Annualized, based on the Fund’s most recent fiscal half-year expenses.

2

Operating expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by 181 days, then divided by 365.

3

The Matthews Asia Small Companies Fund has been renamed to Matthews Emerging Markets Small Companies Fund on April 30, 2021.

 

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Table of Contents

June 30, 2021

Disclosure of Fund Expenses (unaudited) (continued)

 

    INVESTOR           INSTITUTIONAL  
    

Beginning
Account

Value
1/1/21

     

Ending
Account

Value
6/30/21

      Expense
Ratio1		      Operating
Expenses
Paid During
Period
1/1/21–
6/30/212		            Beginning
Account
Value
1/1/21		      Ending
Account
Value
6/30/21		      Expense
Ratio1		      Operating
Expenses
Paid During
Period
1/1/21–
6/30/212		  
ASIA FIXED INCOME STRATEGIES                                                                              

Matthews Asia Total Return Bond Fund

                        

Actual Fund Return

     $1,000.00        $983.70        1.03%        $5.07         $1,000.00        $984.40        0.87%        $4.28  

Hypothetical 5% Returns

     $1,000.00        $1,019.69        1.03%        $5.16               $1,000.00        $1,020.48        0.87%        $4.36  

Matthews Asia Credit Opportunities Fund

                        

Actual Fund Return

     $1,000.00        $978.60        1.07%        $5.25         $1,000.00        $979.40        0.90%        $4.42  

Hypothetical 5% Returns

     $1,000.00        $1,019.49        1.07%        $5.36               $1,000.00        $1,020.33        0.90%        $4.51  

 

1

Annualized, based on the Fund’s most recent fiscal half-year expenses.

2

Operating expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by 181 days, then divided by 365.

 

92    MATTHEWS ASIA FUNDS     

Table of Contents
Statements of Assets and Liabilities (unaudited)    June 30, 2021

 

        Matthews Emerging
Markets Equity Fund		       

Matthews
Emerging Markets
Small Companies
Fund

       

Matthews Asia
Growth Fund

  

ASSETS:

               

Investments at value (A) (Note 2-A and 7):

               

Unaffiliated issuers

        $58,874,387          $386,467,525          $2,327,795,915  

Cash

        1,159,847          1,571,522          107,588,937  

Segregated foreign currency at value

        838          10,754          —  

Foreign currency at value (B)

        100,483          1,379,911          1,126,264  

Dividends, interest and other receivable

        65,267          126,241          907,347  

Receivable for securities sold

        —          984,371          —  

Receivable for capital shares sold

        69,978          353,577          2,080,380  

Prepaid expenses

        2,163          —          64,581  

TOTAL ASSETS

        60,272,963          390,893,901          2,439,563,424  

LIABILITIES:

               

Payable for securities purchased

        478,626          1,454,957          14,058,484  

Payable for capital shares redeemed

        103,599          349,884          1,004,213  

Deferred foreign capital gains tax liability (Note 2-F)

        68,212          3,551,278          4,099,283  

Due to Advisor (Note 5)

        13,474          282,863          1,272,769  

Administration and accounting fees payable (Note 5)

        766          4,749          30,488  

Administration and shareholder servicing fees payable (Note 5)

        6,436          40,659          256,729  

Custodian fees payable

        31,309          73,026          98,400  

Foreign capital gains tax payable (Note 2-F)

        —          593,782          —  

Intermediary service fees payable (Note 5)

        —          48,108          231,033  

Professional fees payable

        7,905          9,024          26,730  

Transfer agent fees payable

        136          2,295          5,527  

Accrued other expenses payable

        9,936          54,614          79,254  

TOTAL LIABILITIES

        720,399          6,465,239          21,162,910  

NET ASSETS

        $59,552,564          $384,428,662          $2,418,400,514  

NET ASSETS:

               

Investor Class

        $16,326,992          $171,957,476          $812,034,469  

Institutional Class

        43,225,572          212,471,186          1,606,366,045  

TOTAL

        $59,552,564          $384,428,662          $2,418,400,514  

 

See accompanying notes to financial statements.

 

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Table of Contents
Statements of Assets and Liabilities (unaudited) (continued)   June 30, 2021

 

        Matthews Emerging
Markets Equity Fund		       

Matthews

Emerging Markets

Small Companies
Fund

       

Matthews Asia

Growth Fund

  

SHARES OUTSTANDING:

               

(shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value)

               

Investor Class

        947,786          5,597,679          19,450,932  

Institutional Class

        2,507,173          6,926,352          38,090,197  

TOTAL

        3,454,959          12,524,031          57,541,129  

NET ASSET VALUE:

               

Investor Class, offering price and redemption price

        $17.23          $30.72          $41.75  

Institutional Class, offering price and redemption price

        $17.24          $30.68          $42.17  

NET ASSETS CONSISTS OF:

               

Capital paid-in

        $47,325,636          $256,944,944          $1,483,279,657  

Total distributable earnings/(accumulated loss)

        12,226,928          127,483,718          935,120,857  

NET ASSETS

        $59,552,564          $384,428,662          $2,418,400,514  

(A) Investments at cost:

               

Unaffiliated Issuers

        $49,530,308          $269,482,446          $1,436,050,435  

(B) Foreign Currency at Cost

        $101,130          $1,378,626          $1,131,268  

 

See accompanying notes to financial statements.

 

94    MATTHEWS ASIA FUNDS     

Table of Contents
Statements of Assets and Liabilities (unaudited) (continued)   June 30, 2021

 

       

Matthews Pacific

Tiger Fund

       

Matthews Asia

ESG Fund

        Matthews Asia
Innovators Fund		  

ASSETS:

               

Investments at value (A) (Note 2-A and 7):

               

Unaffiliated issuers

        $9,407,172,549          $113,795,262          $2,091,889,107  

Cash

        297,017,030          —          60,738,577  

Segregated foreign currency at value

        209,551          3,389          1,712  

Foreign currency at value (B)

        35,557,124          432,715          6,230,805  

Dividends, interest and other receivable

        20,975,091          142,031          839,466  

Receivable for securities sold

        16,916,029          452,032          63,245,340  

Receivable for capital shares sold

        27,003,505          324,804          1,776,398  

Prepaid expenses

        85,770          26,379          90,886  

TOTAL ASSETS

        9,804,936,649          115,176,612          2,224,812,291  

LIABILITIES:

               

Cash overdraft

        —          650,002          —  

Payable for securities purchased

        18,466,889          381,643          27,126,488  

Payable for capital shares redeemed

        13,979,922          512,431          2,544,681  

Deferred foreign capital gains tax liability (Note 2-F)

        32,485,985          918,204          6,375,540  

Due to Advisor (Note 5)

        5,139,942          75,869          1,161,864  

Administration and accounting fees payable (Note 5)

        126,856          1,430          27,919  

Administration and shareholder servicing fees payable (Note 5)

        954,643          12,112          234,359  

Custodian fees payable

        581,156          24,820          67,437  

Intermediary service fees payable (Note 5)

        1,212,409          7,382          164,617  

Professional fees payable

        104,031          23,704          31,019  

Transfer agent fees payable

        14,374          218          3,143  

Accrued other expenses payable

        461,772          21,992          28,736  

TOTAL LIABILITIES

        73,527,979          2,629,807          37,765,803  

NET ASSETS

        $9,731,408,670          $112,546,805          $2,187,046,488  

NET ASSETS:

               

Investor Class

        $2,662,537,166          $47,897,119          $732,975,980  

Institutional Class

        7,068,871,504          64,649,686          1,454,070,508  

TOTAL

        $9,731,408,670          $112,546,805          $2,187,046,488  

 

See accompanying notes to financial statements.

 

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Table of Contents
Statements of Assets and Liabilities (unaudited) (continued)   June 30, 2021

 

       

Matthews Pacific
Tiger Fund

       

Matthews Asia
ESG Fund

        Matthews Asia
Innovators Fund		  

SHARES OUTSTANDING:

               

(shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value)

               

Investor Class

        72,183,245          2,800,641          26,145,464  

Institutional Class

        191,734,574          3,782,035          51,424,183  

TOTAL

        263,917,819          6,582,676          77,569,647  

NET ASSET VALUE:

               

Investor Class, offering price and redemption price

        $36.89          $17.10          $28.03  

Institutional Class, offering price and redemption price

        $36.87          $17.09          $28.28  

NET ASSETS CONSISTS OF:

               

Capital paid-in

        $5,163,524,487          $75,946,211          $1,452,642,913  

Total distributable earnings/(accumulated loss)

        4,567,884,183          36,600,594          734,403,575  

NET ASSETS

        $9,731,408,670          $112,546,805          $2,187,046,488  

(A) Investments at cost:

               

Unaffiliated Issuers

        $6,168,575,472          $80,795,472          $1,699,940,884  

(B) Foreign Currency at Cost

        $35,240,010          $432,730          $6,231,561  

 

See accompanying notes to financial statements.

 

96    MATTHEWS ASIA FUNDS     

Table of Contents
Statements of Assets and Liabilities (unaudited) (continued)   June 30, 2021

 

       

Matthews

China Fund

        Matthews
China Small
Companies Fund		       

Matthews

India Fund

  

ASSETS:

               

Investments at value (A) (Note 2-A and 7):

               

Unaffiliated issuers

        $1,781,071,424          $491,108,800          $775,394,156  

Cash

        30,301,167          4,051,955          4,934,976  

Segregated foreign currency at value

        29,055          19,881          —  

Foreign currency at value (B)

        270,153          379,499          5,457,070  

Dividends, interest and other receivable

        7,365,067          2,492,875          896,251  

Receivable for securities sold

        —          643,032          1,015,589  

Receivable for capital shares sold

        1,613,478          2,387,991          633,337  

Prepaid expenses

        43,431          58,204          15,744  

TOTAL ASSETS

        1,820,693,775          501,142,237          788,347,123  

LIABILITIES:

               

Payable for securities purchased

        —          —          1,856,196  

Payable for capital shares redeemed

        3,076,399          622,613          1,203,374  

Deferred foreign capital gains tax liability (Note 2-F)

        —          —          29,437,648  

Due to Advisor (Note 5)

        968,283          361,801          409,514  

Administration and accounting fees payable (Note 5)

        23,481          6,214          9,831  

Administration and shareholder servicing fees payable (Note 5)

        195,312          51,781          82,604  

Custodian fees payable

        65,954          40,689          118,177  

Intermediary service fees payable (Note 5)

        283,171          123,508          172,036  

Professional fees payable

        29,013          24,915          63,295  

Transfer agent fees payable

        11,316          2,658          10,696  

Accrued other expenses payable

        271,871          34,385          136,229  

TOTAL LIABILITIES

        4,924,800          1,268,564          33,499,600  

NET ASSETS

        $1,815,768,975          $499,873,673          $754,847,523  

NET ASSETS:

               

Investor Class

        $999,977,017          $347,757,923          $632,491,170  

Institutional Class

        815,791,958          152,115,750          122,356,353  

TOTAL

        $1,815,768,975          $499,873,673          $754,847,523  

 

See accompanying notes to financial statements.

 

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Table of Contents
Statements of Assets and Liabilities (unaudited) (continued)   June 30, 2021

 

       

Matthews

China Fund

        Matthews
China Small
Companies Fund		       

Matthews

India Fund

  

SHARES OUTSTANDING:

               

(shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value)

               

Investor Class

        34,612,970          15,526,571          21,671,728  

Institutional Class

        28,271,526          6,770,449          4,133,646  

TOTAL

        62,884,496          22,297,020          25,805,374  

NET ASSET VALUE:

               

Investor Class, offering price and redemption price

        $28.89          $22.40          $29.19  

Institutional Class, offering price and redemption price

        $28.86          $22.47          $29.60  

NET ASSETS CONSISTS OF:

               

Capital paid-in

        $1,232,763,324          $361,334,771          $535,832,317  

Total distributable earnings/(accumulated loss)

        583,005,651          138,538,902          219,015,206  

NET ASSETS

        $1,815,768,975          $499,873,673          $754,847,523  

(A) Investments at cost:

               

Unaffiliated Issuers

        $1,391,223,002          $415,357,839          $534,005,021  

(B) Foreign Currency at Cost

        $270,392          $379,525          $5,464,217  

 

See accompanying notes to financial statements.

 

98    MATTHEWS ASIA FUNDS     

Table of Contents
Statements of Assets and Liabilities (unaudited) (continued)   June 30, 2021

 

       

Matthews
Japan Fund

       

Matthews
Korea Fund

  

ASSETS:

          

Investments at value (A) (Note 2-A and 7):

          

Unaffiliated issuers

        $1,606,111,983          $152,116,520  

Cash

        64,947,100          8,638,920  

Foreign currency at value (B)

        3,293,100          —  

Dividends, interest and other receivable

        2,580,368          278,730  

Receivable for securities sold

        7,288          —  

Receivable for capital shares sold

        2,642,667          45,299  

Prepaid expenses

        32,729          23,681  

TOTAL ASSETS

        1,679,615,235          161,103,150  

LIABILITIES:

          

Payable for securities purchased

        11,507,816          —  

Payable for capital shares redeemed

        4,367,066          86,293  

Due to Advisor (Note 5)

        914,283          86,273  

Administration and accounting fees payable (Note 5)

        22,305          2,086  

Administration and shareholder servicing fees payable (Note 5)

        184,424          17,402  

Custodian fees payable

        25,653          6,922  

Intermediary service fees payable (Note 5)

        192,035          28,976  

Professional fees payable

        31,629          20,353  

Transfer agent fees payable

        18,046          3,153  

Accrued other expenses payable

        205,205          22,633  

TOTAL LIABILITIES

        17,468,462          274,091  

NET ASSETS

        $1,662,146,773          $160,829,059  

NET ASSETS:

          

Investor Class

        $398,997,761          $143,054,973  

Institutional Class

        1,263,149,012          17,774,086  

TOTAL

        $1,662,146,773          $160,829,059  

 

See accompanying notes to financial statements.

 

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Table of Contents
Statements of Assets and Liabilities (unaudited) (continued)   June 30, 2021

 

       

Matthews

Japan Fund

       

Matthews

Korea Fund

  

SHARES OUTSTANDING:

          

(shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value)

          

Investor Class

        16,743,742          20,842,893  

Institutional Class

        52,881,330          2,567,244  

TOTAL

        69,625,072          23,410,137  

NET ASSET VALUE:

          

Investor Class, offering price and redemption price

        $23.83          $6.86  

Institutional Class, offering price and redemption price

        $23.89          $6.92  

NET ASSETS CONSISTS OF:

          

Capital paid-in

        $1,229,895,689          $91,097,135  

Total distributable earnings/(accumulated loss)

        432,251,084          69,731,924  

NET ASSETS

        $1,662,146,773          $160,829,059  

(A) Investments at cost:

          

Unaffiliated Issuers

        $1,344,882,927          $89,701,868  

(B) Foreign Currency at Cost

        $3,310,563          $—  

 

See accompanying notes to financial statements.

 

100    MATTHEWS ASIA FUNDS     

Table of Contents
Statements of Assets and Liabilities (unaudited) (continued)   June 30, 2021

 

       

Matthews Asian

Growth and

Income Fund

       

Matthews Asia

Dividend Fund

        Matthews China
Dividend Fund		  

ASSETS:

               

Investments at value (A) (Note 2-A and 7):

               

Unaffiliated issuers

        $1,443,773,572          $4,728,452,864          $433,489,833  

Affiliated issuers

        —          829,475,952          —  

Cash

        24,474,425          125,819,264          15,055,282  

Segregated foreign currency at value

        —          2,039          12,298  

Foreign currency at value (B)

        —          25,382,551          1,417,894  

Dividends, interest and other receivable

        5,807,052          8,363,498          4,847,646  

Receivable for securities sold

        —          51,005,642          332,228  

Receivable for capital shares sold

        2,384,485          6,058,707          624,840  

Prepaid expenses

        38,357          50,956          915  

TOTAL ASSETS

        1,476,477,891          5,774,611,473          455,780,936  

LIABILITIES:

               

Payable for securities purchased

        —          48,144,244          84  

Payable for capital shares redeemed

        963,026          5,035,825          1,249,488  

Deferred foreign capital gains tax liability (Note 2-F)

        1,046,647          1,233,153          —  

Due to Advisor (Note 5)

        817,846          3,076,930          240,895  

Administration and accounting fees payable (Note 5)

        20,055          75,239          5,803  

Administration and shareholder servicing fees payable (Note 5)

        164,972          600,658          48,591  

Custodian fees payable

        88,637          180,251          33,839  

Intermediary service fees payable (Note 5)

        275,473          726,884          85,601  

Professional fees payable

        32,988          65,596          25,824  

Transfer agent fees payable

        7,644          10,869          2,054  

Accrued other expenses payable

        146,468          403,236          70,863  

TOTAL LIABILITIES

        3,563,756          59,552,885          1,763,042  

NET ASSETS

        $1,472,914,135          $5,715,058,588          $454,017,894  

NET ASSETS:

               

Investor Class

        $646,673,811          $1,920,283,081          $275,248,225  

Institutional Class

        826,240,324          3,794,775,507          178,769,669  

TOTAL

        $1,472,914,135          $5,715,058,588          $454,017,894  

 

See accompanying notes to financial statements.

 

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Table of Contents
Statements of Assets and Liabilities (unaudited) (continued)   June 30, 2021

 

       

Matthews Asian

Growth and

Income Fund

       

Matthews Asia

Dividend Fund

        Matthews China
Dividend Fund		  

SHARES OUTSTANDING:

               

(shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value)

               

Investor Class

        34,572,315          83,200,968          12,721,163  

Institutional Class

        44,254,727          164,453,661          8,263,109  

TOTAL

        78,827,042          247,654,629          20,984,272  

NET ASSET VALUE:

               

Investor Class, offering price and redemption price

        $18.70          $23.08          $21.64  

Institutional Class, offering price and redemption price

        $18.67          $23.08          $21.63  

NET ASSETS CONSISTS OF:

               

Capital paid-in

        $1,065,877,898          $3,723,660,782          $333,880,459  

Total distributable earnings/(accumulated loss)

        407,036,237          1,991,397,806          120,137,435  

NET ASSETS

        $1,472,914,135          $5,715,058,588          $454,017,894  

(A) Investments at cost:

               

Unaffiliated Issuers

        $1,116,601,495          $3,690,344,212          $335,739,701  

Affiliated Issuers

        —          429,543,572          —  

(B) Foreign Currency at Cost

        $—          $25,525,813          $1,424,294  

 

See accompanying notes to financial statements.

 

102    MATTHEWS ASIA FUNDS     

Table of Contents
Statements of Assets and Liabilities (unaudited) (continued)   June 30, 2021

 

       

Matthews Asia

Total Return

Bond Fund

        Matthews Asia
Credit
Opportunities Fund		  

ASSETS:

          

Investments at value (A) (Note 2-A and 7):

          

Unaffiliated issuers

        $136,043,159          $91,037,858  

Cash

        2,008,063          3,820,175  

Cash pledged collateral for forward foreign currency exchange contracts

        340,000          —  

Segregated foreign currency at value

        9,639          3,453  

Foreign currency at value (B)

        12,848          4,505  

Dividends, interest and other receivable

        2,193,818          1,658,079  

Receivable for capital shares sold

        10,960          3,873  

Unrealized appreciation on forward foreign currency exchange contracts

        153,682          —  

Unrealized appreciation on interest rate swaps

        458,688          —  

Prepaid expenses

        17,461          25,707  

TOTAL ASSETS

        141,248,318          96,553,650  

LIABILITIES:

          

Payable for capital shares redeemed

        180,220          64,914  

Unrealized depreciation on forward foreign currency exchange contracts

        883,750          —  

Deferred foreign capital gains tax liability (Note 2-F)

        51,096          —  

Due to Advisor (Note 5)

        63,507          45,492  

Administration and accounting fees payable (Note 5)

        1,866          1,256  

Administration and shareholder servicing fees payable (Note 5)

        15,393          10,387  

Custodian fees payable

        12,175          5,802  

Intermediary service fees payable (Note 5)

        20,873          18,112  

Professional fees payable

        24,690          24,238  

Transfer agent fees payable

        779          289  

Accrued other expenses payable

        22,474          16,614  

TOTAL LIABILITIES

        1,276,823          187,104  

NET ASSETS

        $139,971,495          $96,366,546  

NET ASSETS:

          

Investor Class

        $38,107,774          $8,401,549  

Institutional Class

        101,863,721          87,964,997  

TOTAL

        $139,971,495          $96,366,546  

 

See accompanying notes to financial statements.

 

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Table of Contents
Statements of Assets and Liabilities (unaudited) (continued)   June 30, 2021

 

       

Matthews Asia
Total Return

Bond Fund

        Matthews Asia
Credit
Opportunities Fund		  

SHARES OUTSTANDING:

          

(shares of beneficial interest issued and outstanding, respectively, unlimited number of shares authorized with a $0.001 par value)

          

Investor Class

        3,505,345          853,444  

Institutional Class

        9,368,189          8,936,343  

TOTAL

        12,873,534          9,789,787  

NET ASSET VALUE:

          

Investor Class, offering price and redemption price

        $10.87          $9.84  

Institutional Class, offering price and redemption price

        $10.87          $9.84  

NET ASSETS CONSISTS OF:

          

Capital paid-in

        $141,677,574          $101,799,627  

Total distributable earnings/(accumulated loss)

        (1,706,079 )         (5,433,081 ) 

NET ASSETS

        $139,971,495          $96,366,546  

(A) Investments at cost:

          

Unaffiliated Issuers

        $137,497,336          $93,531,251  

(B) Foreign Currency at Cost

        $12,706          $4,499  

 

See accompanying notes to financial statements.

 

104    MATTHEWS ASIA FUNDS     

Table of Contents
Statements of Operations (unaudited)   Six-Month Period Ended June 30, 2021

 

        Matthews Emerging
Markets Equity Fund		        Matthews Emerging
Markets Small
Companies Fund		        Matthews Asia
Growth Fund		  

INVESTMENT INCOME:

               

Dividends—Unaffiliated Issuers

        $468,492          $1,078,274          $6,430,733  

Foreign withholding tax

        (51,206 )         (119,342 )         (891,741 ) 

TOTAL INVESTMENT INCOME

        417,286          958,932          5,538,992  

EXPENSES:

               

Investment advisory fees (Note 5)

        178,475          1,365,764          7,520,305  

Administration and accounting fees (Note 5)

        2,159          10,849          90,974  

Administration and shareholder servicing fees (Note 5)

        36,217          183,320          1,525,958  

Accounting out-of-pocket fees

        16,067          21,062          18,749  

Custodian fees

        47,456          85,409          321,611  

Printing fees

        9,726          17,847          44,790  

Intermediary service fees (Note 5)

        21,479          140,311          1,120,113  

Professional fees

        15,819          24,907          40,224  

Registration fees

        15,452          19,335          41,723  

Transfer agent fees

        1,505          8,122          22,512  

Trustees fees

        759          4,742          43,917  

Other expenses

        5,832          9,788          30,164  

TOTAL EXPENSES

        350,946          1,891,456          10,821,040  

Advisory fees waived and expenses waived or reimbursed (Note 5)

        (98,483 )         (153,390 )         —  

NET EXPENSES

        252,463          1,738,066          10,821,040  

NET INVESTMENT INCOME (LOSS)

        164,823          (779,134 )         (5,282,048 ) 
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS, FOREIGN CURRENCY RELATED TRANSACTIONS, SWAPS, AND FOREIGN CAPITAL GAINS TAXES:               

Net realized gain (loss) on investments—Unaffiliated Issuers

        2,057,922          21,275,109          26,267,671  

Net realized foreign capital gains tax

        (24,253 )         (743,553 )         —  

Net realized gain (loss) on foreign currency related transactions

        (8,068 )         (294,807 )         (479,599 ) 

Net change in unrealized appreciation/depreciation on investments—Unaffiliated Issuers

        2,370,505          34,677,709          94,604,495  

Net change in deferred foreign capital gains taxes on unrealized appreciation/depreciation

        461          (2,315,417 )         (3,024,493 ) 

Net change in unrealized appreciation/depreciation on foreign currency related translations

        (441 )         (82,286 )         (13,934 ) 

Net realized and unrealized gain (loss) on investments, forward foreign currency exchange contracts, foreign currency related transactions, swaps, and foreign capital gains taxes

        4,396,126          52,516,755          117,354,140  

NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

        $4,560,949          $51,737,621          $112,072,092  

 

See accompanying notes to financial statements.

 

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Table of Contents
Statements of Operations (unaudited) (continued)   Six-Month Period Ended June 30, 2021

 

        Matthews Pacific
Tiger Fund		            
Matthews Asia
ESG Fund		       

Matthews Asia

Innovators Fund

  

INVESTMENT INCOME:

               

Dividends—Unaffiliated Issuers

        $66,205,283          $585,803          $5,918,313  

Foreign withholding tax

        (6,955,375 )         (63,029 )         (924,992 ) 

TOTAL INVESTMENT INCOME

        59,249,908          522,774          4,993,321  

EXPENSES:

               

Investment advisory fees (Note 5)

        31,016,669          335,340          6,891,500  

Administration and accounting fees (Note 5)

        375,206          4,057          83,367  

Administration and shareholder servicing fees (Note 5)

        6,294,426          68,052          1,398,330  

Accounting out-of-pocket fees

        21,025          18,703          14,843  

Custodian fees

        1,439,520          43,370          291,853  

Printing fees

        159,179          8,720          28,660  

Intermediary service fees (Note 5)

        4,521,509          46,873          1,049,719  

Professional fees

        110,791          18,580          34,998  

Registration fees

        54,130          17,438          50,714  

Transfer agent fees

        52,606          1,106          19,675  

Trustees fees

        197,706          1,912          37,011  

Other expenses

        139,922          6,829          26,776  

TOTAL EXPENSES

        44,382,689          570,980          9,927,446  

Advisory fees waived and expenses waived or reimbursed/repaid (Note 5)

        (588,803 )         73,418          —  

Administration fees waived (Note 5)

        (588,803 )         —          —  

NET EXPENSES

        43,205,083          644,398          9,927,446  

NET INVESTMENT INCOME (LOSS)

        16,044,825          (121,624 )         (4,934,125 ) 
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY RELATED TRANSACTIONS, AND FOREIGN CAPITAL GAINS TAXES:               

Net realized gain (loss) on investments—Unaffiliated Issuers

        974,089,942          6,018,696          262,651,704  

Net realized foreign capital gains tax

        (5,506,278 )         (159 )         (1,887,614 ) 

Net realized gain (loss) on foreign currency related transactions

        (1,029,212 )         (25,885 )         (941,128 ) 

Net change in unrealized appreciation/depreciation on
investments—Unaffiliated Issuers

        (487,795,360 )         7,898,805          (197,750,460 ) 

Net change in deferred foreign capital gains taxes on unrealized appreciation/depreciation

        (5,024,930 )         (448,660 )         (260,013 ) 

Net change in unrealized appreciation/depreciation on foreign currency related translations

        (200,044 )         (1,184 )         (519,921 ) 

Net realized and unrealized gain (loss) on investments, foreign currency related transactions, and foreign capital gains taxes

        474,534,118          13,441,613          61,292,568  

NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

        $490,578,943          $13,319,989          $56,358,443  

 

See accompanying notes to financial statements.

 

106    MATTHEWS ASIA FUNDS     

Table of Contents
Statements of Operations (unaudited) (continued)   Six-Month Period Ended June 30, 2021

 

        Matthews
China Fund		        Matthews China
Small Companies
Fund		        Matthews
India Fund		  

INVESTMENT INCOME:

               

Dividends—Unaffiliated Issuers

        $12,952,574          $5,348,601          $3,413,267  

Interest

        —          —          123  

Foreign withholding tax

        (556,229 )         (77,080 )         (577,941 ) 

TOTAL INVESTMENT INCOME

        12,396,345          5,271,521          2,835,449  

EXPENSES:

               

Investment advisory fees (Note 5)

        5,699,762          2,338,410          2,385,339  

Administration and accounting fees (Note 5)

        68,951          18,707          28,854  

Administration and shareholder servicing fees (Note 5)

        1,156,484          313,732          484,262  

Accounting out-of-pocket fees

        16,758          18,718          19,692  

Custodian fees

        200,189          95,149          191,116  

Printing fees

        44,500          24,800          49,188  

Intermediary service fees (Note 5)

        1,088,897          408,035          626,324  

Professional fees

        31,222          20,409          71,635  

Registration fees

        34,398          35,717          25,064  

Transfer agent fees

        44,829          12,857          38,186  

Trustees fees

        34,721          10,447          15,536  

Other expenses

        22,465          7,406          17,231  

TOTAL EXPENSES

        8,443,176          3,304,387          3,952,427  

Advisory fees waived and expenses waived or reimbursed (Note 5)

        —          (140,246 )         —  

NET EXPENSES

        8,443,176          3,164,141          3,952,427  

NET INVESTMENT INCOME (LOSS)

        3,953,169          2,107,380          (1,116,978 ) 
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY RELATED TRANSACTIONS, AND FOREIGN CAPITAL GAINS TAXES:               

Net realized gain (loss) on investments—Unaffiliated Issuers

        148,544,931          57,342,551          40,080,960  

Net realized foreign capital gains tax

        —          —          (2,225,028 ) 

Net realized gain (loss) on foreign currency related transactions

        (124,252 )         (165,442 )         2,998  

Net change in unrealized appreciation/depreciation on
investments—Unaffiliated Issuers

        (48,883,065 )         (13,346,540 )         47,009,214  

Net change in deferred foreign capital gains taxes on unrealized appreciation/depreciation

        —          —          (7,863,437 ) 

Net change in unrealized appreciation/depreciation on foreign currency related translations

        (15,672 )         (19,792 )         (72,083 ) 

Net realized and unrealized gain (loss) on investments, foreign currency related transactions, and foreign capital gains taxes

        99,521,942          43,810,777          76,932,624  

NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

        $103,475,111          $45,918,157          $75,815,646  

 

See accompanying notes to financial statements.

 

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Table of Contents
Statements of Operations (unaudited) (continued)   Six-Month Period Ended June 30, 2021

 

     

Matthews
Japan Fund

     

Matthews
Korea Fund

  

INVESTMENT INCOME:

      

Dividends—Unaffiliated Issuers

      $13,749,691        $1,393,811  

Foreign withholding tax

      (1,965,543 )       (230,023 ) 

TOTAL INVESTMENT INCOME

      11,784,148        1,163,788  

EXPENSES:

      

Investment advisory fees (Note 5)

      5,496,003        514,118  

Administration and accounting fees (Note 5)

      66,484        6,219  

Administration and shareholder servicing fees (Note 5)

      1,115,414        104,356  

Accounting out-of-pocket fees

      17,659        13,366  

Custodian fees

      69,333        20,509  

Printing fees

      70,965        10,269  

Intermediary service fees (Note 5)

      617,342        125,515  

Professional fees

      30,878        16,376  

Registration fees

      24,557        17,340  

Transfer agent fees

      66,264        11,846  

Trustees fees

      36,371        3,221  

Other expenses

      29,526        2,708  

TOTAL EXPENSES

      7,640,796        845,843  

NET EXPENSES

      7,640,796        845,843  

NET INVESTMENT INCOME (LOSS)

      4,143,352        317,945  
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY RELATED TRANSACTIONS, AND FOREIGN CAPITAL GAINS TAXES:      

Net realized gain (loss) on investments—Unaffiliated Issuers

      125,572,477        15,794,110  

Net realized gain (loss) on foreign currency related transactions

      (37,305 )       (37,365 ) 

Net change in unrealized appreciation/depreciation on investments—Unaffiliated Issuers

      (230,381,939 )       1,791,014  

Net change in unrealized appreciation/depreciation on foreign currency related translations

      (23,633 )       (12,482 ) 

Net realized and unrealized gain (loss) on investments, foreign currency related transactions, and foreign capital gains taxes

      (104,870,400 )       17,535,277  

NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

      ($100,727,048 )       $17,853,222  

 

See accompanying notes to financial statements.

 

108    MATTHEWS ASIA FUNDS     

Table of Contents
Statements of Operations (unaudited) (continued)   Six-Month Period Ended June 30, 2021

 

        Matthews Asian
Growth and
Income Fund		        Matthews Asia
Dividend Fund		        Matthews China
Dividend Fund		  

INVESTMENT INCOME:

               

Dividends—Unaffiliated Issuers

        $21,062,677          $56,484,246          $9,684,670  

Dividends—Affiliated Issuers (Note 7)

        —          7,677,204          —  

Foreign withholding tax

        (2,127,084 )         (6,972,417 )         (222,360 ) 

TOTAL INVESTMENT INCOME

        18,935,593          57,189,033          9,462,310  

EXPENSES:

               

Investment advisory fees (Note 5)

        5,022,010          18,182,879          1,369,911  

Administration and accounting fees (Note 5)

        60,751          219,955          16,572  

Administration and shareholder servicing fees (Note 5)

        1,019,183          3,690,242          277,976  

Accounting out-of-pocket fees

        20,373          20,025          17,124  

Custodian fees

        230,365          585,247          79,012  

Printing fees

        60,519          119,369          27,839  

Intermediary service fees (Note 5)

        946,744          2,674,258          306,552  

Professional fees

        34,478          74,717          19,972  

Registration fees

        42,942          36,571          38,897  

Transfer agent fees

        26,743          41,125          7,321  

Trustees fees

        33,459          112,951          8,719  

Other expenses

        25,550          86,362          5,884  

TOTAL EXPENSES

        7,523,117          25,843,701          2,175,779  

Advisory fees waived and expenses waived or reimbursed (Note 5)

        —          (130,532 )         —  

Administration fees waived (Note 5)

        —          (130,532 )         —  

NET EXPENSES

        7,523,117          25,582,637          2,175,779  

NET INVESTMENT INCOME (LOSS)

        11,412,476          31,606,396          7,286,531  
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY RELATED TRANSACTIONS, AND FOREIGN CAPITAL GAINS TAXES:               

Net realized gain (loss) on investments—Unaffiliated Issuers

        107,270,420          555,278,692          26,255,126  

Net realized gain (loss) on investments—Affiliated Issuers

        —          1,347,132          —  

Net realized foreign capital gains tax

        (74,556 )         —          —  

Net realized gain (loss) on foreign currency related transactions

        (271,268 )         2,195,399          115,655  

Net change in unrealized appreciation/depreciation on investments—Unaffiliated Issuers

        (55,388,894 )         (453,852,594 )         14,600,419  

Net change in unrealized appreciation/depreciation on investments—Affiliated Issuers

        —          2,119,872          —  

Net change in deferred foreign capital gains taxes on unrealized appreciation/depreciation

        787,981          (1,180,906 )         —  

Net change in unrealized appreciation/depreciation on foreign currency related translations

        18,686          (2,116,914 )         (103,782 ) 

Net realized and unrealized gain (loss) on investments, foreign currency related transactions, and foreign capital gains taxes

        52,342,369          103,790,681          40,867,418  

NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

        $63,754,845          $135,397,077          $48,153,949  

 

See accompanying notes to financial statements.

 

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Statements of Operations (unaudited) (continued)   Six-Month Period Ended June 30, 2021

 

      Matthews
Asia Total
Return Bond
Fund		      Matthews Asia
Credit
Opportunities Fund		  

INVESTMENT INCOME:

      

Dividends—Unaffiliated Issuers

      $3,228        $137  

Interest

      3,349,120        2,421,091  

Foreign withholding tax

      (85,686 )       —  

TOTAL INVESTMENT INCOME

      3,266,662        2,421,228  

EXPENSES:

      

Investment advisory fees (Note 5)

      367,432        250,581  

Administration and accounting fees (Note 5)

      5,344        3,645  

Administration and shareholder servicing fees (Note 5)

      89,642        61,142  

Accounting out-of-pocket fees

      14,101        9,278  

Custodian fees

      18,943        10,111  

Printing fees

      11,489        10,407  

Intermediary service fees (Note 5)

      71,177        39,492  

Professional fees

      11,163        10,056  

Registration fees

      20,046        18,893  

Transfer agent fees

      2,908        1,051  

Trustees fees

      2,754        2,099  

Other expenses

      832        1,911  

TOTAL EXPENSES

      615,831        418,666  

Advisory fees waived and expenses waived or reimbursed (Note 5)

      —        (1,622 ) 

NET EXPENSES

      615,831        417,044  

NET INVESTMENT INCOME (LOSS)

      2,650,831        2,004,184  
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS, FOREIGN CURRENCY RELATED TRANSACTIONS, SWAPS, AND FOREIGN CAPITAL GAINS TAXES:      

Net realized gain (loss) on investments—Unaffiliated Issuers

      1,822,492        (649,543 ) 

Net realized gain (loss) on forward foreign currency exchange contracts

      1,665,458        —  

Net realized gain (loss) on swaps

      89,224        —  

Net realized gain (loss) on foreign currency related transactions

      19,005        —  

Net change in unrealized appreciation/depreciation on investments—Unaffiliated Issuers

      (5,519,914 )       (3,171,419 ) 

Net change in unrealized appreciation/depreciation forward foreign currency exchange contracts

      (2,440,309 )       —  

Net change in unrealized appreciation/depreciation on swaps

      (246,209 )       —  

Net change in deferred foreign capital gains taxes on unrealized appreciation/depreciation

      24,273        —  

Net change in unrealized appreciation/depreciation on foreign currency related translations

      15,602        60  

Net realized and unrealized gain (loss) on investments, forward foreign currency exchange contracts, foreign currency related transactions, swaps, and foreign capital gains taxes

      (4,570,378 )       (3,820,902 ) 

NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

      ($1,919,547 )       ($1,816,718 ) 

 

See accompanying notes to financial statements.

 

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Statements of Changes in Net Assets

 

MATTHEWS EMERGING MARKETS EQUITY FUND      Six-Month Period
Ended June 30, 2021
(Unaudited)		     

For the Period Ended

December 31, 20201

 

OPERATIONS:

        

Net investment income (loss)

        $164,823        $59,017  

Net realized gain (loss) on investments and foreign currency related transactions

        2,025,601        1,612,347  

Net change in unrealized appreciation/depreciation on investments and foreign currency related translations

        2,370,064        6,973,362  

Net change on foreign capital gains taxes on unrealized appreciation/depreciation

        461        (68,673 ) 

Net increase (decrease) in net assets resulting from operations

        4,560,949        8,576,053  

DISTRIBUTIONS TO SHAREHOLDERS:

        

Investor Class

        —        (142,733 ) 

Institutional Class

        —        (739,402 ) 

Net decrease in net assets resulting from distributions

        —        (882,135 ) 

CAPITAL SHARE TRANSACTIONS (net) (Note 4)

        10,199,518        37,098,179  

Total increase (decrease) in net assets

        14,760,467        44,792,097  

NET ASSETS:

        

Beginning of period

        44,792,097        —  

End of period

        $59,552,564        $44,792,097  

1   The Fund commenced operations on April 30, 2020.

        
MATTHEWS EMERGING MARKETS SMALL COMPANIES FUND      Six-Month Period
Ended June 30, 2021
(Unaudited)		      Year Ended
December 31, 2020		  

OPERATIONS:

        

Net investment income (loss)

        ($779,134 )       ($28,959 ) 

Net realized gain (loss) on investments and foreign currency related transactions

        20,236,749        (3,922,376 ) 

Net change in unrealized appreciation/depreciation on investments and foreign currency related translations

        34,595,423        66,285,013  

Net change on foreign capital gains taxes on unrealized appreciation/depreciation

        (2,315,417 )       (85,816 ) 

Net increase (decrease) in net assets resulting from operations

        51,737,621        62,247,862  

DISTRIBUTIONS TO SHAREHOLDERS:

        

Investor Class

        —        (273,613 ) 

Institutional Class

        —        (457,565 ) 

Net decrease in net assets resulting from distributions

        —        (731,178 ) 

CAPITAL SHARE TRANSACTIONS (net) (Note 4)

        125,548,765        (35,608,664 ) 

Total increase (decrease) in net assets

        177,286,386        25,908,020  

NET ASSETS:

        

Beginning of period

        207,142,276        181,234,256  

End of period

        $384,428,662        $207,142,276  

 

See accompanying notes to financial statements.

 

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Statements of Changes in Net Assets (continued)

 

MATTHEWS ASIA GROWTH FUND      Six-Month Period
Ended June 30, 2021
(Unaudited)		      Year Ended
December 31, 2020		  

OPERATIONS:

        

Net investment income (loss)

        ($5,282,048 )       ($3,766,582 ) 

Net realized gain (loss) on investments and foreign currency related transactions

        25,788,072        119,869,576  

Net change in unrealized appreciation/depreciation on investments and foreign currency related translations

        94,590,561        490,612,523  

Net change on foreign capital gains taxes on unrealized appreciation/depreciation

        (3,024,493 )       (828,093 ) 

Net increase (decrease) in net assets resulting from operations

        112,072,092        605,887,424  

DISTRIBUTIONS TO SHAREHOLDERS:

        

Investor Class

        —        (32,572,017 ) 

Institutional Class

        —        (52,522,805 ) 

Net decrease in net assets resulting from distributions

        —        (85,094,822 ) 

CAPITAL SHARE TRANSACTIONS (net) (Note 4)

        252,540,771        329,660,660  

Total increase (decrease) in net assets

        364,612,863        850,453,262  

NET ASSETS:

        

Beginning of period

        2,053,787,651        1,203,334,389  

End of period

        $2,418,400,514        $2,053,787,651  
MATTHEWS PACIFIC TIGER FUND      Six-Month Period
Ended June 30, 2021
(Unaudited)		      Year Ended
December 31, 2020		  

OPERATIONS:

        

Net investment income (loss)

        $16,044,825        $31,726,525  

Net realized gain (loss) on investments and foreign currency related transactions

        967,554,452        810,070,173  

Net change in unrealized appreciation/depreciation on investments and foreign currency related translations

        (487,995,404 )       930,414,892  

Net change on foreign capital gains taxes on unrealized appreciation/depreciation

        (5,024,930 )       3,154,260  

Net increase (decrease) in net assets resulting from operations

        490,578,943        1,775,365,850  

DISTRIBUTIONS TO SHAREHOLDERS:

        

Investor Class

        —        (141,488,071 ) 

Institutional Class

        —        (348,163,643 ) 

Net decrease in net assets resulting from distributions

        —        (489,651,714 ) 

CAPITAL SHARE TRANSACTIONS (net) (Note 4)

        482,180,189        (1,252,923,288 ) 

Total increase (decrease) in net assets

        972,759,132        32,790,848  

NET ASSETS:

        

Beginning of period

        8,758,649,538        8,725,858,690  

End of period

        $9,731,408,670        $8,758,649,538  

 

See accompanying notes to financial statements.

 

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MATTHEWS ASIA ESG FUND      Six-Month Period
Ended June 30, 2021
(Unaudited)		      Year Ended
December 31, 2020		  

OPERATIONS:

        

Net investment income (loss)

        ($121,624 )       $14,477  

Net realized gain (loss) on investments and foreign currency related transactions

        5,992,652        3,627,382  

Net change in unrealized appreciation/depreciation on investments and foreign currency related translations

        7,897,621        21,303,112  

Net change on foreign capital gains taxes on unrealized appreciation/depreciation

        (448,660 )       (371,525 ) 

Net increase (decrease) in net assets resulting from operations

        13,319,989        24,573,446  

DISTRIBUTIONS TO SHAREHOLDERS:

        

Investor Class

        —        (1,972,642 ) 

Institutional Class

        —        (2,742,259 ) 

Net decrease in net assets resulting from distributions

        —        (4,714,901 ) 

CAPITAL SHARE TRANSACTIONS (net) (Note 4)

        11,199,976        12,869,463  

Total increase (decrease) in net assets

        24,519,965        32,728,008  

NET ASSETS:

        

Beginning of period

        88,026,840        55,298,832  

End of period

        $112,546,805        $88,026,840  
MATTHEWS ASIA INNOVATORS FUND      Six-Month Period
Ended June 30, 2021
(Unaudited)		      Year Ended
December 31, 2020		  

OPERATIONS:

        

Net investment income (loss)

        ($4,934,125 )       ($4,066,121 ) 

Net realized gain (loss) on investments and foreign currency related transactions

        259,822,962        126,859,455  

Net change in unrealized appreciation/depreciation on investments and foreign currency related translations

        (198,270,381 )       522,631,206  

Net change on foreign capital gains taxes on unrealized appreciation/depreciation

        (260,013 )       (5,114,598 ) 

Net increase (decrease) in net assets resulting from operations

        56,358,443        640,309,942  

DISTRIBUTIONS TO SHAREHOLDERS:

        

Investor Class

        —        (10,021,958 ) 

Institutional Class

        —        (17,156,013 ) 

Net decrease in net assets resulting from distributions

        —        (27,177,971 ) 

CAPITAL SHARE TRANSACTIONS (net) (Note 4)

        405,231,060        807,775,835  

Total increase (decrease) in net assets

        461,589,503        1,420,907,806  

NET ASSETS:

        

Beginning of period

        1,725,456,985        304,549,179  

End of period

        $2,187,046,488        $1,725,456,985  

 

See accompanying notes to financial statements.

 

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MATTHEWS CHINA FUND      Six-Month Period
Ended June 30, 2021
(Unaudited)		      Year Ended
December 31, 2020		  

OPERATIONS:

        

Net investment income (loss)

        $3,953,169        $3,034,601  

Net realized gain (loss) on investments and foreign currency related transactions

        148,420,679        92,596,932  

Net change in unrealized appreciation/depreciation on investments and foreign currency related translations

        (48,898,737 )       327,402,752  

Net increase (decrease) in net assets resulting from operations

        103,475,111        423,034,285  

DISTRIBUTIONS TO SHAREHOLDERS:

        

Investor Class

        —        (11,917,229 ) 

Institutional Class

        —        (7,418,452 ) 

Net decrease in net assets resulting from distributions

        —        (19,335,681 ) 

CAPITAL SHARE TRANSACTIONS (net) (Note 4)

        203,422,707        202,777,528  

Total increase (decrease) in net assets

        306,897,818        606,476,132  

NET ASSETS:

        

Beginning of period

        1,508,871,157        902,395,025  

End of period

        $1,815,768,975        $1,508,871,157  
MATTHEWS CHINA SMALL COMPANIES FUND      Six-Month Period
Ended June 30, 2021
(Unaudited)		      Year Ended
December 31, 2020		  

OPERATIONS:

        

Net investment income (loss)

        $2,107,380        ($40,100 ) 

Net realized gain (loss) on investments and foreign currency related transactions

        57,177,109        81,135,304  

Net change in unrealized appreciation/depreciation on investments and foreign currency related translations

        (13,366,332 )       77,868,228  

Net increase (decrease) in net assets resulting from operations

        45,918,157        158,963,432  

DISTRIBUTIONS TO SHAREHOLDERS:

        

Investor Class

        —        (41,538,891 ) 

Institutional Class

        —        (14,619,496 ) 

Net decrease in net assets resulting from distributions

        —        (56,158,387 ) 

CAPITAL SHARE TRANSACTIONS (net) (Note 4)

        70,186,297        185,155,881  

Total increase (decrease) in net assets

        116,104,454        287,960,926  

NET ASSETS:

        

Beginning of period

        383,769,219        95,808,293  

End of period

        $499,873,673        $383,769,219  

 

See accompanying notes to financial statements.

 

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Statements of Changes in Net Assets (continued)

 

MATTHEWS INDIA FUND      Six-Month Period
Ended June 30, 2021
(Unaudited)		      Year Ended
December 31, 2020		  

OPERATIONS:

        

Net investment income (loss)

        ($1,116,978 )       $539,640  

Net realized gain (loss) on investments and foreign currency related transactions

        37,858,930        (29,985,170 ) 

Net change in unrealized appreciation/depreciation on investments and foreign currency related translations

        46,937,131        78,917,359  

Net change on foreign capital gains taxes on unrealized appreciation/depreciation

        (7,863,437 )       (8,262,561 ) 

Net increase (decrease) in net assets resulting from operations

        75,815,646        41,209,268  

DISTRIBUTIONS TO SHAREHOLDERS:

        

Investor Class

        —        (18,432,815 ) 

Institutional Class

        —        (2,686,572 ) 

Net decrease in net assets resulting from distributions

        —        (21,119,387 ) 

CAPITAL SHARE TRANSACTIONS (net) (Note 4)

        (28,929,403 )       (276,535,505 ) 

Total increase (decrease) in net assets

        46,886,243        (256,445,624 ) 

NET ASSETS:

        

Beginning of period

        707,961,280        964,406,904  

End of period

        $754,847,523        $707,961,280  
MATTHEWS JAPAN FUND      Six-Month Period
Ended June 30, 2021
(Unaudited)		      Year Ended
December 31, 2020		  

OPERATIONS:

        

Net investment income (loss)

        $4,143,352        $4,835,226  

Net realized gain (loss) on investments and foreign currency related transactions

        125,535,172        224,950,710  

Net change in unrealized appreciation/depreciation on investments and foreign currency related translations

        (230,405,572 )       85,961,141  

Net increase (decrease) in net assets resulting from operations

        (100,727,048 )       315,747,077  

DISTRIBUTIONS TO SHAREHOLDERS:

        

Investor Class

        —        (104,936,797 ) 

Institutional Class

        —        (51,294,781 ) 

Net decrease in net assets resulting from distributions

        —        (156,231,578 ) 

CAPITAL SHARE TRANSACTIONS (net) (Note 4)

        112,086,010        (815,396,878 ) 

Total increase (decrease) in net assets

        11,358,962        (655,881,379 ) 

NET ASSETS:

        

Beginning of period

        1,650,787,811        2,306,669,190  

End of period

        $1,662,146,773        $1,650,787,811  

 

See accompanying notes to financial statements.

 

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MATTHEWS KOREA FUND      Six-Month Period
Ended June 30, 2021
(Unaudited)		      Year Ended
December 31, 2020		  

OPERATIONS:

        

Net investment income (loss)

        $317,945        $565,758  

Net realized gain (loss) on investments and foreign currency related transactions

        15,756,745        (2,851,201 ) 

Net change in unrealized appreciation/depreciation on investments and foreign currency related translations

        1,778,532        44,818,958  

Net increase (decrease) in net assets resulting from operations

        17,853,222        42,533,515  

DISTRIBUTIONS TO SHAREHOLDERS:

        

Investor Class

        —        (1,006,275 ) 

Institutional Class

        —        (97,392 ) 

Net decrease in net assets resulting from distributions

        —        (1,103,667 ) 

CAPITAL SHARE TRANSACTIONS (net) (Note 4)

        (11,146,900 )       (24,121,054 ) 

Total increase (decrease) in net assets

        6,706,322        17,308,794  

NET ASSETS:

        

Beginning of period

        154,122,737        136,813,943  

End of period

        $160,829,059        $154,122,737  
MATTHEWS ASIAN GROWTH AND INCOME FUND      Six-Month Period
Ended June 30, 2021
(Unaudited)		      Year Ended
December 31, 2020		  

OPERATIONS:

        

Net investment income (loss)

        $11,412,476        $19,405,694  

Net realized gain (loss) on investments and foreign currency related transactions

        106,924,596        (22,733,461 ) 

Net change in unrealized appreciation/depreciation on investments and foreign currency related translations

        (55,370,208 )       194,367,480  

Net change on foreign capital gains taxes on unrealized appreciation/depreciation

        787,981        (1,175,119 ) 

Net increase (decrease) in net assets resulting from operations

        63,754,845        189,864,594  

DISTRIBUTIONS TO SHAREHOLDERS:

        

Investor Class

        (4,280,609 )       (6,537,575 ) 

Institutional Class

        (6,029,494 )       (8,649,109 ) 

Net decrease in net assets resulting from distributions

        (10,310,103 )       (15,186,684 ) 

CAPITAL SHARE TRANSACTIONS (net) (Note 4)

        (76,285,511 )       (146,689,345 ) 

Total increase (decrease) in net assets

        (22,840,769 )       27,988,565  

NET ASSETS:

        

Beginning of period

        1,495,754,904        1,467,766,339  

End of period

        $1,472,914,135        $1,495,754,904  

 

See accompanying notes to financial statements.

 

116    MATTHEWS ASIA FUNDS     

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Statements of Changes in Net Assets (continued)

 

MATTHEWS ASIA DIVIDEND FUND      Six-Month Period
Ended June 30, 2021
(Unaudited)		      Year Ended
December 31, 2020		  

OPERATIONS:

        

Net investment income (loss)

        $31,606,396        $38,489,950  

Net realized gain (loss) on investments and foreign currency related transactions

        558,821,223        121,303,056  

Net change in unrealized appreciation/depreciation on investments and foreign currency related translations

        (453,849,636 )       873,786,516  

Net change on foreign capital gains taxes on unrealized appreciation/depreciation

        (1,180,906 )       (52,247 ) 

Net increase (decrease) in net assets resulting from operations

        135,397,077        1,033,527,275  

DISTRIBUTIONS TO SHAREHOLDERS:

        

Investor Class

        (11,851,416 )       (23,374,306 ) 

Institutional Class

        (20,438,313 )       (30,156,523 ) 

Net decrease in net assets resulting from distributions

        (32,289,729 )       (53,530,829 ) 

CAPITAL SHARE TRANSACTIONS (net) (Note 4)

        411,015,319        (1,149,516,399 ) 

Total increase (decrease) in net assets

        514,122,667        (169,519,953 ) 

NET ASSETS:

        

Beginning of period

        5,200,935,921        5,370,455,874  

End of period

        $5,715,058,588        $5,200,935,921  
MATTHEWS CHINA DIVIDEND FUND      Six-Month Period
Ended June 30, 2021
(Unaudited)		      Year Ended
December 31, 2020		  

OPERATIONS:

        

Net investment income (loss)

        $7,286,531        $6,140,834  

Net realized gain (loss) on investments and foreign currency related transactions

        26,370,781        4,886,638  

Net change in unrealized appreciation/depreciation on investments and foreign currency related translations

        14,496,637        58,961,611  

Net increase (decrease) in net assets resulting from operations

        48,153,949        69,989,083  

DISTRIBUTIONS TO SHAREHOLDERS:

        

Investor Class

        (4,743,512 )       (5,445,025 ) 

Institutional Class

        (3,212,378 )       (2,410,206 ) 

Net decrease in net assets resulting from distributions

        (7,955,890 )       (7,855,231 ) 

CAPITAL SHARE TRANSACTIONS (net) (Note 4)

        29,176,876        (58,231,512 ) 

Total increase (decrease) in net assets

        69,374,935        3,902,340  

NET ASSETS:

        

Beginning of period

        384,642,959        380,740,619  

End of period

        $454,017,894        $384,642,959  

 

See accompanying notes to financial statements.

 

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Table of Contents

Statements of Changes in Net Assets (continued)

 

MATTHEWS ASIA TOTAL RETURN BOND FUND      Six-Month Period
Ended June 30, 2021
(Unaudited)		     

Year Ended
December 31, 2020

  

OPERATIONS:

        

Net investment income (loss)

        $2,650,831        $4,850,426  

Net realized gain (loss) on investments and foreign currency related transactions

        3,596,179        (2,439,443 ) 

Net change in unrealized appreciation/depreciation on investments and foreign currency related translations

        (7,944,621 )       2,158,772  

Net change on foreign capital gains taxes on unrealized appreciation/depreciation

        24,273        (13,642 ) 

Net change in unrealized appreciation/depreciation on swaps

        (246,209 )       537,033  

Net increase (decrease) in net assets resulting from operations

        (1,919,547 )       5,093,146  

DISTRIBUTIONS TO SHAREHOLDERS:

        

Investor Class

        (717,864 )       (1,534,269 ) 

Institutional Class

        (1,817,580 )       (3,044,458 ) 

Net decrease in net assets resulting from distributions

        (2,535,444 )       (4,578,727 ) 

CAPITAL SHARE TRANSACTIONS (net) (Note 4)

        29,578,246        (2,379,843 ) 

Total increase (decrease) in net assets

        25,123,255        (1,865,424 ) 

NET ASSETS:

        

Beginning of period

        114,848,240        116,713,664  

End of period

        $139,971,495        $114,848,240  
MATTHEWS ASIA CREDIT OPPORTUNITIES FUND      Six-Month Period
Ended June 30, 2021
(Unaudited)		      Year Ended
December 31, 2020		  

OPERATIONS:

        

Net investment income (loss)

        $2,004,184        $4,429,584  

Net realized gain (loss) on investments and foreign currency related transactions

        (649,543 )       (2,419,656 ) 

Net change in unrealized appreciation/depreciation on investments and foreign currency related translations

        (3,171,359 )       (865,752 ) 

Net increase (decrease) in net assets resulting from operations

        (1,816,718 )       1,144,176  

DISTRIBUTIONS TO SHAREHOLDERS:

        

Investor Class

        (180,094 )       (461,510 ) 

Institutional Class

        (1,836,470 )       (4,015,909 ) 

Net decrease in net assets resulting from distributions

        (2,016,564 )       (4,477,419 ) 

CAPITAL SHARE TRANSACTIONS (net) (Note 4)

        9,092,392        2,005,951  

Total increase (decrease) in net assets

        5,259,110        (1,327,292 ) 

NET ASSETS:

        

Beginning of period

        91,107,436        92,434,728  

End of period

        $96,366,546        $91,107,436  

 

See accompanying notes to financial statements.

 

118    MATTHEWS ASIA FUNDS     

Table of Contents

Financial Highlights

 

Matthews Emerging Markets Equity Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

 

INVESTOR CLASS   

Six-Month

Period Ended

June 30, 2021

(Unaudited)

     

Period Ended

Dec. 31, 20201

  

Net Asset Value, beginning of period

      $15.76        $10.00  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

      

Net investment income (loss)2

      0.04        0.04  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes

      1.43        6.08  

Total from investment operations

      1.47        6.12  

LESS DISTRIBUTIONS FROM:

      

Net realized gains on investments

      —        (0.36 ) 

Net Asset Value, end of period

      $17.23        $15.76  

TOTAL RETURN

      9.33% 3        61.23% 3 

RATIOS/SUPPLEMENTAL DATA

      

Net assets, end of period (in 000’s)

      $16,327        $9,851  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      1.35% 4        2.76% 4  

Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator

      1.03% 4        1.08% 4  

Ratio of net investment income (loss) to average net assets

      0.54% 4        0.45% 4  

Portfolio turnover5

     38.27% 3       62.30% 3 
INSTITUTIONAL CLASS   

Six-Month

Period Ended

June 30, 2021
(Unaudited)

      Period Ended
Dec. 31, 20201		  

Net Asset Value, beginning of period

      $15.77        $10.00  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

      

Net investment income (loss)2

     0.05        0.04  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes

      1.42        6.11  

Total from investment operations

      1.47        6.15  

LESS DISTRIBUTIONS FROM:

      

Net investment income

      —        (0.02)  

Net realized gains on investments

      —        (0.36)  

Total distributions

      —        (0.38)  

Net Asset Value, end of period

      $17.24        $15.77  

TOTAL RETURN

      9.32% 3        61.55% 3 

RATIOS/SUPPLEMENTAL DATA

      

Net assets, end of period (in 000’s)

      $43,226        $34,941  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      1.28% 4        2.65% 4  

Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator

      0.90% 4        0.90% 4  

Ratio of net investment income (loss) to average net assets

      0.63% 4        0.44% 4  

Portfolio turnover5

     38.27% 3       62.30% 3 

 

1

The Fund commenced operations on April 30, 2020.

2

Calculated using the average daily shares method.

3

Not annualized.

4

Annualized.

5

The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

 

See accompanying notes to financial statements.

 

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Table of Contents

Financial Highlights (continued)

 

Matthews Emerging Markets Small Companies Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

 

INVESTOR CLASS   

Six-Month

Period Ended

June 30, 2021

(unaudited)

     Year Ended Dec. 31  
  2020     2019     2018     2017     2016  

Net Asset Value, beginning of period

      $25.93       $18.10       $15.50       $22.89       $19.05       $19.41  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

             

Net investment income (loss)1

     (0.09 )      (0.02 )      0.12       0.12       0.02       0.09  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes

      4.88       7.92       2.57       (4.20 )      5.68       (0.37 ) 

Total from investment operations

      4.79       7.90       2.69       (4.08 )      5.70       (0.28 ) 

LESS DISTRIBUTIONS FROM:

             

Net investment income

      —       (0.05 )      (0.09 )      (0.08 )      (0.10 )      (0.08 ) 

Net realized gains on investments

      —       (0.02 )      —       (3.23 )      (1.76 )      —  

Total distributions

      —       (0.07 )      (0.09 )      (3.31 )      (1.86 )      (0.08 ) 

Paid-in capital from redemption fees (Note 4)

      —       —       — 2       — 3       — 3       — 3  

Net Asset Value, end of period

      $30.72       $25.93       $18.10       $15.50       $22.89       $19.05  

TOTAL RETURN

      18.47% 4       43.68%       17.38%       (18.05% )      30.59%       (1.44% ) 

RATIOS/SUPPLEMENTAL DATA

             

Net assets, end of period (in 000’s)

      $171,957       $99,573       $96,229       $111,456       $208,339       $254,226  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      1.44% 5       1.57%       1.60%       1.51%       1.49%       1.49%  

Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator

      1.36% 5       1.39%       1.45%       1.46%       1.46%       1.47%  

Ratio of net investment income (loss) to average net assets

      (0.67% )5       (0.11% )      0.72%       0.53%       0.09%       0.45%  

Portfolio turnover6

     27.15% 4       111.87%       59.10%       69.79%       67.13%       44.44%  
INSTITUTIONAL CLASS   

Six-Month

Period Ended

June 30, 2021

(unaudited)

     Year Ended Dec. 31  
  2020     2019     2018     2017     2016  

Net Asset Value, beginning of period

      $25.87       $18.06       $15.46       $22.86       $19.03       $19.40  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

             

Net investment income (loss)1

     (0.07 )      0.01       0.15       0.16       0.07       0.12  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes

      4.88       7.91       2.58       (4.19 )      5.67       (0.36 ) 

Total from investment operations

      4.81       7.92       2.73       (4.03 )      5.74       (0.24 ) 

LESS DISTRIBUTIONS FROM:

             

Net investment income

      —       (0.09 )      (0.13 )      (0.14 )      (0.15 )      (0.13 ) 

Net realized gains on investments

      —       (0.02 )      —       (3.23 )      (1.76 )      —  

Total distributions

      —       (0.11 )      (0.13 )      (3.37 )      (1.91 )      (0.13 ) 

Paid-in capital from redemption fees (Note 4)

      —       —       — 2       — 3       — 3       — 3  

Net Asset Value, end of period

      $30.68       $25.87       $18.06       $15.46       $22.86       $19.03  

TOTAL RETURN

      18.59% 4       43.90%       17.65%       (17.86% )      30.85%       (1.24% ) 

RATIOS/SUPPLEMENTAL DATA

             

Net assets, end of period (in 000’s)

      $212,471       $107,569       $85,006       $74,935       $232,954       $174,962  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      1.34% 5       1.47%       1.46%       1.37%       1.35%       1.34%  

Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator

      1.20% 5       1.20%       1.24%       1.25%       1.25%       1.25%  

Ratio of net investment income (loss) to average net assets

      (0.49% )5       0.08%       0.85%       0.73%       0.34%       0.64%  

Portfolio turnover6

     27.15% 4       111.87%       59.10%       69.79%       67.13%       44.44%  

 

1

Calculated using the average daily shares method.

2

The Fund charged redemption fees through October 31, 2019.

3

Less than $0.01 per share.

4

Not annualized.

5

Annualized.

6

The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

 

See accompanying notes to financial statements.

 

120    MATTHEWS ASIA FUNDS     

Table of Contents

Financial Highlights (continued)

 

Matthews Asia Growth Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

 

INVESTOR CLASS   

Six-Month

Period Ended

June 30, 2021

(unaudited)

      Year Ended Dec. 31  
   2020      2019      2018      2017      2016  

Net Asset Value, beginning of period

      $39.44        $28.10        $22.49        $27.25        $21.05        $21.09  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)1

     (0.11 )       (0.11 )       (0.03 )       — 2        0.04        0.06  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes

      2.42        13.16        5.91        (4.41 )       8.14        0.13  

Total from investment operations

      2.31        13.05        5.88        (4.41 )       8.18        0.19  

LESS DISTRIBUTIONS FROM:

                  

Net investment income

      —        (0.15 )       —        (0.03 )       (0.16 )       (0.23 ) 

Net realized gains on investments

      —        (1.56 )       (0.27 )       (0.32 )       (1.82 )       —  

Total distributions

      —        (1.71 )       (0.27 )       (0.35 )       (1.98 )       (0.23 ) 

Net Asset Value, end of period

      $41.75        $39.44        $28.10        $22.49        $27.25        $21.05  

TOTAL RETURN

      5.86% 3        46.76%        26.18%        (16.25% )       39.39%        0.92%  

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $812,034        $784,085        $504,538        $463,600        $554,309        $419,516  

Ratio of expenses to average net assets

      1.04% 4        1.08%        1.09%        1.10%        1.12%        1.14%  

Ratio of net investment income (loss) to average net assets

      (0.55% )4        (0.35% )       (0.14% )       —% 5        0.16%        0.30%  

Portfolio turnover6

     16.59% 3        42.78%        38.05%        12.12%        23.19%        13.61%  
INSTITUTIONAL CLASS   

Six-Month

Period Ended

June 30, 2021

(unaudited)

      Year Ended Dec. 31  
   2020      2019      2018      2017      2016  

Net Asset Value, beginning of period

      $39.82        $28.34        $22.65        $27.45        $21.19        $21.24  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)1

     (0.08 )       (0.07 )       — 2        0.05        0.09        0.10  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes

      2.43        13.30        5.96        (4.45 )       8.20        0.13  

Total from investment operations

      2.35        13.23        5.96        (4.40 )       8.29        0.23  

LESS DISTRIBUTIONS FROM:

                  

Net investment income

      —        (0.19 )       —        (0.08 )       (0.21 )       (0.28 ) 

Net realized gains on investments

      —        (1.56 )       (0.27 )       (0.32 )       (1.82 )       —  

Total distributions

      —        (1.75 )       (0.27 )       (0.40 )       (2.03 )       (0.28 ) 

Net Asset Value, end of period

      $42.17        $39.82        $28.34        $22.65        $27.45        $21.19  

TOTAL RETURN

      5.90% 3        47.01%        26.34%        (16.10% )       39.64%        1.06%  

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $1,606,366        $1,269,702        $698,797        $466,733        $296,253        $195,949  

Ratio of expenses to average net assets

      0.90% 4        0.95%        0.94%        0.93%        0.93%        0.96%  

Ratio of net investment income (loss) to average net assets

      (0.41% )4        (0.23% )       —% 5        0.17%        0.35%        0.47%  

Portfolio turnover6

     16.59% 3        42.78%        38.05%        12.12%        23.19%        13.61%  

 

1

Calculated using the average daily shares method.

2

Less than $0.01 per share.

3

Not annualized.

4

Annualized.

5

Less than 0.01%.

6

The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

 

See accompanying notes to financial statements.

 

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Table of Contents

Financial Highlights (continued)

 

Matthews Pacific Tiger Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

 

INVESTOR CLASS   

Six-Month

Period Ended

June 30, 2021

(unaudited)

     Year Ended Dec. 31  
  2020     2019     2018     2017     2016  

Net Asset Value, beginning of period

      $34.94       $28.74       $26.86       $31.66       $22.92       $23.54  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

             

Net investment income (loss)1

      0.04       0.10       0.19       0.24       0.17       0.11  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes

      1.91       8.10       2.68       (3.75 )      8.96       (0.13 ) 

Total from investment operations

      1.95       8.20       2.87       (3.51 )      9.13       (0.02 ) 

LESS DISTRIBUTIONS FROM:

             

Net investment income

      —       (0.08 )      (0.15 )      (0.21 )      (0.17 )      (0.13 ) 

Net realized gains on investments

      —       (1.92 )      (0.84 )      (1.08 )      (0.22 )      (0.47 ) 

Total distributions

      —       (2.00 )      (0.99 )      (1.29 )      (0.39 )      (0.60 ) 

Paid-in capital from redemption fees (Note 4)

      —       —       — 2       —       — 2      —  

Net Asset Value, end of period

      $36.89       $34.94       $28.74       $26.86       $31.66       $22.92  

TOTAL RETURN

      5.58% 3       28.83%       10.72%       (11.11% )      39.96%       (0.16% ) 

RATIOS/SUPPLEMENTAL DATA

             

Net assets, end of period (in 000’s)

      $2,662,537       $2,585,654       $2,536,844       $2,618,155       $3,335,795       $2,445,183  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      1.04% 4       1.08%       1.08%       1.07%       1.08%       1.09%  

Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator

      1.02% 4       1.06%       1.05%       1.04%       1.06%       1.08%  

Ratio of net investment income (loss) to average net assets

      0.23% 4       0.35%       0.66%       0.79%       0.63%       0.47%  

Portfolio turnover5

      29.20% 3       38.11%       17.08%       11.48%       9.18%       5.73%  
INSTITUTIONAL CLASS   

Six-Month
Period Ended
June 30, 2021

(unaudited)

     Year Ended Dec. 31  
  2020     2019     2018     2017     2016  

Net Asset Value, beginning of period

      $34.90       $28.71       $26.83       $31.63       $22.90       $23.52  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

             

Net investment income (loss)1

      0.07       0.13       0.23       0.28       0.22       0.16  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes

      1.90       8.11       2.68       (3.74 )      8.95       (0.14 ) 

Total from investment operations

      1.97       8.24       2.91       (3.46 )      9.17       0.02  

LESS DISTRIBUTIONS FROM:

             

Net investment income

      —       (0.13 )      (0.19 )      (0.26 )      (0.22 )      (0.17 ) 

Net realized gains on investments

      —       (1.92 )      (0.84 )      (1.08 )      (0.22 )      (0.47 ) 

Total distributions

      —       (2.05 )      (1.03 )      (1.34 )      (0.44 )      (0.64 ) 

Paid-in capital from redemption fees (Note 4)

      —       —       — 2       —       — 2      —  

Net Asset Value, end of period

      $36.87       $34.90       $28.71       $26.83       $31.63       $22.90  

TOTAL RETURN

      5.64% 3       28.98%       10.90%       (10.94% )      40.17%       0.03%  

RATIOS/SUPPLEMENTAL DATA

             

Net assets, end of period (in 000’s)

      $7,068,872       $6,172,995       $6,189,015       $5,689,079       $6,389,242       $4,207,508  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      0.91% 4       0.94%       0.93%       0.90%       0.91%       0.91%  

Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator

      0.88% 4       0.92%       0.91%       0.88%       0.89%       0.90%  

Ratio of net investment income (loss) to average net assets

      0.39% 4       0.46%       0.80%       0.95%       0.80%       0.65%  

Portfolio turnover5

      29.20% 3       38.11%       17.08%       11.48%       9.18%       5.73%  

 

1

Calculated using the average daily shares method.

2

Less than $0.01 per share.

3

Not annualized.

4

Annualized.

5

The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

 

See accompanying notes to financial statements.

 

122    MATTHEWS ASIA FUNDS     

Table of Contents

Financial Highlights (continued)

 

Matthews Asia ESG Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

 

INVESTOR CLASS   

Six-Month

Period Ended

June 30, 2021

(unaudited)

      Year Ended Dec. 31  
   2020      2019      2018      2017      2016  

Net Asset Value, beginning of period

      $14.94        $11.08        $9.98        $11.56        $8.97        $9.23  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)1

     (0.03 )       (0.01 )       0.04        0.03        0.05        0.07  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes

      2.19        4.72        1.21        (1.16 )       2.97        (0.20 ) 

Total from investment operations

      2.16        4.71        1.25        (1.13 )       3.02        (0.13 ) 

LESS DISTRIBUTIONS FROM:

                  

Net investment income

      —        (0.01 )       (0.03 )       (0.02 )       (0.27 )       (0.13 ) 

Net realized gains on investments

      —        (0.84 )       (0.12 )       (0.43 )       (0.16 )       —  

Total distributions

      —        (0.85 )       (0.15 )       (0.45 )       (0.43 )       (0.13 ) 

Net Asset Value, end of period

      $17.10        $14.94        $11.08        $9.98        $11.56        $8.97  

TOTAL RETURN

      14.46% 2       42.87%        12.55%        (9.73% )       33.79%        (1.40% ) 

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $47,897        $37,385        $19,291        $9,283        $10,695        $5,376  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      1.19% 3        1.42%        1.54%        2.20%        2.65%        3.54%  

Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator

      1.36% 3        1.38%        1.42%        1.50%        1.50%        1.48%  

Ratio of net investment income (loss) to average net assets

      (0.33% )3       (0.08% )       0.41%        0.27%        0.45%        0.77%  

Portfolio turnover4

     26.52% 2       84.60%        29.67%        22.93%        28.82%        16.10%  
INSTITUTIONAL CLASS   

Six-Month

Period Ended
June 30, 2021

(unaudited)

      Year Ended Dec. 31  
   2020      2019      2018      2017      2016  

Net Asset Value, beginning of period

      $14.92        $11.06        $9.96        $11.50        $8.92        $9.17  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)1

     (0.01 )       0.01        0.06        0.06        0.08        0.09  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes

      2.18        4.72        1.21        (1.16 )       2.95        (0.19 ) 

Total from investment operations

      2.17        4.73        1.27        (1.10 )       3.03        (0.10 ) 

LESS DISTRIBUTIONS FROM:

                  

Net investment income

      —        (0.03 )       (0.05 )       (0.01 )       (0.29 )       (0.15 ) 

Net realized gains on investments

      —        (0.84 )       (0.12 )       (0.43 )       (0.16 )       —  

Total distributions

      —        (0.87 )       (0.17 )       (0.44 )       (0.45 )       (0.15 ) 

Net Asset Value, end of period

      $17.09        $14.92        $11.06        $9.96        $11.50        $8.92  

TOTAL RETURN

      14.54% 2       43.13%        12.74%        (9.52% )       34.11%        (1.16% ) 

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $64,650        $50,642        $36,008        $23,249        $7,359        $3,382  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      1.07% 3        1.29%        1.41%        2.01%        2.46%        3.36%  

Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator

      1.20% 3        1.20%        1.24%        1.25%        1.25%        1.25%  

Ratio of net investment income (loss) to average net assets

      (0.17% )3       0.09%        0.54%        0.55%        0.71%        0.97%  

Portfolio turnover4

     26.52% 2       84.60%        29.67%        22.93%        28.82%        16.10%  

 

1

Calculated using the average daily shares method.

2

Not annualized.

3

Annualized.

4

The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

 

See accompanying notes to financial statements.

 

     matthewsasia.com  |  800.789.ASIA      123  

Table of Contents

Financial Highlights (continued)

 

Matthews Asia Innovators Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

 

INVESTOR CLASS   

Six-Month

Period Ended

June 30, 2021

(unaudited)

      Year Ended Dec. 31  
   2020      2019      2018      2017      2016  

Net Asset Value, beginning of period

      $26.70        $14.55        $11.26        $14.19        $10.10        $12.32  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)1

     (0.08 )       (0.11 )       (0.01 )       (0.01 )       (0.02 )       (0.02 ) 

Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes

      1.41        12.71        3.34        (2.62 )       5.31        (1.07 ) 

Total from investment operations

      1.33        12.60        3.33        (2.63 )       5.29        (1.09 ) 

LESS DISTRIBUTIONS FROM:

                  

Net investment income

      —        —        —        (0.04 )       (0.24 )       —  

Net realized gains on investments

      —        (0.45 )       (0.04 )       (0.26 )       (0.96 )       (1.13 ) 

Total distributions

      —        (0.45 )       (0.04 )       (0.30 )       (1.20 )       (1.13 ) 

Net Asset Value, end of period

      $28.03        $26.70        $14.55        $11.26        $14.19        $10.10  

TOTAL RETURN

      5.02% 2        86.72%        29.60%        (18.62% )       52.88%        (9.10% ) 

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $732,976        $631,101        $177,639        $152,449        $175,331        $83,926  

Ratio of expenses to average net assets

      1.05% 3        1.10%        1.19%        1.19%        1.24%        1.24%  

Ratio of net investment income (loss) to average net assets

      (0.58% )3        (0.60% )       (0.04% )       (0.07% )       (0.18% )       (0.19% ) 

Portfolio turnover4

     97.55% 2        119.81%        80.10%        85.73%        66.51%        92.25%  
INSTITUTIONAL CLASS   

Six-Month

Period Ended

June 30, 2021

(unaudited)

      Year Ended Dec. 31  
   2020      2019      2018      2017      2016  

Net Asset Value, beginning of period

      $26.91        $14.64        $11.32        $14.26        $10.14        $12.34  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)1

     (0.06 )       (0.09 )       0.01        0.01        0.01        0.01  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes

      1.43        12.81        3.35        (2.62 )       5.33        (1.08 ) 

Total from investment operations

      1.37        12.72        3.36        (2.61 )       5.34        (1.07 ) 

LESS DISTRIBUTIONS FROM:

                  

Net investment income

      —        —        —        (0.07 )       (0.26 )       —  

Net realized gains on investments

      —        (0.45 )       (0.04 )       (0.26 )       (0.96 )       (1.13 ) 

Total distributions

      —        (0.45 )       (0.04 )       (0.33 )       (1.22 )       (1.13 ) 

Net Asset Value, end of period

      $28.28        $26.91        $14.64        $11.32        $14.26        $10.14  

TOTAL RETURN

      5.09% 2        87.01%        29.71%        (18.40% )       53.18%        (8.92% ) 

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $1,454,071        $1,094,356        $126,911        $91,769        $30,957        $16,545  

Ratio of expenses to average net assets

      0.90% 3        0.95%        1.05%        1.02%        1.05%        1.01%  

Ratio of net investment income (loss) to average net assets

      (0.42% )3        (0.44% )       0.10%        0.07%        0.06%        0.06%  

Portfolio turnover4

     97.55% 2        119.81%        80.10%        85.73%        66.51%        92.25%  

 

1

Calculated using the average daily shares method.

2

Not annualized.

3

Annualized.

4

The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

 

See accompanying notes to financial statements.

 

124    MATTHEWS ASIA FUNDS     

Table of Contents

Financial Highlights (continued)

 

Matthews China Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

 

INVESTOR CLASS    Six-Month
Period Ended
June 30,  2021
(unaudited)		      Year Ended Dec. 31  
   2020      2019      2018      2017      20161  

Net Asset Value, beginning of period

      $27.00        $19.12        $14.37        $22.20        $15.47        $18.42  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)2

      0.04        0.05        0.16        0.21        0.16        0.21  

Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency related transactions

      1.85        8.17        4.80        (4.84 )       8 86        (1 04 ) 

Total from investment operations

      1.89        8.22        4.96        (4.63 )       9.02        (0.83 ) 

LESS DISTRIBUTIONS FROM:

                  

Net investment income

      —        (0.06 )       (0.21 )       (0.29 )       (0.37 )       (0.26 ) 

Net realized gains on investments

      —        (0.28 )       —        (2.91 )       (1.92 )       (1.29 ) 

Return of capital

      —        —        —        —        —        (0.57 ) 

Total distributions

      —        (0.34 )       (0.21 )       (3.20 )       (2.29 )       (2.12 ) 

Paid-in capital from redemption fees (Note 4)

      —        —        —        —        —        — 3  

Net Asset Value, end of period

      $28.89        $27.00        $19.12        $14.37        $22.20        $15.47  

TOTAL RETURN

      7.00% 4        43.05%        34.56%        (21.42% )       59.37%        (5.18% ) 

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $999,977        $962,714        $718,633        $566,456        $843,508        $495,900  

Ratio of expenses to average net assets

      1.04% 5        1.09%        1.09%        1.10%        1.09%        1.18%  

Ratio of net investment income (loss) to average net assets

      0.30% 5        0.22%        0.96%        1.00%        0.78%        1.24%  

Portfolio turnover6

     36.76% 4        52.64%        68.93%        96.98%        78.74%        83.82%  
INSTITUTIONAL CLASS   

Six-Month

Period Ended

June 30, 2021

(unaudited)

      Year Ended Dec. 31  
   2020      2019      2018      2017      20161  

Net Asset Value, beginning of period

      $26.94        $19.08        $14.33        $22.17        $15.44        $18.39  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)2

      0.10        0.09        0.20        0.33        0.21        0.22  

Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency related transactions

      1.82        8.15        4.80        (4.93 )       8.84        (1.03 ) 

Total from investment operations

      1.92        8.24        5.00        (4.60 )       9.05        (0.81 ) 

LESS DISTRIBUTIONS FROM:

                  

Net investment income

      —        (0.10 )       (0.25 )       (0.33 )       (0.40 )       (0.28 ) 

Net realized gains on investments

      —        (0.28 )       —        (2.91 )       (1.92 )       (1.29 ) 

Return of capital

      —        —        —        —        —        (0.57 ) 

Total distributions

      —        (0.38 )       (0.25 )       (3.24 )       (2.32 )       (2.14 ) 

Paid-in capital from redemption fees (Note 4)

      —        —        —        —        —        — 3  

Net Asset Value, end of period

      $28.86        $26.94        $19.08        $14.33        $22.17        $15.44  

TOTAL RETURN

      7.13% 4        43.23%        34.90%        (21.32% )       59.71%        (5.06% ) 

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $815,792        $546,157        $183,762        $46,657        $61,975        $15,874  

Ratio of expenses to average net assets

      0.89% 5        0.93%        0.91%        0.91%        0.93%        1.03%  

Ratio of net investment income (loss) to average net assets

      0.71% 5        0.40%        1.17%        1.53%        0.99%        1.32%  

Portfolio turnover6

     36.76% 4        52.64%        68.93%        96.98%        78.74%        83.82%  

 

1

Consolidated Financial Highlights. See Note 2-C.

2

Calculated using the average daily shares method.

3

Less than $0.01 per share.

4

Not annualized.

5

Annualized.

6

The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

 

See accompanying notes to financial statements.

 

     matthewsasia.com  |  800.789.ASIA      125  

Table of Contents

Financial Highlights (continued)

 

Matthews China Small Companies Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

 

INVESTOR CLASS   

Six-Month

Period Ended

June 30, 2021

(unaudited)

      Year Ended Dec. 31  
   2020      2019      2018      2017      2016  

Net Asset Value, beginning of period

      $19.86        $12.84        $9.58        $11.89        $8.21        $8.79  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)1

     0.08        (0.03 )       0.14        0.09        0.07        0.10  

Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency related transactions

      2.46        10.42        3.24        (2.23 )       4.27        (0.28 ) 

Total from investment operations

      2.54        10.39        3.38        (2.14 )       4.34        (0.18 ) 

LESS DISTRIBUTIONS FROM:

                  

Net investment income

      —        (0.13 )       (0.13 )       (0.05 )       (0.11 )       (0.03 ) 

Net realized gains on investments

      —        (3.24 )       —        (0.16 )       (0.56 )       (0.37 ) 

Total distributions

      —        (3.37 )       (0.13 )       (0.21 )       (0.67 )       (0.40 ) 

Paid-in capital from redemption fees (Note 4)

      —        —        0.01 2        0.04        0.01        — 3  

Net Asset Value, end of period

      $22.40        $19.86        $12.84        $9.58        $11.89        $8.21  

TOTAL RETURN

      12.79% 4        82.52%        35.41%        (17.68% )       53.88%        (2.35% ) 

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $347,758        $285,717        $63,432        $41,740        $35,209        $16,101  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      1.45% 5        1.52%        1.62%        1.97%        2.34%        2.24%  

Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator

      1.41% 5        1.43%        1.42%        1.50%        1.50%        1.50%  

Ratio of net investment income (loss) to average net assets

      0.78% 5        (0.14% )       1.25%        0.78%        0.66%        1.17%  

Portfolio turnover6

     70.13% 4        152.86%        68.17%        76.67%        67.22%        63.15%  
INSTITUTIONAL CLASS   

Six-Month

Period Ended

June 30, 2021

(unaudited)

      Year Ended Dec. 31     

Period Ended
Dec. 31, 20177

        

 

  
   2020      2019      2018  

Net Asset Value, beginning of period

      $19.90        $12.86        $9.59        $11.87        $11.90           

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)1

     0.13        0.04        0.15        0.11        (0.01 )    

Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency related transactions

      2.44        10.42        3.26        (2.21 )       0.67           

Total from investment operations

      2.57        10.46        3.41        (2.10 )       0.66           

LESS DISTRIBUTIONS FROM:

                  

Net investment income

      —        (0.18 )       (0.15 )       (0.05 )       (0.13 )    

Net realized gains on investments

      —        (3.24 )       —        (0.16 )       (0.56 )          

Total distributions

      —        (3.42 )       (0.15 )       (0.21 )       (0.69 )          

Paid-in capital from redemption fees (Note 4)

      —        —        0.01 2        0.03        —           

Net Asset Value, end of period

      $22.47        $19.90        $12.86        $9.59        $11.87           

TOTAL RETURN

      12.91% 4        82.89%        35.68%        (17.48% )       6.19% 4          

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $152,116        $98,052        $32,376        $20,740        $476           

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      1.32% 5        1.37%        1.51%        1.79%        2.09% 5           

Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator

      1.20% 5        1.20%        1.24%        1.25%        1.25% 5           

Ratio of net investment income (loss) to average net assets

      1.22% 5        0.20%        1.34%        1.05%        (1.20% )5          

Portfolio turnover6

     70.13% 4        152.86%        68.17%        76.67%        67.22% 4    

 

1

Calculated using the average daily shares method.

2

The Fund charged redemption fees through October 31, 2019.

3

Less than $0.01 per share.

4

Not annualized.

5

Annualized.

6

The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

7

Commenced operations on November 30, 2017.

 

See accompanying notes to financial statements.

 

126    MATTHEWS ASIA FUNDS     

Table of Contents

Financial Highlights (continued)

 

Matthews India Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

 

INVESTOR CLASS   

Six-Month

Period Ended

June 30, 2021

(unaudited)

      Year Ended Dec. 31  
   2020      2019      2018      2017      2016  

Net Asset Value, beginning of period

      $26.29        $23.27        $26.32        $34.31        $25.65        $26.43  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)1

     (0.05 )       0.01        (0.01 )       (0.05 )       (0.09 )       0.01  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes

      2.95        3.81        (0.24 )       (3.60 )       9.24        (0.33 ) 

Total from investment operations

      2.90        3.82        (0.25 )       (3.65 )       9.15        (0.32 ) 

LESS DISTRIBUTIONS FROM:

                  

Net realized gains on investments

      —        (0.80 )       (2.80 )       (4.34 )       (0.49 )       (0.46 ) 

Net Asset Value, end of period

      $29.19        $26.29        $23.27        $26.32        $34.31        $25.65  

TOTAL RETURN

      11.03% 2        16.51%        (0.88% )       (10.09% )       35.79%        (1.23% ) 

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $632,491        $617,908        $786,881        $1,077,990        $1,484,045        $967,009  

Ratio of expenses to average net assets

      1.11% 3        1.15%        1.11%        1.09%        1.09%        1.12%  

Ratio of net investment income (loss) to average net assets

      (0.34% )3        0.05%        (0.03% )       (0.16% )       (0.30% )       0.02%  

Portfolio turnover4

     18.80% 2        57.38%        24.00%        20.87%        16.81%        15.76%  
INSTITUTIONAL CLASS   

Six-Month

Period Ended

June 30, 2021

(unaudited)

      Year Ended Dec. 31  
   2020      2019      2018      2017      20161  

Net Asset Value, beginning of period

      $26.65        $23.55        $26.56        $34.51        $25.77        $26.49  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)1

     (0.01 )       0.05        0.02        0.01        (0.03 )       0.04  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes

      2.96        3.85        (0.23 )       (3.62 )       9.29        (0.30 ) 

Total from investment operations

      2.95        3.90        (0.21 )       (3.61 )       9.26        (0.26 ) 

LESS DISTRIBUTIONS FROM:

                  

Net investment income

      —        —        —        —        (0.03 )       —  

Net realized gains on investments

      —        (0.80 )       (2.80 )       (4.34 )       (0.49 )       (0.46 ) 

Total distributions

      —        (0.80 )       (2.80 )       (4.34 )       (0.52 )       (0.46 ) 

Net Asset Value, end of period

      $29.60        $26.65        $23.55        $26.56        $34.51        $25.77  

TOTAL RETURN

      11.07% 2        16.65%        (0.76% )       (9.92% )       36.05%        (1.00% ) 

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $122,356        $90,053        $177,526        $463,790        $788,388        $551,202  

Ratio of expenses to average net assets

      0.98% 3        1.03%        0.94%        0.90%        0.89%        0.91%  

Ratio of net investment income (loss) to average net assets

      (0.09% )3        0.24%        0.09%        0.02%        (0.08% )       0.16%  

Portfolio turnover4

     18.80% 2        57.38%        24.00%        20.87%        16.81%        15.76%  

 

1

Calculated using the average daily shares method.

2

Not annualized.

3

Annualized.

4

The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

 

See accompanying notes to financial statements.

 

     matthewsasia.com  |  800.789.ASIA      127  

Table of Contents

Financial Highlights (continued)

 

Matthews Japan Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

 

INVESTOR CLASS   

Six-Month
Period Ended

June 30, 2021

(unaudited)

     Year Ended Dec. 31  
  2020     2019     2018     2017     2016  

Net Asset Value, beginning of period

      $25.27       $21.51       $18.53       $24.12       $18.83       $18.97  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

             

Net investment income (loss)1

     0.07       0.07       0.11       0.09       0.09       0.08  

Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency related transactions

      (1.51 )      6.25       4.73       (4.91 )      6.13       (0.01 ) 

Total from investment operations

      (1.44 )      6.32       4.84       (4.82 )      6.22       0.07  

LESS DISTRIBUTIONS FROM:

             

Net investment income

      —       (0.13 )      (0.12 )      (0.06 )      (0.20 )      (0.16 ) 

Net realized gains on investments

      —       (2.43 )      (1.74 )      (0.71 )      (0.73 )      (0.05 ) 

Total distributions

      —       (2.56 )      (1.86 )      (0.77 )      (0.93 )      (0.21 ) 

Net Asset Value, end of period

      $23.83       $25.27       $21.51       $18.53       $24.12       $18.83  

TOTAL RETURN

      (5.70% )2       29.82%       26.08%       (20.18% )      33.14%       0.40%  

RATIOS/SUPPLEMENTAL DATA

             

Net assets, end of period (in 000’s)

      $398,998       $1,101,820       $1,466,194       $1,704,102       $2,155,280       $1,685,872  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      0.95% 3       0.95%       0.93%       0.91%       0.95%       0.98%  

Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator

      0.95% 3       0.95%       0.93%       0.91%       0.94%       0.98%  

Ratio of net investment income (loss) to average net assets

      0.54% 3       0.31%       0.51%       0.40%       0.40%       0.43%  

Portfolio turnover4

     35.90% 2       62.03%       25.42%       46.11%       44.34%       55.15%  
INSTITUTIONAL CLASS   

Six-Month
Period Ended
June 30, 2021

(unaudited)

     Year Ended Dec. 31  
  2020     2019     2018     2017     2016  

Net Asset Value, beginning of period

      $25.32       $21.55       $18.57       $24.16       $18.86       $19.00  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

             

Net investment income (loss)1

     0.05       0.05       0.11       0.11       0.10       0.10  

Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency related transactions

      (1.48 )      6.29       4.74       (4.91 )      6.14       — 5  

Total from investment operations

      (1.43 )      6.34       4.85       (4.80 )      6.24       0.10  

LESS DISTRIBUTIONS FROM:

             

Net investment income

      —       (0.14 )      (0.13 )      (0.08 )      (0.21 )      (0.19 ) 

Net realized gains on investments

      —       (2.43 )      (1.74 )      (0.71 )      (0.73 )      (0.05 ) 

Total distributions

      —       (2.57 )      (1.87 )      (0.79 )      (0.94 )      (0.24 ) 

Net Asset Value, end of period

      $23.89       $25.32       $21.55       $18.57       $24.16       $18.86  

TOTAL RETURN

      (5.65% )2       29.85%       26.10%       (20.08% )      33.23%       0.51%  

RATIOS/SUPPLEMENTAL DATA

             

Net assets, end of period (in 000’s)

      $1,263,149       $548,968       $840,476       $1,167,472       $1,957,214       $1,302,317  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      0.88% 3       0.91%       0.88%       0.85%       0.87%       0.88%  

Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator

      0.88% 3       0.91%       0.88%       0.84%       0.86%       0.88%  

Ratio of net investment income (loss) to average net assets

      0.46% 3       0.25%       0.53%       0.46%       0.46%       0.54%  

Portfolio turnover4

     35.90% 2       62.03%       25.42%       46.11%       44.34%       55.15%  

 

1

Calculated using the average daily shares method.

2

Not annualized.

3

Annualized.

4

The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

5

Less than $0.01 per share.

 

See accompanying notes to financial statements.

 

128    MATTHEWS ASIA FUNDS     

Table of Contents

Financial Highlights (continued)

 

Matthews Korea Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

 

INVESTOR CLASS   

Six-Month
Period Ended

June 30, 2021

(unaudited)

      Year Ended Dec. 31  
   2020      2019      2018      2017      2016  

Net Asset Value, beginning of period

      $6.12        $4.38        $4.58        $6.91        $5.25        $6.15  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)1

      0.01        0.02        0.01        0.06        0.06        0.02  

Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency related transactions

      0.73        1.76        0.16        (1.61 )       2.22        (0.41 ) 

Total from investment operations

      0.74        1.78        0.17        (1.55 )       2.28        (0.39 ) 

LESS DISTRIBUTIONS FROM:

                  

Net investment income

      —        (0.04 )       —        (0.13 )       (0.29 )       (0.08 ) 

Net realized gains on investments

      —        —        (0.37 )       (0.65 )       (0.33 )       (0.43 ) 

Total distributions

      —        (0.04 )       (0.37 )       (0.78 )       (0.62 )       (0.51 ) 

Net Asset Value, end of period

      $6.86        $6.12        $4.38        $4.58        $6.91        $5.25  

TOTAL RETURN

      12.09% 2       40.77%        3.80%        (22.21% )       43.70%        (6.32% ) 

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $143,055        $141,931        $113,388        $127,080        $192,431        $142,726  

Ratio of expenses to average net assets

      1.10% 3       1.19%        1.15%        1.14%        1.15%        1.15%  

Ratio of net investment income (loss) to average net assets

      0.40% 3       0.50%        0.28%        1.01%        0.90%        0.41%  

Portfolio turnover4

      20.78% 2       39.62%        36.63%        35.60%        25.37%        34.73%  
INSTITUTIONAL CLASS   

Six-Month
Period Ended
June 30, 2021

(unaudited)

      Year Ended Dec. 31  
   2020      2019      2018      2017      2016  

Net Asset Value, beginning of period

      $6.17        $4.42        $4.61        $6.95        $5.27        $6.18  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)1

      0.02        0.01        0.01        0.04        0.10        (0.02 ) 

Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency related transactions

      0.73        1.79        0.17        (1.60 )       2.21        (0.37 ) 

Total from investment operations

      0.75        1.80        0.18        (1.56 )       2.31        (0.39 ) 

LESS DISTRIBUTIONS FROM:

                  

Net investment income

      —        (0.05 )       —        (0.13 )       (0.30 )       (0.09 ) 

Net realized gains on investments

      —        —        (0.37 )       (0.65 )       (0.33 )       (0.43 ) 

Total distributions

      —        (0.05 )       (0.37 )       (0.78 )       (0.63 )       (0.52 ) 

Net Asset Value, end of period

      $6.92        $6.17        $4.42        $4.61        $6.95        $5.27  

TOTAL RETURN

      12.16% 2       40.76%        4.01%        (22.15% )       44.11%        (6.31% ) 

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $17,774        $12,192        $23,426        $19,377        $32,587        $7,462  

Ratio of expenses to average net assets

      0.99% 3       1.05%        1.05%        1.02%        1.01%        0.97%  

Ratio of net investment income (loss) to average net assets

      0.49% 3       0.28%        0.29%        0.67%        1.51%        (0.31% ) 

Portfolio turnover4

      20.78% 2       39.62%        36.63%        35.60%        25.37%        34.73%  

 

1

Calculated using the average daily shares method.

2

Not annualized.

3

Annualized.

4

The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

 

See accompanying notes to financial statements.

 

     matthewsasia.com  |  800.789.ASIA      129  

Table of Contents

Financial Highlights (continued)

 

Matthews Asian Growth And Income Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

 

INVESTOR CLASS   

Six-Month
Period Ended
June 30, 2021

(Unaudited)

      Year Ended Dec. 31  
   2020      2019      2018      2017      2016  

Net Asset Value, beginning of period

      $18.05        $15.73        $13.92        $17.46        $14.94        $16.03  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)1

      0.13        0.21        0.25        0.32        0.33        0.32  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes

      0.64        2.27        2.13        (2.20 )       2.92        (0.06 ) 

Total from investment operations

      0.77        2.48        2.38        (1.88 )       3.25        0.26  

LESS DISTRIBUTIONS FROM:

                  

Net investment income

      (0.12 )       (0.16 )       (0.35 )       (0.32 )       (0.46 )       (0.48 ) 

Net realized gains on investments

      —        — 2       (0.22 )       (1.34 )       (0.27 )       (0.87 ) 

Total distributions

      (0.12 )       (0.16 )       (0.57 )       (1.66 )       (0.73 )       (1.35 ) 

Paid-in capital from redemption fees (Note 4)

      —        —        —        —        — 2       —  

Net Asset Value, end of period

      $18.70        $18.05        $15.73        $13.92        $17.46        $14.94  

TOTAL RETURN

      4.29% 3       16.00%        17.26%        (10.96% )       21.85%        1.34%  

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $646,674        $673,576        $723,815        $799,328        $1,535,746        $1,684,987  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      1.06% 4       1.09%        1.08%        1.08%        1.07%        1.09%  

Ratio of net investment income (loss) to average net assets

      1.40% 4       1.38%        1.67%        1.95%        1.95%        1.90%  

Portfolio turnover5

      25.68% 3       36.27%        21.89%        32.24%        23.23%        15.64%  

INSTITUTIONAL CLASS

   

Six-Month
Period Ended
June 30, 2021

(Unaudited)

      Year Ended Dec. 31  
   2020      2019      2018      2017      2016  

Net Asset Value, beginning of period

      $18.02        $15.70        $13.89        $17.43        $14.92        $16.02  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)1

      0.15        0.23        0.27        0.35        0.36        0.34  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes

      0.64        2.27        2.14        (2.20 )       2.91        (0.07 ) 

Total from investment operations

      0.79        2.50        2.41        (1.85 )       3.27        0.27  

LESS DISTRIBUTIONS FROM:

                  

Net investment income

      (0.14 )       (0.18 )       (0.38 )       (0.35 )       (0.49 )       (0.50 ) 

Net realized gains on investments

      —        — 2       (0.22 )       (1.34 )       (0.27 )       (0.87 ) 

Total distributions

      (0.14 )       (0.18 )       (0.60 )       (1.69 )       (0.76 )       (1.37 ) 

Paid-in capital from redemption fees (Note 4)

      —        —        —        —        — 2       —  

Net Asset Value, end of period

      $18.67        $18.02        $15.70        $13.89        $17.43        $14.92  

TOTAL RETURN

      4.37% 3       16.18%        17.46%        (10.84% )       22.00%        1.44%  

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $826,240        $822,179        $743,951        $596,364        $1,310,168        $809,254  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      0.94% 4       0.96%        0.94%        0.93%        0.93%        0.94%  

Ratio of net investment income (loss) to average net assets

      1.59% 4       1.51%        1.80%        2.14%        2.16%        2.06%  

Portfolio turnover5

      25.68% 3       36.27%        21.89%        32.24%        23.23%        15.64%  

 

1

Calculated using the average daily shares method.

2

Less than $0.01 per share.

3

Not annualized.

4

Annualized.

5

The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

 

See accompanying notes to financial statements.

 

130    MATTHEWS ASIA FUNDS     

Table of Contents

Financial Highlights (continued)

 

Matthews Asia Dividend Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

 

INVESTOR CLASS  

Six-Month

Period Ended
June 30, 2021

(Unaudited)

     Year Ended Dec. 31  
  2020     2019     2018     2017     20161  

Net Asset Value, beginning of period

     $22.63       $17.47       $16.05       $19.74       $15.52       $15.36  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

            

Net investment income (loss)2

     0.12       0.15       0.28       0.37       0.31       0.28  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes

     0.45       5.23       1.50       (2.83 )      5.02       0.37  

Total from investment operations

     0.57       5.38       1.78       (2.46 )      5.33       0.65  

LESS DISTRIBUTIONS FROM:

            

Net investment income

     (0.12 )      (0.22 )      (0.36 )      (0.31 )      (0.69 )      (0.29 ) 

Net realized gains on investments

     —       —       —       (0.92 )      (0.42 )      (0.11 ) 

Return of capital

     —       —       —       —       —       (0.09 ) 

Total distributions

     (0.12 )      (0.22 )      (0.36 )      (1.23 )      (1.11 )      (0.49 ) 

Paid-in capital from redemption fees (Note 4)

     —       —       —       —       — 3      —  

Net Asset Value, end of period

     $23.08       $22.63       $17.47       $16.05       $19.74       $15.52  

TOTAL RETURN

     2.55% 4      31.25%       11.17%       (12.72% )      34.69%       4.13%  

RATIOS/SUPPLEMENTAL DATA

            

Net assets, end of period (in 000’s)

     $1,920,283       $2,292,262       $2,312,560       $2,728,599       $3,713,276       $2,650,611  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

     1.00% 5      1.03%       1.03%       1.02%       1.03%       1.06%  

Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator

     0.99% 5      1.02%       1.02%       1.01%       1.02%       1.06%  

Ratio of net investment income (loss) to average net assets

     1.02% 5      0.85%       1.68%       1.97%       1.67%       1.79%  

Portfolio turnover6

    26.05% 4      37.73%       30.32%       39.75%       28.11%       39.76%  
INSTITUTIONAL CLASS  

Six-Month

Period Ended
June 30, 2021

(Unaudited)

     Year Ended Dec. 31  
  2020     2019     2018     2017     20161  

Net Asset Value, beginning of period

     $22.62       $17.47       $16.04       $19.73       $15.52       $15.35  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

            

Net investment income (loss)2

     0.14       0.16       0.30       0.39       0.33       0.30  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, foreign currency related transactions and foreign capital gains taxes

     0.46       5.22       1.50       (2.83 )      5.01       0.38  

Total from investment operations

     0.60       5.38       1.80       (2.44 )      5.34       0.68  

LESS DISTRIBUTIONS FROM:

            

Net investment income

     (0.14 )      (0.23 )      (0.37 )      (0.33 )      (0.71 )      (0.31 ) 

Net realized gains on investments

     —       —       —       (0.92 )      (0.42 )      (0.11 ) 

Return of capital

     —       —       —       —       —       (0.09 ) 

Total distributions

     (0.14 )      (0.23 )      (0.37 )      (1.25 )      (1.13 )      (0.51 ) 

Paid-in capital from redemption fees (Note 4)

     —       —       —       —       — 3      —  

Net Asset Value, end of period

     $23.08       $22.62       $17.47       $16.04       $19.73       $15.52  

TOTAL RETURN

     2.66% 4      31.29%       11.35%       (12.64% )      34.77%       4.33%  

RATIOS/SUPPLEMENTAL DATA

            

Net assets, end of period (in 000’s)

     $3,794,776       $2,908,674       $3,057,896       $3,039,226       $3,284,070       $2,034,276  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

     0.90% 5      0.93%       0.93%       0.91%       0.92%       0.94%  

Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator

     0.89% 5      0.93%       0.92%       0.90%       0.91%       0.93%  

Ratio of net investment income (loss) to average net assets

     1.24% 5      0.91%       1.80%       2.09%       1.81%       1.91%  

Portfolio turnover6

    26.05% 4      37.73%       30.32%       39.75%       28.11%       39.76%  

 

1

Consolidated Financial Highlights. See Note 2-C.

2

Calculated using the average daily shares method.

3

Less than $0.01 per share.

4

Not annualized.

5

Annualized.

6

The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

 

See accompanying notes to financial statements.

 

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Table of Contents

Financial Highlights (continued)

 

Matthews China Dividend Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

 

INVESTOR CLASS   

Six-Month
Period Ended
June 30, 2021

(unaudited)

      Year Ended Dec. 31  
   2020      2019      2018      2017      2016  

Net Asset Value, beginning of period

      $19.64        $16.20        $14.32        $17.61        $14.09        $13.79  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)1

      0.31        0.30        0.34        0.41        0.35        0.31  

Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency related transactions

      2.07        3.54        1.80        (2.09 )       4.85        0.47  

Total from investment operations

      2.38        3.84        2.14        (1.68 )       5.20        0.78  

LESS DISTRIBUTIONS FROM:

                  

Net investment income

      (0.38 )       (0.40 )       (0.26 )       (0.40 )       (0.49 )       (0.28 ) 

Net realized gains on investments

      —        —        —        (1.21 )       (1.19 )       (0.20 ) 

Total distributions

      (0.38 )       (0.40 )       (0.26 )       (1.61 )       (1.68 )       (0.48 ) 

Net Asset Value, end of period

      $21.64        $19.64        $16.20        $14.32        $17.61        $14.09  

TOTAL RETURN

      12.11% 2       24.22%        15.00%        (9.98% )       37.69%        5.70%  

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $275,248        $269,192        $258,111        $196,626        $260,593        $160,400  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      1.09% 3       1.15%        1.15%        1.15%        1.19%        1.22%  

Ratio of net investment income (loss) to average net assets

      3.07% 3       1.79%        2.14%        2.33%        2.12%        2.28%  

Portfolio turnover4

      34.75% 2       81.79%        65.69%        66.47%        69.14%        72.96%  
INSTITUTIONAL CLASS   

Six-Month
Period Ended
June 30, 2021

(unaudited)

      Year Ended Dec. 31  
   2020      2019      2018      2017      2016  

Net Asset Value, beginning of period

      $19.64        $16.20        $14.32        $17.61        $14.09        $13.79  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)1

      0.46        0.31        0.35        0.42        0.37        0.29  

Net realized gain (loss) and unrealized appreciation/depreciation on investments and foreign currency related transactions

      1.92        3.55        1.81        (2.07 )       4.85        0.51  

Total from investment operations

      2.38        3.86        2.16        (1.65 )       5.22        0.80  

LESS DISTRIBUTIONS FROM:

                  

Net investment income

      (0.39 )       (0.42 )       (0.28 )       (0.43 )       (0.51 )       (0.30 ) 

Net realized gains on investments

      —        —        —        (1.21 )       (1.19 )       (0.20 ) 

Total distributions

      (0.39 )       (0.42 )       (0.28 )       (1.64 )       (1.70 )       (0.50 ) 

Net Asset Value, end of period

      $21.63        $19.64        $16.20        $14.32        $17.61        $14.09  

TOTAL RETURN

      12.14% 2       24.37%        15.16%        (9.83% )       37.88%        5.90%  

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $178,770        $115,451        $122,630        $73,033        $54,147        $27,758  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      0.96% 3       1.02%        1.01%        1.01%        1.04%        1.06%  

Ratio of net investment income (loss) to average net assets

      4.46% 3       1.85%        2.25%        2.44%        2.25%        2.09%  

Portfolio turnover4

      34.75% 2       81.79%        65.69%        66.47%        69.14%        72.96%  

 

1

Calculated using the average daily shares method.

2

Not annualized.

3

Annualized.

4

The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

 

See accompanying notes to financial statements.

 

132    MATTHEWS ASIA FUNDS     

Table of Contents

Financial Highlights (continued)

 

Matthews Asia Total Return Bond Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

 

INVESTOR CLASS   

Six-Month

Period Ended

June 30, 2021

(Unaudited)

      Year Ended Dec. 31  
   2020      2019      2018      2017      2016  

Net Asset Value, beginning of period

      $11.25        $11.12        $10.25        $10.98        $10.43        $9.96  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)1

      0.21        0.46        0.50        0.40        0.51        0.50  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, forward foreign currency exchange contracts, swaps, foreign currency related transactions, and foreign capital gains taxes

      (0.39 )       0.11        0.81        (0.84 )       0.46        0.38  

Total from investment operations

      (0.18 )       0.57        1.31        (0.44 )       0.97        0.88  

LESS DISTRIBUTIONS FROM:

                  

Net investment income

      (0.20 )       (0.44 )       (0.44 )       (0.25 )       (0.42 )       (0.41 ) 

Return of capital

      —        —        —        (0.04 )       —        —  

Total distributions

      (0.20 )       (0.44 )       (0.44 )       (0.29 )       (0.42 )       (0.41 ) 

Net Asset Value, end of period

      $10.87        $11.25        $11.12        $10.25        $10.98        $10.43  

TOTAL RETURN

      (1.63% )2       5.36%        13.00%        (4.05% )       9.40%        8.85%  

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $38,108        $40,422        $39,485        $40,698        $63,437        $55,409  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      1.03% 3       1.15%        1.08%        1.23%        1.29%        1.33%  

Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator

      1.03% 3       1.12%        1.07%        1.15%        1.15%        1.15%  

Ratio of net investment income (loss) to average net assets

      3.84% 3       4.32%        4.61%        3.76%        4.70%        4.85%  

Portfolio turnover4

     22.92% 2       39.71%        84.38%        82.32%        36.58%        71.50%  
INSTITUTIONAL CLASS   

Six-Month
Period Ended
June 30, 2021

(Unaudited)

      Year Ended Dec. 31  
   2020      2019      2018      2017      2016  

Net Asset Value, beginning of period

      $11.25        $11.12        $10.25        $10.97        $10.42        $9.96  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                  

Net investment income (loss)1

      0.22        0.49        0.52        0.42        0.53        0.53  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, forward foreign currency exchange contracts, swaps, foreign currency related transactions, and foreign capital gains taxes

      (0.40 )       0.10        0.81        (0.83 )       0.47        0.36  

Total from investment operations

      (0.18 )       0.59        1.33        (0.41 )       1.00        0.89  

LESS DISTRIBUTIONS FROM:

                  

Net investment income

      (0.20 )       (0.46 )       (0.46 )       (0.27 )       (0.45 )       (0.43 ) 

Return of capital

      —        —        —        (0.04 )       —        —  

Total distributions

      (0.20 )       (0.46 )       (0.46 )       (0.31 )       (0.45 )       (0.43 ) 

Net Asset Value, end of period

      $10.87        $11.25        $11.12        $10.25        $10.97        $10.42  

TOTAL RETURN

      (1.56% )2       5.60%        13.20%        (3.78% )       9.67%        9.02%  

RATIOS/SUPPLEMENTAL DATA

                  

Net assets, end of period (in 000’s)

      $101,864        $74,426        $77,228        $60,017        $31,155        $13,398  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      0.87% 3        1.00%        0.97%        1.04%        1.08%        1.12%  

Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator

      0.87% 3       0.90%        0.90%        0.90%        0.90%        0.90%  

Ratio of net investment income (loss) to average net assets

      4.02% 3       4.56%        4.81%        4.03%        4.93%        5.13%  

Portfolio turnover4

      22.92% 2       39.71%        84.38%        82.32%        36.58%        71.50%  

 

1

Calculated using the average daily shares method.

2

Not annualized.

3

Annualized.

4

The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

 

See accompanying notes to financial statements.

 

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Table of Contents

Financial Highlights (continued)

 

Matthews Asia Credit Opportunities Fund

The tables below set forth financial data for a share of beneficial interest outstanding throughout each period presented.

 

INVESTOR CLASS   

Six-Month
Period Ended
June 30, 2021

(Unaudited)

     Year Ended Dec. 31     

Period Ended

Dec. 31, 20161

  
  2020      2019      2018      2017  

Net Asset Value, beginning of period

      $10.27       $10.57        $9.76        $10.39        $10.13        $10.00  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                 

Net investment income (loss)2

      0.21       0.46        0.47        0.37        0.44        0.29  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, swaps, and foreign currency related transactions

      (0.43 )      (0.29 )       0.82        (0.67 )       0.35        0.18  

Total from investment operations

      (0.22 )      0.17        1.29        (0.30 )       0.79        0.47  

LESS DISTRIBUTIONS FROM:

                 

Net investment income

      (0.21 )      (0.44 )       (0.44 )       (0.33 )       (0.43 )       (0.32 ) 

Net realized gains on investments

      —       (0.03 )       (0.04 )       —        (0.10 )       (0.02 ) 

Total distributions

      (0.21 )      (0.47 )       (0.48 )       (0.33 )       (0.53 )       (0.34 ) 

Net Asset Value, end of period

      $9.84       $10.27        $10.57        $9.76        $10.39        $10.13  

TOTAL RETURN

      (2.14% )3      1.80%        13.34%        (2.88% )       7.86%        4.66% 3 

RATIOS/SUPPLEMENTAL DATA

                 

Net assets, end of period (in 000’s)

      $8,402       $8,856        $12,997        $8,668        $10,201        $10,119  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      1.07% 4      1.14%        1.24%        1.44%        1.86%        2.24% 4 

Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator

      1.07% 4      1.14%        1.12%        1.15%        1.15%        1.15% 4 

Ratio of net investment income (loss) to average net assets

      4.26% 4      4.53%        4.55%        3.62%        4.17%        4.12% 4 

Portfolio turnover5

      33.10% 3      48.46%        81.08%        49.06%        27.86%        18.80% 3 
INSTITUTIONAL CLASS   

Six-Month

Period Ended
June 30, 2021

(Unaudited)

     Year Ended Dec. 31     

Period Ended

Dec. 31, 20161

  
  2020      2019      2018      2017  

Net Asset Value, beginning of period

      $10.27       $10.57        $9.75        $10.39        $10.13        $10.00  

INCOME (LOSS) FROM INVESTMENT OPERATIONS:

                 

Net investment income (loss)2

      0.22       0.48        0.50        0.39        0.46        0.30  

Net realized gain (loss) and unrealized appreciation/depreciation on investments, swaps, and foreign currency related transactions

      (0.43 )      (0.29 )       0.82        (0.67 )       0.36        0.18  

Total from investment operations

      (0.21 )      0.19        1.32        (0.28 )       0.82        0.48  

LESS DISTRIBUTIONS FROM:

                 

Net investment income

      (0.22 )      (0.46 )       (0.46 )       (0.36 )       (0.46 )       (0.33 ) 

Net realized gains on investments

      —       (0.03 )       (0.04 )       —        (0.10 )       (0.02 ) 

Total distributions

      (0.22 )      (0.49 )       (0.50 )       (0.36 )       (0.56 )       (0.35 ) 

Net Asset Value, end of period

      $9.84       $10.27        $10.57        $9.75        $10.39        $10.13  

TOTAL RETURN

      (2.06% )3      2.05%        13.69%        (2.75% )       8.13%        4.82% 3  

RATIOS/SUPPLEMENTAL DATA

                 

Net assets, end of period (in 000’s)

      $87,965       $82,252        $79,438        $31,085        $21,491        $6,205  

Ratio of expenses to average net assets before any reimbursement, waiver or recapture of expenses by Advisor and Administrator (Note 5)

      0.90% 4      0.98%        1.07%        1.25%        1.62%        1.99% 4 

Ratio of expenses to average net assets after any reimbursement, waiver or recapture of expenses by Advisor and Administrator

      0.90% 4      0.90%        0.90%        0.90%        0.90%        0.90% 4 

Ratio of net investment income (loss) to average net assets

      4.41% 4      4.79%        4.79%        3.90%        4.45%        4.28% 4 

Portfolio turnover5

      33.10% 3      48.46%        81.08%        49.06%        27.86%        18.80% 3 

 

1

Commenced operations on April, 29 2016.

2

Calculated using the average daily shares method.

3

Not annualized.

4

Annualized.

5

The portfolio turnover rate is calculated on the Fund as a whole without distinguishing between classes of shares issued.

 

See accompanying notes to financial statements.

 

134    MATTHEWS ASIA FUNDS     

Table of Contents

Notes to Financial Statements (unaudited)

 

1.

ORGANIZATION

Matthews Asia Funds (the “Trust”) is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The Trust currently issues sixteen separate series of shares (each a “Fund”, and collectively, the “Funds”): Matthews Emerging Markets Equity Fund, Matthews Emerging Markets Small Companies Fund, Matthews Asia Growth Fund, Matthews Pacific Tiger Fund, Matthews Asia ESG Fund, Matthews Asia Innovators Fund, Matthews China Fund, Matthews China Small Companies Fund, Matthews India Fund, Matthews Japan Fund, Matthews Korea Fund, Matthews Asian Growth and Income Fund, Matthews Asia Dividend Fund, Matthews China Dividend Fund, Matthews Asia Total Return Bond Fund and Matthews Asia Credit Opportunities Fund. The Matthews Asia Small Companies Fund has been renamed Matthews Emerging Markets Small Companies Fund on April 30, 2021. The Matthews Emerging Asia Fund was closed to all investments, effective after the close of business on April 16, 2021. Each Fund currently offers two classes of shares: Investor Class and Institutional Class. Each class of shares has identical voting, dividend, liquidation and other rights and the same terms and conditions, except each class may be subject to different class expenses as outlined in the relevant prospectus and each class has exclusive voting rights with respect to matters solely affecting such class.

 

A.

Reorganization of Matthews Emerging Asia Fund into Matthews Asia Small Companies Fund and renaming of the combined Fund as Matthews Emerging Markets Small Companies Fund

The Trust approved the reorganization of Matthews Emerging Asia Fund into Matthews Asia Small Companies Fund effective April 29, 2021, and the renaming of the combined Fund as Matthews Emerging Markets Small Companies Fund effective April 30, 2021. The Board of Trustees of the Trust had determined that the reorganization was in the best interests of each Fund given the factors referenced in the Combined Prospectus/Information Statement filed on March 31, 2021, that included the recognition that approximately 75% of the companies comprising the emerging markets small capitalization investment universe are located in Asia, the significant overlap in the investment mandates of the Matthews Emerging Asia Fund and the Matthews Asia Small Companies Fund, and the benefit to the shareholders of each Fund from the exposure to a broader investment universe as well as from potential operating efficiencies and economies of scale that may be achieved by combining the two Funds’ assets through the reorganization.

For U.S. GAAP purposes, the transaction was treated as a merger. The merger took place after the close of business on April 29, 2021. The reorganization was accomplished by a tax-free exchange of shares of Matthews Emerging Markets Small Companies Fund in the following amount and at the following conversion ratio:

 

Fund    Fund Share Class        Shares Prior
to Reorganization		        Conversion Ratio        Matthews
Emerging Markets
Small Companies
Fund’s Share Class		        Shares of
Matthews Emerging Markets
Small Companies Fund		  

Matthews
Emerging Asia Fund

      Investor          4,222,800          0.418762136          Investor          1,768,348  

Matthews
Emerging Asia Fund

      Institutional          5,778,167          0.421592128          Institutional          2,436,030  

The exchange was based on values at the close of the New York Stock Exchange on the immediately preceding business day, April 29, 2021. The net assets of the acquired Fund at that date included unrealized appreciation of $15,929,918, securities of $58,327,177, cash of $36,124,254, foreign currency of $17,857,911, receivables and other assets of $5,309,401, payables of $944,907 and unrealized foreign capital gains tax accrued of $91,283 that were combined with those of the Fund, resulting in aggregate net assets of $353,643,657 immediately after the acquisition.

Pro forma results of operations of the combined entity for the six months ended June 30, 2021, as though the acquisition had occurred as of the beginning of the year (rather that on the actual acquisition date), are as follows:

 

  *

Net investment loss: $(421,780)

  *

Net realized gain on investments: $21,508,454

  *

Net change in unrealized gain/loss on investments: $34,013,833

  *

Net increase in the net assets resulting from operations: $55,100,507

 

2.

SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently followed by the Funds in preparation of their financial statements. Each Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 Financial Services—Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

A.

SECURITY VALUATION: The value of the Trust’s securities is based on market quotations for those securities, or on their fair value determined by the valuation policies approved by the Funds’ Board of Trustees (the “Board”). Market quotations and valuation information are provided by commercial pricing services or securities dealers that are independent of the Funds and Matthews International Capital Management, LLC (“Matthews”), in accordance with procedures established by the Funds’ Board. Foreign exchange-traded securities are valued as of the close of trading on the primary exchange on which they trade. Securities that trade in over-the-counter markets, including most debt securities (bonds), may be valued by other third-party vendors or by using indicative bid quotations from dealers or market makers, or other available market information. Market values for securities are determined based on quotations, market data or other information from the principal (or most advantageous) market on which the security is traded. Market quotations for equity securities used by the Funds include last reported sale prices, or, if such prices are not reported or available, bid and ask prices. Swap agreements are valued utilizing quotes received daily by the Funds’ pricing service or through brokers, which are derived using daily swap curves and models that incorporate a number of market data factors, such as discounted cash flows, trades and values of the underlying reference instruments. Foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined at the close of business on the New York Stock Exchange (“NYSE”). Interpolated values are derived when the settlement date of the

contract is an interim date for which quotations are not available. The Funds may also utilize independent pricing services to assist them in determining a current market value for each security based on sources believed to be reliable.

The Board has delegated to the Board’s Valuation Committee the responsibility for oversight of the fair valuation process under the Trust’s Pricing and Valuation Policy. The Board’s Valuation Committee, in turn, has delegated the determination of fair value prices under Matthews’ Pricing and Valuation Procedures to Matthews’ Valuation Committee (the “Valuation Committee”). The Board’s Valuation Committee will review and approve fair value determinations by Matthews’ Valuation Committee in accordance with the Pricing and Valuation Policy. When fair value pricing is employed, the prices of securities used by a Fund to calculate its Net Asset Value (“NAV”) may differ from any quoted or published prices for the same securities for that day. All fair value determinations are made subject to the Board’s oversight. Events affecting the value of foreign investments may occur between the time at which they are determined and when the Funds calculate their NAV, which is normally the close of trading on the

 

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Notes to Financial Statements (unaudited) (continued)

 

NYSE. If such events render market quotations unreliable, and the impact of such events can be reasonably determined, the investments will be valued at their fair value in accordance with pricing policies. The fair value of a security held by the Funds may be determined using the services of third-party pricing services to assist in this process.

The books and records of the Funds are maintained in U.S. dollars. Transactions, portfolio securities, and assets and liabilities denominated in a foreign currency are translated and recorded in U.S. dollars at the prevailing exchange rate as of the close of trading on the NYSE. The Fund does not isolate the effect of changes in foreign exchange rates from changes in market prices on securities held. Accordingly, such changes are included within Change in net unrealized appreciation/depreciation on investments on the Statement of Operations. Translation gains or losses resulting from changes in the exchange rate during the reporting period and realized gains and losses on the settlement of foreign currency transactions are reported in the results of operations for the current period. The Funds isolate that portion of gains and losses on investments in fixed income securities that is due to changes in foreign exchange rate from that which is due to changes in market prices of securities.

Foreign securities held by the Funds may be traded on days and at times when the NYSE is closed. Accordingly, the value of the Funds may be significantly affected on days when shareholders have no access to the Funds.

 

B.

FAIR VALUE MEASUREMENTS: The Funds follow a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Funds’ own market assumptions (unobservable inputs). These inputs are used in determining the value of the Funds’ financial instruments and are summarized in the following fair value hierarchy:

Level 1: Unadjusted quoted prices in active markets for identical securities (foreign securities that are valued based on market quotations).

Level 2: Other significant observable inputs. Certain foreign securities may be fair valued by Matthews using information such as quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and foreign exchange. Additionally, external pricing services are used when the Funds determine that events affecting the value of foreign securities which occur between the time at which they are determined and the close of trading on the NYSE render market quotations unreliable.

Level 3: Significant unobservable inputs. Level 3 securities are valued based on significant unobservable inputs as determined under the direction of the Board. Characterization of such securities as Level 3 securities are not necessarily an indication of their liquidity or the risk associated with investing in these securities. A significant change in the unobservable inputs could result in a significantly lower or higher value in such Level 3 securities and could impact overall Fund performance. Level 3 securities consisted of equities that, as of June 30, 2021, were suspended from trading.

The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.

 

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Notes to Financial Statements (continued)

 

Levels for Multi-Country Funds (1 of 2):

Summary of inputs used to determine the fair valuation of multi-country Funds’ investments as of June 30, 2021.    

 

     Matthews
Emerging Markets
Equity Fund		     Matthews
Emerging Markets
Small Companies
Fund		     Matthews Asia
Growth Fund		     Matthews Pacific
Tiger Fund		     Matthews Asia
ESG Fund		     Matthews Asia
Innovators Fund		  
Assets:            
Investments:            

Level 1: Quoted Prices

            

Common Equities:

            

Bangladesh

     $—       $4,860,253       $—       $—       $4,228,799       $—  

Brazil

     4,706,469       4,320,858       —       —       —       —  

Chile

     —       7,682,175       —       —       —       —  

China/Hong Kong

     4,459,386       1,504,500       396,293,374       454,677,414       2,503,777       383,068,406  

India

     2,771,733       —       —       —       —       —  

Indonesia

     —       —       8,619,629       —       —       —  

Israel

     1,039,332       —       —       —       —       —  

Mexico

     2,943,536       8,287,772       —       —       —       —  

Philippines

     588,956       —       —       167,535,689       —       —  

Poland

     1,590,584       —       —       —       —       —  

Russia

     694,557       3,851,334       —       —       —       —  

Singapore

     1,098,400       —       41,684,280       138,947,600       —       137,052,860  

South Korea

     —       —       —       41,812,205       —       45,718,279  

Sri Lanka

     —       29,777       —       —       —       —  

Taiwan

     —       —       46,838,368       —       1,622,160       —  

United Kingdom

     —       2,570,155       —       —       —       —  

United States

     —       3,696,922       85,065,714       —       6,829,336       —  

Uruguay

     —       212,589       —       —       —       —  

Vietnam

     —       2,551,219       —       —       1,096,780       —  

Zambia

     1,477,361       —       —       —       —       —  

Level 2: Other Significant Observable Inputs

            

Common Equities:

            

Australia

     —       —       59,588,692       —       —       —  

China/Hong Kong

     13,500,421       118,024,604       773,799,608       4,055,694,478       33,824,636       914,571,183  

France

     637,192       —       —       —       —       27,502,316  

India

     3,095,626       89,512,850       249,686,560       1,057,095,797       32,294,178       348,858,037  

Indonesia

     907,695       15,365,300       45,516,143       190,951,465       3,073,732       —  

Japan

     —       —       606,011,558       —       3,750,337       —  

Netherlands

     1,180,852       —       —       —       —       —  

Philippines

     949,767       10,377,265       —       —       —       —  

Russia

     3,672,666       9,200,058       —       —       —       —  

Singapore

     1,395,479       —       —       195,057,862       3,077,798       —  

South Korea

     1,986,876       32,114,509       —       1,448,967,719       1,744,762       131,885,271  

Taiwan

     3,790,694       43,556,835       —       1,405,883,669       12,074,350       86,227,399  

Thailand

     —       1,863,908       —       173,476,598       —       —  

Vietnam

     2,541,809       26,884,642       14,691,989       77,072,053       —       17,005,356  

Preferred Equities:

            

South Korea

     3,844,996       —       —       —       7,674,617       —  

Total Market Value of Investments

     $58,874,387       $386,467,525       $2,327,795,915       $9,407,172,549       $113,795,262       $2,091,889,107  

 

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Notes to Financial Statements (unaudited) (continued)

 

Levels for Multi-Country Funds (2 of 2):

Summary of inputs used to determine the fair valuation of multi-country Funds’ investments as of June 30, 2021.

 

     Matthews Asian
Growth and
Income Fund		     Matthews Asia
Dividend Fund		     Matthews Asia
Total Return
Bond Fund		     Matthews
Asia Credit
Opportunities
Fund		  
Assets:        
Investments:        

Level 1: Quoted Prices

        

Common Equities:

        

Australia

     $—       $25,114,571       $—       $—  

Bangladesh

     —       58,293,512       —       —  

China/Hong Kong

     53,797,250       159,866,551       —       —  

South Korea

     15,981,058       —       —       —  

Taiwan

     —       106,430,518       —       —  

United States

     23,126,740       —       —       —  

Level 2: Other Significant Observable Inputs

        

Foreign Government Obligationsa

    —       —       29,810,311       6,388,105  

Non-Convertible Corporate Bondsa

    —       —       85,082,194       69,592,704  

Convertible Corporate Bondsa

    161,269,155       —       21,150,654       15,057,049  

Common Equities:

        

Australia

     38,684,642       450,019,755       —       —  

China/Hong Kong

     518,271,618       1,466,812,993       —       —  

France

     42,744,252       —       —       —  

India

     112,754,406       225,698,854       —       —  

Indonesia

     36,744,970       76,778,319       —       —  

Japan

     —       1,624,537,752       —       —  

Philippines

     20,537,703       67,127,186       —       —  

Singapore

     95,957,745       208,335,562       —       —  

South Korea

     140,379,834       435,783,248       —       —  

Taiwan

     150,787,117       159,951,532       —       —  

Thailand

     16,243,082       —       —       —  

Vietnam

     —       224,156,766       —       —  

Preferred Equities:

        

South Korea

     16,494,000       269,021,697       —       —  

Total Market Value of Investments

     $1,443,773,572       $5,557,928,816       $136,043,159       $91,037,858  

 

a

Industry, countries, or security types are disclosed on the Schedule of Investments.

 

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Notes to Financial Statements (continued)

 

Levels for Single Country Funds:

Summary of inputs used to determine the fair valuation of the single country Funds’ investments as of June 30, 2021.

 

     Matthews
China Fund		     Matthews
China Small
Companies
Fund		     Matthews
India Fund		     Matthews
Japan Fund		     Matthews
Korea Fund		     Matthews
China Dividend
Fund		  
Assets:            
Investments:            

Level 1: Quoted Prices

            

Common Equities:

            

Communication Services

     $30,350,344       $10,388,880       $—       $—       $—       $2,004,981  

Consumer Discretionary

     39,856,236       4,561,205       —       —       —       9,977,943  

Financials

     23,854,788       17,623,008       —       —       —       —  

Health Care

     —       9,188,035       —       —       —       —  

Industrials

     12,394,772       —       —       —       —       6,255,210  

Information Technology

     12,299,625       10,603,647       —       —       —       —  

Materials

     —       —       —       —       —       6,542,638  

Real Estate

     16,916,864       —       —       —       —       —  

Level 2: Other Significant Observable Inputs

            

Common Equities:

            

Communication Services

     177,287,208       5,822,358       26,838,841       159,947,246       18,070,899       55,988,628  

Consumer Discretionary

     355,310,742       67,196,110       67,780,638       336,676,738       12,434,641       86,053,491  

Consumer Staples

     16,729,006       15,596,621       79,631,462       17,121,066       2,818,803       40,642,824  

Energy

     —       —       60,400,602       —       4,254,011       15,146,481  

Financials

     372,923,069       26,753,152       239,240,423       133,018,804       19,938,277       36,117,513  

Health Care

     142,344,609       56,726,539       68,200,059       231,177,078       5,499,337       24,725,459  

Industrials

     160,839,606       80,702,883       52,532,158       291,697,916       7,004,999       44,685,696  

Information Technology

     215,694,141       90,300,705       138,530,715       294,157,254       34,453,154       50,758,963  

Materials

     129,688,441       51,096,691       42,212,624       142,315,881       2,973,367       8,556,379  

Real Estate

     55,207,516       44,548,715       —       —       —       36,700,697  

Utilities

     19,374,457       —       —       —       —       9,332,930  

Preferred Equities:

            

Consumer Discretionary

     —       —       —       —       5,833,322       —  

Consumer Staples

     —       —       —       —       6,808,988       —  

Information Technology

     —       —       —       —       25,364,196       —  

Materials

     —       —       —       —       6,662,526       —  

Non Convertible Corporate Bonds:

            

Consumer Staples

     —       —       26,634       —       —       —  

Level 3: Significant Unobservable Inputs

            

Common Equities:

            

Information Technology

     —       251       —       —       —       —  

Total Market Value of Investments

     $1,781,071,424       $491,108,800       $775,394,156       $1,606,111,983       $152,116,520       $433,489,833  

Levels for Derivatives Financial Instruments:

Summary of inputs used to determine the fair valuation of the Fund’s derivative financial instruments as of June 30, 2021.

 

      Matthews Asia
Total Return
Bond Fund		  

Derivative Financial Instruments1

  

Assets

   
Level 2: Other Significant Observable Inputs   

Forward Foreign Currency Exchange Contracts

      $153,682  

Interest Rate Swaps

      458,688  
  

 

 

  
     $612,370  
  

 

 

  

Liabilities

   
Level 2: Other Significant Observable Inputs   

Forward Foreign Currency Exchange Contracts

      ($883,750)  
  

 

 

  

 

1

Derivative financial instruments are forward foreign currency exchange contracts and interest rate swaps. Forward foreign currency exchange contracts and interest rate swaps are valued at the unrealized appreciation/depreciation on the instrument.

 

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Changes in the Balances of Level 3 Securities:

The Funds’ policy is to recognize transfers in and transfers out of Level 3 during the reporting period.

 

    

Matthews China
Small Companies

Fund

  
    Common Equities —
Information Technology		  
Balance as of 12/31/20 (market value)     $252  
Accrued discounts/premiums     —  
Realized gain/(loss)     —  
Change in unrealized appreciation/(depreciation)     (1 ) 
Purchases     —  
Sales     —  
Transfers in to Level 3     —  
Transfer out of Level 3     —  
Balance as of 6/30/21 (market value)     $251  
Net change in unrealized appreciation/depreciation on Level 3 investments held as of 6/30/21*     ($1 ) 

 

*

Included in the related amounts on the Statements of Operations.

 

C.

BASIS OF CONSOLIDATION: The accompanying consolidated financial highlights of Matthews China Fund and Matthews Asia Dividend Fund (the “Investing Funds”) for the 2016 period include the accounts of the Matthews CF-U Series and Matthews ADF-U Series (the “U Series Funds”), respectively. The U Series Funds were series of Matthews A Share Selections Fund, LLC, a Delaware limited liability company registered under the 1940 Act. All of the interests offered by U Series Funds were exclusively owned by the Investing Funds. The U Series Funds primarily invested in the stocks of Chinese companies listed on Mainland China Stock Exchanges, and traded and denominated in the currency of China, the Renminbi. To allow U Series Funds to invest in China A Shares Matthews applied for and received a license from the China Securities Regulatory Commission as a Qualified Foreign Investor (“QFI”) and had been allocated by the State Administration of Foreign Exchange of China an initial quota of $100 million in June 2014, and an additional quota of $440 million in July 2015, representing the equivalent value in Renminbi of China A Shares that the Funds could purchase. Access to the quota was subject to Matthews’ trade allocation procedures and access allocation procedures. The U Series Funds were subject to the same investment policies and restrictions that apply to Investing Funds. Intercompany accounts and transactions had been eliminated in the consolidation process. The U Series Funds were intended to be disregarded entities for tax purposes. Therefore, no federal tax provision was required. Consolidated financial statements included expenses that were accrued for and paid by the Investing Funds. These included on-going operational costs as well as costs in connection with the launching of the U Series Funds.

In September 2016, the Board of Directors of the Matthews A Share Selections Fund, LLC adopted resolutions authorizing the termination and liquidation of the Matthews A Share Selections Fund, LLC. Consequently, as of September 30, 2016, the U Series Funds sold their securities and effectively ceased investment operations. The outstanding interests of each U Series Fund were redeemed by its respective Investing Fund. The Matthews A Share Selections Fund, LLC filed an initial application for deregistration as a registered investment company with the U.S. Securities and Exchange Commission in October 2016, which was subsequently granted in February 2017.

 

D.

RISKS ASSOCIATED WITH NON-U.S. COMPANIES: Investments by the Funds in the securities of non-U.S. companies may involve investment risks not typically associated with investments in U.S. issuers. These risks include possible political, economic, social and religious instability, inadequate investor protection; changes in laws or regulations of countries within the Asia Pacific region (including in countries where the Funds may invest, as well as in the broader region); international relations with other nations; natural disasters; corruption; and military activity. Foreign securities may be subject to greater fluctuations in price than securities of domestic corporations or the U.S. government. Foreign investing may also include the risk of expropriation or confiscatory taxation, limitation on the removal of funds or other assets, currency crises and exchange controls, the imposition of foreign withholding tax on the interest income payable on such instruments, the possible seizure or nationalization of foreign deposits or assets, or the adoption of other foreign government restrictions that might adversely affect the foreign securities held by the Funds. Additionally, Asia Pacific countries may utilize formal or informal currency exchange controls or “capital controls” that may limit the ability to repatriate investments or income or adversely affect the value of portfolio investments. The economies of many Asia Pacific countries differ from the economies of more developed countries in many respects, such as their rate of growth, inflation, capital reinvestment, resource self-sufficiency and dependence on other economies, financial system stability, the national balance of payments position and sensitivity to changes in global trade.

Certain Asia Pacific countries are highly dependent upon and may be affected by developments in the economies of other countries. Non-U.S. companies are subject to different accounting, auditing, and financial reporting standards, practices, and requirements than U.S. companies. There is generally less government regulation of stock exchanges, brokers, and listed companies abroad than in the United States, which may result in less transparency with respect to a company’s operations, and make obtaining information about them more difficult (or such information may be unavailable).

Among other risks of investing in foreign markets are the variable quality and reliability of financial information and related audits of companies. In some cases, financial information and related audits can be unreliable and not subject to verification. Auditing firms in some of these markets are not subject to independent inspection or oversight of audit quality. For example, China does not allow the Public Company Accounting Oversight Board to inspect the work that auditors perform in China for Chinese companies that sell stock into U.S. markets. This can result in investment decisions being made based on flawed or misleading information.

Foreign stock markets may not be as developed or efficient as those in the United States, and the absence of negotiated brokerage commissions in certain countries may result in higher brokerage fees. The time between the trade and settlement dates of securities transactions on foreign exchanges ranges from one day to four weeks or longer and may result in higher custody charges. Custodial arrangements may be less well developed than in the United States. Foreign securities are generally denominated and pay distributions in foreign currencies, exposing the Funds to changes in foreign

 

140    MATTHEWS ASIA FUNDS     

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currency exchange rates. Investing in any country in the Asia Pacific region will also entail risks specific and unique to that country, and these risks can be significant and change rapidly.

Changes in interest rates in each of the countries in which the Funds may invest, as well as interest rates in more-developed countries, may cause a decline in the market value of an investment. Generally, fixed income securities will decrease in value when interest rates rise and can be expected to rise in value when interest rates decline. As interest rates decline, debt issuers may repay or refinance their loans or obligations earlier than anticipated. The issuers of fixed income securities may, therefore, repay principal in advance. This would force the Funds to reinvest the proceeds from the principal prepayments at lower rates, which reduces the Funds’ income.

 

E.

DISTRIBUTIONS TO SHAREHOLDERS: It is the policy of Matthews Asian Growth and Income Fund and Matthews China Dividend Fund to distribute net investment income on a semi-annual basis and capital gains, if any, annually. It is the policy of Matthews Asia Dividend Fund to distribute net investment income on a quarterly basis and capital gains, if any, annually. It is the policy of Matthews Asia Total Return Bond Fund and Matthews Asia Credit Opportunities Fund to distribute net investment income on a monthly basis and capital gains, if any, annually. Each of the other Funds distributes a net investment income and capital gains, if any, annually. Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from U.S. GAAP.

The tax character of distributions paid for the fiscal year ended December 31, 2020 was as follows:

 

YEAR ENDED DECEMBER 31, 2020    Ordinary
Income		        Net Long-Term
Capital Gains		        Total Taxable
Distributions		  
Matthews Emerging Markets Equity Fund      $882,135          $—          $882,135  
Matthews Emerging Markets Small Companies Fund      596,420          134,758          731,178  
Matthews Asia Growth Fund      16,807,423          68,287,399          85,094,822  
Matthews Pacific Tiger Fund      129,852,518          359,799,196          489,651,714  
Matthews Asia ESG Fund      2,311,656          2,403,245          4,714,901  
Matthews Asia Innovators Fund      8,251,347          18,926,624          27,177,971  
Matthews China Fund      13,513,444          5,822,237          19,335,681  
Matthews China Small Companies Fund      34,983,716          21,174,671          56,158,387  
Matthews India Fund      4,523,843          16,595,544          21,119,387  
Matthews Japan Fund      8,236,537          147,995,041          156,231,578  
Matthews Korea Fund      1,103,667          —          1,103,667  
Matthews Asian Growth and Income Fund      14,794,758          391,926          15,186,684  
Matthews Asia Dividend Fund      53,530,829          —          53,530,829  
Matthews China Dividend Fund      7,855,231          —          7,855,231  
Matthews Asia Total Return Bond Fund      4,578,727          —          4,578,727  
Matthews Asia Credit Opportunities Fund      4,477,419          —          4,477,419  

 

F.

INVESTMENT TRANSACTIONS AND INCOME: Securities transactions are accounted for on the date the securities are purchased or sold or on the following business day. Financial statements reflect security transactions on trade date. Gains or losses on the sale of securities are determined on the identified cost basis. Interest income is recorded on the accrual basis. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized daily on an accrual basis. Dividend income is generally recorded on the ex-dividend date net of any foreign taxes withheld at the source. Dividend income for certain issuers headquartered in countries which the Funds invest may not be recorded until approved by the shareholders (which may occur after the ex-dividend date) if, in the judgment of management, such dividends are not reasonably determined as of the ex-dividend date. Income and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets.

The Funds may be subject to foreign taxation related to income received, capital gains on the sale of securities and certain foreign currency transactions in the foreign jurisdictions in which they invest. Foreign taxes, if any, are recorded based on the tax regulations and rates that exist in the foreign markets in which the Funds invest. When a capital gain tax is determined to apply, the Funds record an estimated deferred tax liability in an amount that may be payable if the securities were disposed of on the valuation date.

 

G.

FUND EXPENSE ALLOCATIONS: The Funds account separately for the assets, liabilities and operations of each Fund. Estimated expenses are accrued daily. Direct expenses of each Fund or class are charged to that Fund or class while general expenses are allocated pro-rata among the Funds based on net assets or other appropriate methods.

 

H.

CASH, CASH OVERDRAFTS, AND FOREIGN CURRENCY: QFI accounts (i.e., the accounts through which the QFI quota is accessed) are required by the local market to maintain a cash reserve. The cash reserve is based upon a fixed ratio of the QFI’s approved investment quota, which is defined as the amount remitted into its special Renminbi (RMB) cash account. These amounts, if any, are included in “Segregated foreign currency at value” on the Statements of Assets and Liabilities. The fixed ratio is set at 0.08 percent for the Shanghai and 0.06 percent for the Shenzhen market. When any of the Funds’ cash balances are overdrawn, a Fund is charged an overdraft fee by the custodian of 1.00% above the 30-day LIBOR rate on outstanding balances. These amounts, if any, are included in “Other expenses” on the Statements of Operations.

 

I.

USE OF ESTIMATES: The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.

 

J.

RECENT ACCOUNTING GUIDANCE: In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848)—Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in the ASU provide optional temporary financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the London Interbank Offered Rate (LIBOR) and other interbank-offered based reference rates as of the end of 2021. The ASU is effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management is currently evaluating the impact, if any, of applying this ASU.

 

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Notes to Financial Statements (unaudited) (continued)

 

3.

DERIVATIVE FINANCIAL INSTRUMENTS

Each of the Matthews Asia Total Return Bond Fund and the Matthews Asia Credit Opportunities Fund may engage in derivative transactions for a variety of purposes, including managing interest rate, currency and credit exposure. Derivative transactions in which each Fund may engage include financial futures contracts, swaps and/or forward foreign currency exchange contracts.

Certain derivative transactions may result in each Fund’s exposure to a currency to exceed the value of the Fund’s assets and the Fund could be exposed to currency risk whether or not it holds a bond or other instrument denominated in that currency. The gross notional value of derivative financial instruments and transactions could exceed the value of the Fund’s net assets, although the net market value of these instruments and transactions, on a marked-to-market basis, at most times, is expected to be substantially lower.

The primary risks associated with the use of derivative financial instruments are: (i) Matthews may not correctly predict the direction of currency exchange rates, interest rates, security prices, or other economic factors; (ii) Matthews may not correctly predict changes in the value of derivative financial instruments and related underlying instruments or assets, which may result in disproportionately increased losses and/or reduced opportunities for gains; (iii) imperfect correlation between the change in market value of the securities held by a Fund and the price of financial futures contracts and credit default swaps contracts; (iv) the lack of, or a reduction in the liquidity of, any secondary market for the instrument, and the resulting inability to close the position (or exit the position) when desired; (v) losses, which are potentially unlimited, due to unanticipated market movements; (vi) the value of the instrument may change unfavorably due to movements in the value of the referenced foreign currencies; (vii) a Fund may suffer disproportionately heavy losses relative to the amount invested; (viii) changes in the value of the derivatives may not match or fully offset changes in the value of hedged or related portfolio securities, thereby failing to achieve the hedging or investment purpose for the derivative transaction; and (ix) the other party to the instrument may fail to fulfill its obligation.

Forward Foreign Currency Exchange Contracts: The Matthews Asia Total Return Bond Fund and the Matthews Asia Credit Opportunities Fund may enter into forward foreign currency exchange contracts to gain or reduce exposure to foreign currency exchange rate risk. A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The Matthews Asia Total Return Bond Fund and the Matthews Asia Credit Opportunities Fund do not offset financial assets and financial liabilities on forward foreign currency contacts in the Statements of Assets and Liabilities as they are not subject to netting arrangements.

Swaps: The Matthews Asia Total Return Bond Fund and the Matthews Asia Credit Opportunities Fund may enter into swap contracts to manage exposure to issuers, markets and securities to reduce their risk exposure to defaults of corporate and/or sovereign issuers or to create exposure to corporate and/or sovereign issuers to which they are not otherwise exposed (credit risk). Such contracts are agreements between the Funds and a counterparty to make periodic net payments on a specified notional amount or a net payment upon termination. Swap agreements are privately negotiated in the OTC market and may be entered into as a bilateral contract (“OTC Swaps”) or centrally cleared (“centrally cleared swaps”).

For OTC swaps, any upfront premiums paid and any upfront fees received are shown as swap premiums paid and swap premiums received, respectively, in the Statements of Assets and Liabilities and amortized over the term of the contract. The daily fluctuation in market value is recorded as unrealized appreciation (depreciation) on OTC Swaps in the Statements of Assets and Liabilities. Payments received or paid are recorded in the Statements of Operations as realized gains or losses, respectively. When an OTC swap is terminated, a realized gain or loss is recorded in the Statements of Operations equal to the difference between the proceeds from (or cost of) the closing transaction and the Funds’ basis in the contract, if any. Generally, the basis of the contract is the amortized premium received or paid.

The Funds may buy credit default swaps on single-name issuers (corporate or sovereign), a combination or basket of single-name issuers or traded indexes. Credit default swaps are agreements in which the protection buyer pays fixed periodic payments to the seller in consideration for a promise from the protection seller to make a specific payment should a negative credit event take place with respect to the referenced entity (e.g., bankruptcy, failure to pay, obligation acceleration, repudiation, moratorium or restructuring). As a buyer, if an underlying credit event occurs, the Funds will either (i) receive from the seller an amount equal to the notional amount of the swap and deliver the referenced security or underlying securities comprising the index, or (ii) receive a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index.

The Funds may enter into interest rate swaps to gain or reduce exposure to interest rates or to manage duration, the yield curve or interest rate (interest rate risk).

Interest rate swaps are agreements to exchange cash flows based on the difference between specified interest rates applied to a notional principal amount for a specified period of time. Risks related to the use of interest rate swaps include the potential for unanticipated movements in interest or currency rates, the possible failure of a counterparty to perform in accordance with the terms of the swap agreements and potential government regulation that could adversely affect the Funds’ swap investments.

Counterparty Credit Risk: A derivative contract may suffer a mark to market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.

A Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain netted against any collateral held by such Fund.

With exchange traded futures and centrally cleared swaps, there is less counterparty credit risk to the Funds since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, the credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, a Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency) of the clearing broker or clearinghouse. Additionally, credit risk exists in exchange traded futures and centrally cleared swaps with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the clearing broker’s customers, potentially resulting in losses to the Funds.

In order to better define its contractual rights and to secure rights that will help the Funds mitigate their counterparty risk, a Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its derivative contract counterparties. An ISDA Master Agreement is a bilateral agreement between each Fund and a counterparty that governs OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA

 

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Master Agreement, each Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to OTC derivatives to terminate derivative contracts prior to maturity in the event a Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements, which would cause the Fund to accelerate payment of any net liability owed to the counterparty.

Collateral requirements: For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark to market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by a Fund and the counterparty. Cash collateral that has been pledged to cover obligations of a Fund, if any, is reported separately on the Statements of Assets and Liabilities as cash pledged as collateral. Non-cash collateral pledged by a Fund, if any, is noted in the Schedules of Investments.

For financial reporting purposes, the Funds do not offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statements of Assets and Liabilities.

The Funds have implemented the disclosure requirements pursuant to FASB Accounting Standards update No. 2011-11, Disclosures about Offsetting Assets and Liabilities, that requires disclosures to make financial statements that are prepared under U.S. GAAP more comparable to those prepared under International Financial Reporting Standards. Under this guidance the Funds disclose in the Statements of Assets and Liabilities both gross and net information about instruments and transactions eligible for offset such as instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, the Funds disclose collateral received and posted in connection with master netting agreements or similar arrangements.

As of June 30, 2021, the Matthews Asia Total Return Bond Fund had $458,688 in gross/net assets in the Statements of Assets and Liabilities for OTC Interest Rate Swaps and gross assets of $153,682 and gross liabilities of $883,750 for the Forward foreign currency exchange contracts with Bank of America, N.A. The Fund pledged cash collateral of $340,000 to Bank of America, N.A. for the open OTC Interest Rate Swaps and Forward foreign currency exchange contracts.

Levels for Derivative Financial Instruments:

For the six-month period ended June 30, 2021, the effects of derivative financial instruments on the statement of Assets and Liabilities were as follows:

 

     Statements of Assets and Liabilities Location         

Matthews Asia

Total Return Bond

Fund

  
  Asset Derivatives    
  Unrealized appreciation on forward foreign    
Forward foreign currency exchange contracts   currency exchange contracts       $153,682  
Interest rate contracts   Unrealized appreciation on Swaps       $458,688  
     

 

 

  
  Total       $612,370  
     

 

 

  
  Liability Derivatives    
  Unrealized depreciation on forward foreign    
Forward foreign currency exchange contracts   currency exchange contracts       ($883,750 ) 
     

 

 

  

For the six-month period ended June 30, 2021, the effects of derivative financial instruments on the Statements of Operations were as follows:

 

Derivative type   Statements of Operations Location         

Matthews Asia

Total Return Bond

Fund

  

Net Realized Gain (Loss)

      
Foreign currency contracts:      

Forward foreign currency exchange contracts

   Net realized gain (loss) on forward foreign    
  currency exchange contracts       $1,665,458  
Interest rate swaps:      

Interest rate contracts

   Net realized gain (loss) on swaps       89,224  
     

 

 

  
  Total       $1,754,682  
     

 

 

  

Net Change In Unrealized Appreciation (Depreciation)

      
Foreign currency contracts:      

Forward foreign currency exchange contracts

   Net change in unrealized appreciation/    
  depreciation on forward foreign currency    
  exchange contracts       ($ 2,440,309 ) 
Interest rate swaps:      

Interest rate contracts

   Net change in unrealized appreciation/    
  depreciation on swaps       (246,209 ) 
     

 

 

  
  Total       ($ 2,686,518 ) 
     

 

 

  

In regards to the forward foreign currency exchange contracts entered into by the Matthews Asia Total Return Bond Fund, the average notional ending quarterly amounts purchased in USD were $8,692,645 and the average notional ending quarterly amounts sold in USD were $42,860,910. In regards to the interest rate swap contracts entered into by the Matthews Asia Total Return Bond Fund, where the Fund receives the fixed rate and pays the floating rate, the average notional ending quarterly amounts in USD was $18,649,193.

 

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4.

CAPITAL SHARE TRANSACTIONS

 

    

Six-Month Period Ended

June 30, 2021 (Unaudited)

     

For the Period Ended

December 31, 20201

  
      Shares      Amount      Shares      Amount  

MATTHEWS EMERGING MARKETS EQUITY FUND

            

Investor Class

            

Shares sold

      504,968        $8,327,749        686,270        $9,426,163  

Shares issued through reinvestment of distributions

      —        —        9,155        141,361  

Shares redeemed

      (182,081 )       (2,984,547 )       (70,526 )       (932,459 ) 

Net increase

      322,887        $5,343,202        624,899        $8,635,065  

Institutional Class

            

Shares sold

      380,650        $6,341,917        2,223,270        $28,523,375  

Shares issued through reinvestment of distributions

      —        —        35,661        550,602  

Shares redeemed

      (89,533 )       (1,485,601 )       (42,875 )       (610,863 ) 

Net increase

      291,117        $4,856,316        2,216,056        $28,463,114  
    

Six-Month Period Ended

June 30, 2021 (Unaudited)

      Year Ended December 31, 2020  
      Shares      Amount      Shares      Amount  

MATTHEWS EMERGING MARKETS SMALL COMPANIES FUND

            

Investor Class

            

Shares sold

      779,957        $20,641,799        912,505        $17,527,272  

Shares issued in reorganization2

      1,768,348        49,082,409        —        —  

Shares issued through reinvestment of distributions

      —        —        10,897        265,676  

Shares redeemed

      (791,283 )       (21,549,414 )       (2,398,390 )       (43,904,418 ) 

Net increase (decrease)

      1,757,022        $48,174,794        (1,474,988 )       ($26,111,470 ) 

Institutional Class

            

Shares sold

      1,460,265        $40,483,173        1,801,293        $34,711,625  

Shares issued in reorganization2

      2,436,030        67,500,144        —        —  

Shares issued through reinvestment of distributions

      —        —        17,873        434,666  

Shares redeemed

      (1,128,296 )       (30,609,346 )       (2,368,411 )       (44,643,485 ) 

Net increase (decrease)

      2,767,999        $77,373,971        (549,245 )       ($9,497,194 ) 

MATTHEWS ASIA GROWTH FUND

            

Investor Class

            

Shares sold

      5,941,796        $249,365,417        6,332,050        $199,075,749  

Shares issued through reinvestment of distributions

      —        —        841,073        31,582,289  

Shares redeemed

      (6,369,354 )       (248,800,191 )       (5,251,278 )       (155,528,257 ) 

Net increase (decrease)

      (427,558 )       $565,226        1,921,845        $75,129,781  

Institutional Class

            

Shares sold

      9,558,112        $389,138,270        11,686,984        $374,999,073  

Shares issued through reinvestment of distributions

      —        —        1,035,121        39,231,079  

Shares redeemed

      (3,356,451 )       (137,162,725 )       (5,490,464 )       (159,699,273 ) 

Net increase

      6,201,661        $251,975,545        7,231,641        $254,530,879  

MATTHEWS PACIFIC TIGER FUND

            

Investor Class

            

Shares sold

      6,971,537        $256,807,763        11,494,193        $323,117,327  

Shares issued through reinvestment of distributions

      —        —        4,049,821        136,114,507  

Shares redeemed

      (8,785,858 )       (319,957,418 )       (29,801,297 )       (804,232,720 ) 

Net (decrease)

      (1,814,321 )       ($63,149,655 )       (14,257,283 )       ($345,000,886 ) 

Institutional Class

            

Shares sold

      27,790,954        $1,014,121,993        32,673,931        $930,496,306  

Shares issued through reinvestment of distributions

      —        —        9,489,700        318,569,231  

Shares redeemed

      (12,921,988 )       (468,792,149 )       (80,886,550 )       (2,156,987,939 ) 

Net increase (decrease)

      14,868,966        $545,329,844        (38,722,919 )       ($907,922,402 ) 

 

1

The Fund commenced operations on April 30, 2020.

2

See Note 1-A regarding the reorganization.

 

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Six-Month Period Ended

June 30, 2021 (Unaudited)

      Year Ended December 31, 2020  
      Shares      Amount      Shares      Amount  

MATTHEWS ASIA ESG FUND

            

Investor Class

            

Shares sold

      714,129        $11,562,204        1,158,839        $13,647,419  

Shares issued through reinvestment of distributions

      —        —        137,055        1,944,810  

Shares redeemed

      (415,598 )       (6,723,006 )       (534,956 )       (5,887,129 ) 

Net increase

      298,531        $4,839,198        760,938        $9,705,100  

Institutional Class

            

Shares sold

      956,768        $15,708,395        926,661        $10,601,157  

Shares issued through reinvestment of distributions

      —        —        130,435        1,848,265  

Shares redeemed

      (568,394 )       (9,347,617 )       (919,166 )       (9,285,059 ) 

Net increase

      388,374        $6,360,778        137,930        $3,164,363  

MATTHEWS ASIA INNOVATORS FUND

            

Investor Class

            

Shares sold

      12,098,733        $353,146,097        16,759,785        $327,955,742  

Shares issued through reinvestment of distributions

      —        —        382,354        9,734,744  

Shares redeemed

      (9,591,542 )       (269,500,100 )       (5,711,686 )       (102,327,504 ) 

Net increase

      2,507,191        $83,645,997        11,430,453        $235,362,982  

Institutional Class

            

Shares sold

      18,691,959        $538,962,809        35,927,684        $638,421,510  

Shares issued through reinvestment of distributions

      —        —        641,718        16,460,072  

Shares redeemed

      (7,939,328 )       (217,377,746 )       (4,565,306 )       (82,468,729 ) 

Net increase

      10,752,631        $321,585,063        32,004,096        $572,412,853  

MATTHEWS CHINA FUND

            

Investor Class

            

Shares sold

      5,970,195        $175,259,187        12,452,138        $271,393,461  

Shares issued through reinvestment of distributions

      —        —        439,212        11,437,067  

Shares redeemed

      (7,017,459 )       (197,613,661 )       (14,817,095 )       (306,488,611 ) 

Net (decrease)

      (1,047,264 )       ($22,354,474 )       (1,925,745 )       ($23,658,083 ) 

Institutional Class

            

Shares sold

      9,657,394        $272,725,183        14,433,258        $305,009,425  

Shares issued through reinvestment of distributions

      —        —        150,149        3,902,370  

Shares redeemed

      (1,655,368 )       (46,948,002 )       (3,946,034 )       (82,476,184 ) 

Net increase

      8,002,026        $225,777,181        10,637,373        $226,435,611  

MATTHEWS CHINA SMALL COMPANIES FUND

            

Investor Class

            

Shares sold

      6,821,035        $146,470,091        17,317,321        $313,524,452  

Shares issued through reinvestment of distributions

      —        —        2,174,869        40,735,303  

Shares redeemed

      (5,679,982 )       (116,752,197 )       (10,047,670 )       (187,020,006 ) 

Net increase

      1,141,053        $29,717,894        9,444,520        $167,239,749  

Institutional Class

            

Shares sold

      2,763,033        $59,259,087        8,861,679        $147,262,680  

Shares issued through reinvestment of distributions

      —        —        733,518        13,768,124  

Shares redeemed

      (919,219 )       (18,790,684 )       (7,186,555 )       (143,114,672 ) 

Net increase

      1,843,814        $40,468,403        2,408,642        $17,916,132  

MATTHEWS INDIA FUND

            

Investor Class

            

Shares sold

      1,780,150        $48,608,780        3,731,964        $77,035,488  

Shares issued through reinvestment of distributions

      —        —        701,233        17,909,487  

Shares redeemed

      (3,612,033 )       (98,711,814 )       (14,741,778 )       (293,039,660 ) 

Net (decrease)

      (1,831,883 )       ($50,103,034 )       (10,308,581 )       ($198,094,685 ) 

Institutional Class

            

Shares sold

      1,282,832        $35,776,084        1,492,567        $31,919,210  

Shares issued through reinvestment of distributions

      —        —        67,204        1,739,240  

Shares redeemed

      (528,766 )       (14,602,453 )       (5,718,773 )       (112,099,270 ) 

Net increase (decrease)

      754,066        $21,173,631        (4,159,002 )       ($78,440,820 ) 

 

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Notes to Financial Statements (unaudited) (continued)

 

    

Six-Month Period Ended

June 30, 2021 (Unaudited)

      Year Ended December 31, 2020  
      Shares      Amount      Shares      Amount  

MATTHEWS JAPAN FUND

            

Investor Class

            

Shares sold

      5,757,090        $141,915,748        8,852,810        $182,401,034  

Shares issued through reinvestment of distributions

      —        —        4,158,146        101,541,934  

Shares redeemed

      (32,614,254 )       (780,602,766 )       (37,589,119 )       (763,750,870 ) 

Net (decrease)

      (26,857,164 )       ($638,687,018 )       (24,578,163 )       ($479,807,902 ) 

Institutional Class

            

Shares sold

      34,736,351        $836,719,964        7,824,784        $169,693,016  

Shares issued through reinvestment of distributions

      —        —        1,657,417        40,556,999  

Shares redeemed

      (3,533,844 )       (85,946,936 )       (26,813,590 )       (545,838,991 ) 

Net increase (decrease)

      31,202,507        $750,773,028        (17,331,389 )       ($335,588,976 ) 

MATTHEWS KOREA FUND

            

Investor Class

            

Shares sold

      1,743,302        $11,445,292        5,337,759        $24,520,467  

Shares issued through reinvestment of distributions

      —        —        169,261        990,180  

Shares redeemed

      (4,101,159 )       (26,591,415 )       (8,176,532 )       (36,303,789 ) 

Net (decrease)

      (2,357,857 )       ($15,146,123 )       (2,669,512 )       ($10,793,142 ) 

Institutional Class

            

Shares sold

      833,781        $5,607,008        611,636        $2,752,528  

Shares issued through reinvestment of distributions

      —        —        16,173        95,256  

Shares redeemed

      (243,344 )       (1,607,785 )       (3,952,334 )       (16,175,696 ) 

Net increase (decrease)

      590,437        $3,999,223        (3,324,525 )       ($13,327,912 ) 

MATTHEWS ASIAN GROWTH AND INCOME FUND

            

Investor Class

            

Shares sold

      1,800,937        $33,970,296        3,961,184        $60,658,602  

Shares issued through reinvestment of distributions

      223,550        4,191,561        414,608        6,411,390  

Shares redeemed

      (4,765,275 )       (89,511,167 )       (13,087,303 )       (193,520,450 ) 

Net (decrease)

      (2,740,788 )       ($51,349,310 )       (8,711,511 )       ($126,450,458 ) 

Institutional Class

            

Shares sold

      6,679,127        $125,299,697        16,675,711        $241,076,588  

Shares issued through reinvestment of distributions

      312,373        5,844,495        539,050        8,348,939  

Shares redeemed

      (8,365,294 )       (156,080,393 )       (18,977,781 )       (269,664,414 ) 

Net (decrease)

      (1,373,794 )       ($24,936,201 )       (1,763,020 )       ($20,238,887 ) 

MATTHEWS ASIA DIVIDEND FUND

            

Investor Class

            

Shares sold

      8,880,839        $205,374,775        18,393,530        $327,832,632  

Shares issued through reinvestment of distributions

      522,701        11,584,699        1,364,682        22,897,673  

Shares redeemed

      (27,506,958 )       (626,182,625 )       (50,820,426 )       (839,219,405 ) 

Net (decrease)

      (18,103,418 )       ($409,223,151 )       (31,062,214 )       ($488,489,100 ) 

Institutional Class

            

Shares sold

      41,136,008        $941,324,571        27,263,064        $494,209,691  

Shares issued through reinvestment of distributions

      833,015        18,599,026        1,601,889        26,818,513  

Shares redeemed

      (6,075,664 )       (139,685,127 )       (75,380,880 )       (1,182,055,503 ) 

Net increase (decrease)

      35,893,359        $820,238,470        (46,515,927 )       ($661,027,299 ) 

MATTHEWS CHINA DIVIDEND FUND

            

Investor Class

            

Shares sold

      2,149,349        $44,150,309        5,086,753        $83,510,641  

Shares issued through reinvestment of distributions

      213,398        4,617,939        324,393        5,319,517  

Shares redeemed

      (3,348,363 )       (69,205,199 )       (7,641,018 )       (122,487,729 ) 

Net (decrease)

      (985,616 )       ($20,436,951 )       (2,229,872 )       ($33,657,571 ) 

Institutional Class

            

Shares sold

      2,882,396        $59,755,515        2,188,458        $36,200,262  

Shares issued through reinvestment of distributions

      144,568        3,128,454        141,907        2,334,298  

Shares redeemed

      (642,522 )       (13,270,142 )       (4,022,936 )       (63,108,501 ) 

Net increase (decrease)

      2,384,442        $49,613,827        (1,692,571 )       ($24,573,941 ) 

 

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Six-Month Period Ended

June 30, 2021 (Unaudited)

      Year Ended December 31, 2020  
      Shares      Amount      Shares      Amount  

MATTHEWS ASIA TOTAL RETURN BOND FUND

            

Investor Class

            

Shares sold

      858,573        $9,483,510        1,083,279        $11,623,935  

Shares issued through reinvestment of distributions

      64,695        706,635        141,335        1,519,805  

Shares redeemed

      (1,011,411 )       (11,102,555 )       (1,183,090 )       (12,428,981 ) 

Net increase (decrease)

      (88,143 )       ($912,410 )       41,524        $714,759  

Institutional Class

            

Shares sold

      3,088,622        $34,199,514        1,515,846        $16,313,403  

Shares issued through reinvestment of distributions

      164,968        1,800,820        266,617        2,867,164  

Shares redeemed

      (500,716 )       (5,509,678 )       (2,113,734 )       (22,275,169 ) 

Net increase (decrease)

      2,752,874        $30,490,656        (331,271 )       ($3,094,602 ) 

MATTHEWS ASIA CREDIT OPPORTUNITIES FUND

            

Investor Class

            

Shares sold

      183,237        $1,827,448        336,236        $3,381,135  

Shares issued through reinvestment of distributions

      17,742        176,191        45,500        454,092  

Shares redeemed

      (209,913 )       (2,081,329 )       (748,744 )       (7,561,725 ) 

Net (decrease)

      (8,934 )       ($77,690 )       (367,008 )       ($3,726,498 ) 

Institutional Class

            

Shares sold

      1,353,041        $13,437,294        2,782,828        $28,528,306  

Shares issued through reinvestment of distributions

      172,840        1,714,443        357,209        3,561,328  

Shares redeemed

      (600,192 )       (5,981,655 )       (2,644,333 )       (26,357,185 ) 

Net increase

      925,689        $9,170,082        495,704        $5,732,449  

 

5.

INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Matthews, a registered investment advisor under the 1940 Act, provides the Funds with investment management services. Pursuant to the prior Investment Advisory Agreement dated August 13, 2004, as amended (the “Prior Advisory Agreement”) and the current Investment Advisory Agreement dated February 1, 2016, as amended (the “Current Advisory Agreement,” and together with the Prior Advisory Agreement, the “Advisory Agreement”), the Funds pay Matthews (i) for management and advisory services; and (ii) for certain administrative services, an annual fee as a percentage of average daily net assets. Under the Advisory Agreement each of the Funds, other than Matthews Emerging Markets Small Companies Fund, Matthews China Small Companies Fund, Matthews Asia Total Return Bond Fund and Matthews Asia Credit Opportunities Fund (the “Family-Priced Funds”), pays Matthews 0.75% of their aggregate average daily net assets up to $2 billion, 0.6834% of their aggregate average daily net assets over $2 billion up to $5 billion, 0.65% of their aggregate average daily net assets over $5 billion up to $25 billion, 0.64% of their aggregate average daily net assets over $25 billion up to $30 billion, 0.63% of their aggregate average daily net assets over $30 billion up to $35 billion, 0.62% of their aggregate average daily net assets over $35 billion up to $40 billion, 0.61% of their aggregate average daily net assets over $40 billion up to $45 billion, and 0.60% of their aggregate average daily net assets over $45 billion. Each of the Matthews Asia Total Return Bond Fund and Matthews Asia Credit Opportunities Fund paid Matthews an annual fee of 0.55% of such Fund’s annual average daily net assets pursuant to the Advisory Agreement. Each of the Matthews Emerging Markets Small Companies Fund and the Matthews China Small Companies Fund pays Matthews an annual fee of 1.00% of the average daily net assets of such Fund up to $1 billion and 0.95% of the average daily net assets of such Fund over $1 billion pursuant to the Advisory Agreement. Each Fund pays Matthews a monthly fee at the annual rate using the applicable management fee calculated based on the actual number of days of that month and based on the Fund’s average daily net asset value for the month.

Pursuant to a fee waiver letter agreement, effective as of September 1, 2014, between the Trust, on behalf of the Family-Priced Funds, and Matthews (as amended from time to time, the “Fee Waiver Agreement”), for each Family-Priced Fund, Matthews has agreed to waive a portion of the fee payable under the Advisory Agreement and a portion of the fee payable under the Administration and Shareholder Services Agreement, if any Family-Priced Fund’s average daily net assets are over $3 billion, as follows: for every $2.5 billion average daily net assets of a Family-Priced Fund that are over $3 billion, the fee rates that otherwise would be applied for calculating fees payable under the Advisory Agreement and the Administration and Shareholder Services Agreement for such Family-Priced Fund with respect to such excess average daily net assets will be each reduced by 0.01%, in each case without reducing such fee rate below 0.00%.

 

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Notes to Financial Statements (unaudited) (continued)

 

Investment advisory fees charged, waived fees, reimbursed additional expenses and repaid fees for the six-month period ended June 30, 2021, were as follows:

 

      Gross Advisory Fees        Advisory Fees
Waived and
Expenses Waived or
Reimbursed/Repaid		        Net Advisory Fee/
(Net Reimbursement)		  
Matthews Emerging Markets Equity Fund      $178,475          ($98,483 )         $79,992  
Matthews Emerging Markets Small Companies Fund      1,365,764          (153,390 )         1,212,374  
Matthews Asia Growth Fund      7,520,305          —          7,520,305  
Matthews Pacific Tiger Fund      31,016,669          (588,803 )         30,427,866  
Matthews Asia ESG Fund      335,340          73,418          408,758  
Matthews Asia Innovators Fund      6,891,500          —          6,891,500  
Matthews China Fund      5,699,762          —          5,699,762  
Matthews China Small Companies Fund      2,338,410          (140,246 )         2,198,164  
Matthews India Fund      2,385,339          —          2,385,339  
Matthews Japan Fund      5,496,003          —          5,496,003  
Matthews Korea Fund      514,118          —          514,118  
Matthews Asian Growth and Income Fund      5,022,010          —          5,022,010  
Matthews Asia Dividend Fund      18,182,879          (130,532 )         18,052,347  
Matthews China Dividend Fund      1,369,911          —          1,369,911  
Matthews Asia Total Return Bond Fund      367,432          —          367,432  
Matthews Asia Credit Opportunities Fund      250,581          (1,622 )         248,959  

Under a written agreement between the Funds and Matthews (the “Operating Expense Agreement”), Matthews agrees to waive fees and reimburse expenses to a Fund if its expense ratio exceeds a certain percentage level. For all Funds, except the Matthews Emerging Markets Equity Fund, the Matthews Emerging Markets Small Companies Fund, the Matthews Asia Total Return Bond Fund and the Matthews Asia Credit Opportunities Fund, this level is 1.20% for the Institutional Class. Matthews agrees to reduce the expense ratio by waiving an equal amount of non-class specific expenses (e.g., custody fees) for the Investor Class. Because certain expenses of the Investor Class may be higher than those of the Institutional Class and because class specific expenses may be waived solely for the Institutional Class, total annual Fund expenses for the Investor Class may exceed 1.20%. For the Matthews Emerging Markets Equity Fund, the Matthews Asia Total Return Bond Fund and the Matthews Asia Credit Opportunities Fund, this level is 0.90% for the Institutional Class. Matthews agrees to reduce the expense ratio by waiving an equal amount of non-class specific expenses (e.g., custody fees) for the Investor Class. Because certain expenses of the Investor Class may be higher than those of the Institutional Class and because class specific expenses may be waived solely for the Institutional Class, total annual Fund expenses for the Investor Class may exceed 0.90%. Effective April 30, 2021, for the Matthews Emerging Markets Small Companies Fund, this level is 1.15% for the Institutional Class. Matthews agrees to reduce the expense ratio by waiving an equal amount of non-class specific expenses (e.g., custody fees) for the Investor Class. Because certain expenses of the Investor Class may be higher than those of the Institutional Class and because class specific expenses may be waived solely for the Institutional Class, total annual Fund expenses for the Investor Class may exceed 1.15%. In turn, if the expenses of a Fund, other than the Matthews Asia Total Return Bond Fund and the Matthews Asia Credit Opportunities Fund, fall below the level noted within three years after Matthews has made such a reimbursement, the Fund may reimburse Matthews up to an amount of the recoupment available not to exceed the lesser of (i) the expense limitation applicable at the time of that fee waiver and/or expense reimbursement or (ii) the expense limitation in effect at the time of recoupment. For the Matthews Asia Total Return Bond Fund and the Matthews Asia Credit Opportunities Fund, any amount waived for prior fiscal years is not subject to recoupment. This agreement will continue through April 30, 2022, may be extended for additional periods not exceeding one year, and may be terminated at any time by the Board of Trustees on behalf of the Fund on 60 days’ written notice to Matthews. Matthews may decline to renew this agreement by written notice to the Trust at least 30 days before its annual expiration date.

Waived Fees Subject to Possible Future Recoupment:

On June 30, 2021, the amounts subject to possible future recoupment under the expense limitation agreement are as follows:

 

     Expiring December 31,  
      2021        2022        2023        2024  
Matthews Emerging Markets Equity Fund      $—          $—          $231,409          $98,483  
Matthews Emerging Markets Small Companies Fund      308,001          336,966          378,868          153,390  
Matthews Asia ESG Fund      83,040          67,253          40,676          —  
Matthews China Small Companies Fund      275,220          167,178          362,019          140,246  

The Funds have an Administration and Shareholder Services Agreement dated August 13, 2004, as amended (the “Shareholder Services Agreement” or “Services Agreement”), in which the Funds pay an annual administration and shareholder servicing fee to Matthews, as a percentage of the average daily net assets of each Fund in aggregate, computed and prorated on a daily basis. Under the Shareholder Services Agreement, the Funds in the aggregate pay Matthews 0.25% of their aggregate average daily net assets up to $2 billion, 0.1834% of their aggregate average daily net assets over $2 billion up to $5 billion, 0.15% of their aggregate average daily net assets over $5 billion up to $7.5 billion, 0.125% of their aggregate average daily net assets over $7.5 billion up to $15 billion, 0.11% of their aggregate average daily net assets over $15 billion up to $22.5 billion, 0.10% of their aggregate average daily net assets over $22.5 billion up to $25 billion, 0.09% of their aggregate average daily net assets over $25 billion up to $30 billion, 0.08% of their aggregate average daily net assets over $30 billion up to $35 billion, 0.07% of their aggregate average daily net assets over $35 billion up to $40 billion, 0.06% of their aggregate average daily net assets over $40 billion up to $45 billion, and 0.05% of their aggregate average daily net assets over $45 billion.

 

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Administration and shareholder servicing fees charged, for the six-month period ended June 30, 2021, were as follows:

 

      Gross
Administration and
Shareholder
Servicing Fees		        Administration and
Shareholder
Servicing Fees
Waived in Excess  of
Expense Limitation		        Net
Administration and
Shareholder
Servicing Fees		  
Matthews Emerging Markets Equity Fund      $36,217          $—          $36,217  
Matthews Emerging Markets Small Companies Fund      183,320          —          183,320  
Matthews Asia Growth Fund      1,525,958          —          1,525,958  
Matthews Pacific Tiger Fund      6,294,426          (588,803 )         5,705,623  
Matthews Asia ESG Fund      68,052          —          68,052  
Matthews Asia Innovators Fund      1,398,330          —          1,398,330  
Matthews China Fund      1,156,484          —          1,156,484  
Matthews China Small Companies Fund      313,732          —          313,732  
Matthews India Fund      484,262          —          484,262  
Matthews Japan Fund      1,115,414          —          1,115,414  
Matthews Korea Fund      104,356          —          104,356  
Matthews Asian Growth and Income Fund      1,019,183          —          1,019,183  
Matthews Asia Dividend Fund      3,690,242          (130,532 )         3,559,710  
Matthews China Dividend Fund      277,976          —          277,976  
Matthews Asia Total Return Bond Fund      89,642          —          89,642  
Matthews Asia Credit Opportunities Fund      61,142          —          61,142  

In addition to the fees paid to the Funds’ transfer agent, the Funds bear the cost of fees paid to certain service providers or intermediaries, including supermarkets, which provide transfer agency, record-keeping and shareholder servicing to certain shareholders. These fees are referred to as intermediary service fees on the Statements of Assets and Liabilities as well as the Statements of Operations. Additional information concerning these services and fees is contained in the Funds’ prospectuses.

BNY Mellon Investment Servicing (US) Inc. (“BNY Mellon”), an indirect wholly owned subsidiary of The Bank of New York Mellon Corporation, serves as the Funds’ administrator, and in that capacity, performs various administrative and accounting services for each Fund. BNY Mellon also serves as the Funds’ transfer agent, dividend disbursing agent and registrar. An officer of BNY Mellon serves as Assistant Treasurer to the Funds. Total fees accrued by the Funds for administration and accounting services for the six-month period ended June 30, 2021 were as follows:

 

      Administration and
Accounting fees		  
Matthews Emerging Markets Equity Fund      $2,159  
Matthews Emerging Markets Small Companies Fund      10,849  
Matthews Asia Growth Fund      90,974  
Matthews Pacific Tiger Fund      375,206  
Matthews Asia ESG Fund      4,057  
Matthews Asia Innovators Fund      83,367  
Matthews China Fund      68,951  
Matthews China Small Companies Fund      18,707  
Matthews India Fund      28,854  
Matthews Japan Fund      66,484  
Matthews Korea Fund      6,219  
Matthews Asian Growth and Income Fund      60,751  
Matthews Asia Dividend Fund      219,955  
Matthews China Dividend Fund      16,572  
Matthews Asia Total Return Bond Fund      5,344  
Matthews Asia Credit Opportunities Fund      3,645  

As of June 30, 2021, Matthews and its affiliates held significant shares in the Funds as follows:

 

      Shares held by Matthews
and its Affiliates		        Percentage of
Outstanding Shares		  
Matthews Emerging Markets Equity Fund      583,932          17 % 
Matthews Asia ESG Fund      742,850          11 % 

Certain officers and Trustees of the Funds are also officers and directors of Matthews. All officers serve without compensation from the Funds. The Funds paid the Independent Trustees $832,305 in aggregate for regular compensation during the six-month period ended June 30, 2021.

 

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Notes to Financial Statements (unaudited) (continued)

 

6.

INVESTMENTS

The value of investment transactions made for affiliated and unaffiliated holdings for the six-month period ended June 30, 2021 were as follows:

 

      Affiliated Purchases        Proceeds from
Affiliated Sales		        Unaffiliated Purchases        Proceeds from
Unaffiliated Sales		  
Matthews Emerging Markets Equity Fund      $—          $—          $31,478,242          $20,025,436  
Matthews Emerging Markets Small Companies Fund      —          —          139,707,976          74,272,673  
Matthews Asia Growth Fund      —          —          633,560,381          360,031,645  
Matthews Pacific Tiger Fund      —          —          2,931,910,683          2,640,492,058  
Matthews Asia ESG Fund      —          —          39,993,100          26,720,608  
Matthews Asia Innovators Fund      —          —          2,302,533,715          1,937,469,416  
Matthews China Fund      —          —          800,858,033          619,351,700  
Matthews China Small Companies Fund      —          —          391,796,863          318,457,891  
Matthews India Fund      —          —          137,743,107          174,227,015  
Matthews Japan Fund      —          —          649,996,050          569,771,319  
Matthews Korea Fund      —          —          31,319,611          48,333,453  
Matthews Asian Growth and Income Fund      —          —          378,487,263          432,808,165  
Matthews Asia Dividend Fund      2,304,797          2,087,182          1,807,434,121          1,395,998,591  
Matthews China Dividend Fund      —          —          158,817,631          139,803,016  
Matthews Asia Total Return Bond Fund      —          —          66,727,008          29,230,595  
Matthews Asia Credit Opportunities Fund      —          —          39,811,853          29,127,462  

 

7.

HOLDINGS OF 5% VOTING SHARES OF PORTFOLIO COMPANIES

The 1940 Act defines “affiliated companies” to include investments in portfolio companies in which a fund owns 5% or more of the outstanding voting shares. During the six-month period ended June 30, 2021, the Funds below held 5% or more of the outstanding voting shares of the noted portfolio companies. During this period, other Funds in the Trust may also have held voting shares of the issuers at levels below 5%.

Investments in affiliates:

A summary of transactions in securities of issuers affiliated with a Fund for the six-month period ended June 30, 2021 is as follows:

 

      Value at
Dec. 31, 2020		      Purchases      Sales     

Net Realized

Gain (Loss)

Jan. 1, 2021-
June 30, 2021

     Net Change in
Unrealized
Appreciation
(Depreciation)		     Value at
June 30, 2021		      Shares
June 30, 2021		     

Dividend

Income

Jan. 1, 2021-
June 30, 2021

  
MATTHEWS ASIA DIVIDEND FUND

 

                   
Name of Issuer:                      

BELLSYSTEM24 Holdings, Inc.

      $79,189,759        $—        $—        $—       $154,443       $79,344,202        5,045,500        $900,174    

Breville Group, Ltd.

      148,884,666        —        2,087,182        1,347,132       19,170,413       167,315,029        7,461,473        778,668  

KATITAS Co., Ltd.

      135,099,904        —        —        —       (17,386,252 )      117,713,652        4,186,900        546,588  

Minda Industries, Ltd.

      74,543,018        —        —        —       42,994,474       117,537,492        13,619,268        46,851  

Minth Group, Ltd.

      324,069,910        2,304,797        —        —       (33,190,812 )      293,183,895        61,819,000        4,557,525  

Yuexiu Transport Infrastructure, Ltd.

      64,004,076        —        —        —       (9,622,394 )      54,381,682        93,902,000        847,398  
                             

Total Affiliates

               $1,347,132       $2,119,872       $829,475,952           $7,677,204  
                             

 

8.

INCOME TAX INFORMATION

It is the policy of the Funds to comply with all requirements of the Internal Revenue Code of 1986, as amended (“the Code”), applicable to regulated investment companies and to distribute substantially all of their taxable income to their shareholders. The Funds have met the requirements of the Code applicable to regulated investment companies for the six-month period ended June 30, 2021. Therefore, no federal income tax provision is required.

Management has analyzed the Funds’ tax positions taken on federal income tax returns for all open tax years (current and prior three tax years), and has concluded that no provision for federal income tax is required in the Funds’ financial statements. The Funds’ federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.

Under current tax law, the Funds have elected to defer certain qualified late-year losses and recognize such losses in the year ending December 31, 2020:

 

     

Late Year

Losses*

  
Matthews India Fund      $1,611,640  

 

*

As permitted by the Internal Revenue Service, the Funds have elected to defer certain qualified late-year losses and recognize such losses in the next fiscal year.

 

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As of December 31, 2020, the Funds have capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates as follows:

 

       Amount With No Expiration           
        Short-term
Losses		        Long-term
Losses		        Total  
Matthews Emerging Markets Small Companies Fund        $—          $4,292,103          $4,292,103  
Matthews India Fund        —          12,607,260          12,607,260  
Matthews Korea Fund        1,420,024          6,074,155          7,494,179  
Matthews Asian Growth and Income Fund        —          24,031,922          24,031,922  
Matthews China Dividend Fund        2,259,438          2,416,100          4,675,538  
Matthews Asia Total Return Bond Fund        1,879,869          130,808          2,010,677  
Matthews Asia Credit Opportunities Fund        1,503,334          955,860          2,459,194  

Under the Regulated Investment Company Modernization Act of 2010, the Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to any losses incurred in pre-enactment taxable years, which generally expire after eight years from when they are incurred. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.

As of June 30, 2021, the tax cost of investments, including derivatives, and the related net unrealized appreciation and depreciation were as follows:

 

      Tax Cost     

Gross
Unrealized
Appreciation

      Gross
Unrealized
Depreciation		     Net Unrealized
Appreciation
(Depreciation)		  
Matthews Emerging Markets Equity Fund      $49,642,159        $10,210,998        ($978,770)       $9,232,228  
Matthews Emerging Markets Small Companies Fund      269,520,724        125,248,891        (8,302,090 )      116,946,801  
Matthews Asia Growth Fund      1,439,553,074        940,834,530        (52,591,689)       888,242,841  
Matthews Pacific Tiger Fund      6,169,464,090        3,374,494,972        (136,786,513 )      3,237,708,459  
Matthews Asia ESG Fund      83,114,330        34,347,461        (3,666,529)       30,680,932  
Matthews Asia Innovators Fund      1,708,576,394        442,909,971        (59,597,258 )      383,312,713  
Matthews China Fund      1,394,293,827        433,803,426        (47,025,829)       386,777,597  
Matthews China Small Companies Fund      416,852,380        111,693,398        (37,436,978 )      74,256,420  
Matthews India Fund      550,648,591        253,326,597        (28,581,032)       224,745,565  
Matthews Japan Fund      1,346,006,777        298,701,986        (38,596,780 )      260,105,206  
Matthews Korea Fund      90,435,300        62,567,135        (885,915)       61,681,220  
Matthews Asian Growth and Income Fund      1,118,316,576        374,870,329        (49,413,333 )      325,456,996  
Matthews Asia Dividend Fund      4,123,463,918        1,558,546,847        (124,081,949)       1,434,464,898  
Matthews China Dividend Fund      335,899,977        111,493,423        (13,903,567 )      97,589,856  
Matthews Asia Total Return Bond Fund      137,497,336        5,589,698        (7,315,255)       (1,725,557 ) 
Matthews Asia Credit Opportunities Fund      93,537,224        3,194,133        (5,693,499 )      (2,499,366 ) 

 

9.

PUBLIC HEALTH EMERGENCY RISKS

Pandemics and other public health emergencies, including outbreaks of infectious diseases such as the current outbreak of the novel coronavirus (“COVID-19”), can result, and in the case of COVID-19 is resulting, in market volatility and disruption, and materially and adversely impact economic conditions in ways that cannot be predicted, all of which could result in substantial investment losses. Containment efforts and related restrictive actions by governments and businesses have significantly diminished and disrupted global economic activity across many industries. Less developed countries and their health systems may be more vulnerable to these impacts. The ultimate impact of COVID-19 or other health emergencies on global economic conditions and businesses is impossible to predict accurately. Ongoing and potential additional material adverse economic effects of indeterminate duration and severity are possible. The resulting adverse impact on the value of investment in the Funds could be significant and prolonged.

 

10.

SUBSEQUENT EVENTS

Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued, and has determined that there were no subsequent events that require recognition or disclosure in the financial statements.

 

     matthewsasia.com  |  800.789.ASIA      151  

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Matthews Asia Funds              

INVESTMENT ADVISOR

Matthews International Capital Management, LLC

Four Embarcadero Center, Suite 550

San Francisco, CA 94111

800.789.ASIA

 

CUSTODIAN

Brown Brothers Harriman & Co.

50 Post Office Square

Boston, MA 02110

     

ACCOUNT SERVICES

Matthews Asia Funds

P.O. Box 9791

Providence, RI 02940

800.789.ASIA

 

LEGAL COUNSEL

Paul Hastings LLP

101 California Street, 48th Floor

San Francisco, CA 94111

     

ADMINISTRATOR &

TRANSFER AGENT

BNY Mellon

301 Bellevue Parkway

Wilmington, DE 19809

 

LOGO

 

P.O. Box 9791  |  Providence, RI 02940  |  matthewsasia.com  |  800.789.ASIA (2742)

 

Matthews Asia Funds are distributed in the United States by Foreside Funds Distributors LLC, Berwyn, Pennsylvania

Matthews Asia Funds are distributed in Latin America by Picton S. A.

 

LOGO

 

SAR-0621

 

 

Table of Contents
  (b)

Not applicable

 

Item 2.

Code of Ethics.

Not applicable.

 

Item 3.

Audit Committee Financial Expert.

Not applicable.

 

Item 4.

Principal Accountant Fees and Services.

Not applicable.

 

Item 5.

Audit Committee of Listed Registrants.

Not applicable.

 

Item 6.

Investments.

 

(a)

Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form.

 

(b)

Not applicable.

 

Item 7.

Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable.

 

Item 8.

Portfolio Managers of Closed-End Management Investment Companies.

Not applicable.

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Item 9.

Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

Not applicable.

 

Item 10.

Submission of Matters to a Vote of Security Holders.

There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.

 

Item 11.

Controls and Procedures.

 

  (a)

The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).

 

  (b)

There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d))) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

Item 12.

Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.

Not applicable.

 

Item 13.

Exhibits.

 

(a)(1)

    Not applicable.

(a)(2)

    Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.

(a)(3)

    Not applicable.

(a)(4)

    Not applicable.

(b)

    Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

(Registrant)  

Matthews International Funds

By (Signature and Title)*  

/s/ William J. Hackett

  William J. Hackett, President
  (principal executive officer)
Date  

September 2, 2021

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By (Signature and Title)*  

/s/ William J. Hackett

  William J. Hackett, President
  (principal executive officer)
Date  

September 2, 2021

By (Signature and Title)*  

/s/ Shai Malka

  Shai Malka, Treasurer
  (principal financial officer)
Date  

September 2, 2021

 

* 

Print the name and title of each signing officer under his or her signature.