The Matthews China Fund (Trades, Portfolio) disclosed this week that it purchased four new stocks during the first quarter: Kingdee International Software Group Co. Ltd. (HKSE:00268, Financial), Hangzhou Tigermed Consulting Co. Ltd. (SZSE:300347, Financial), Weimob Inc. (HKSE:02013, Financial) and Focus Media Information Technology Co. Ltd. (SZSE:002027, Financial).
Overseen by Andrew Mattock and Winnie Chwang, the fund aims for long-term capital appreciation by investing at least 80% of its net assets in common and preferred stocks of companies located in China and special administration region Hong Kong. The China Fund seeks to invest in companies capable of sustainable growth based on fundamental characteristics like number of employees, size and stability of cash flows and management’s depth and integrity.
Fund updates portfolio performance in light of coronavirus outbreak
As of quarter-end, the fund’s $785 million equity portfolio contains 39 stocks with a turnover ratio of 12%. The fund’s top four sectors in terms of weight are consumer cyclical, financial services, communication services and technology, with weights of 25.39%, 23.58%, 15.02% and 8.30%.
The fund said in its quarterly letter that it returned -8.74% during the first three months of 2020, outperforming the MSCI China Index's return of -10.22%.
While Chinese equities were impacted by the coronavirus outbreak, the fund outperformed the benchmark on the heels of favorable mix of stock selection and sector allocation. According to the letter, the fund’s lack of exposure to the energy sector contributed to relative performance as oil prices plunged during the quarter due to an OPEC price war. Despite this, the fund’s high exposure to financials detracted from relative performance although stock selection in technology and consumer cyclical boosted relative value.
Kingdee
The fund purchased 6.447 million shares of Kingdee, giving the stake 1.08% weight in the equity portfolio. Shares averaged 9.52 Hong Kong dollars ($1.23) during the first quarter.
The Shenzhen, Guangdong-based company provides enterprise management software primarily to the Asia-Pacific region. GuruFocus ranks Kingdee’s financial strength 8 out of 10 on several positive investing signs, which include a strong Altman Z-score of 10 and debt ratios that are outperforming over 70% of global competitors.
The Matthews Asia Small Companies Fund (Trades, Portfolio) also has a holding in Kingdee.
Hangzhou Tigermed Consulting
The fund purchased 831,236 shares of Hangzhou Tigermed Consulting, giving the position 0.95% weight in the equity portfolio. Shares averaged 73.08 yuan ($10.29) during the first quarter.
Hangzhou Tigermed Consulting provides a wide range of clinical trial services, which include bioanalytical, medical writing, biostatistics analysis and medical imaging. GuruFocus ranks the company’s profitability 10 out of 10 on several positive investing signs, which include expanding operating margins, a 4.5-star business predictability rank and a high Piotroski F-score of 7.
Weimob
The fund purchased 6.544 million shares of Weimob, giving the holding 0.52% weight in the equity portfolio. Shares averaged HK$4.72 during the first quarter.
The Shanghai-based company provides cloud business and marketing solutions for small and medium-sized enterprises in China. According to GuruFocus, Weimob’s debt ratios are outperforming just 53% of global competitors, suggesting modest financial strength.
Focus Media
The fund purchased 5,754,207 shares of Focus Media, giving the stake 0.45% weight in the equity portfolio. Shares averaged 5.58 yuan during the first quarter.
GuruFocus ranks the Shanghai-based advertising company’s financial strength 8 out of 10 on several positive investing signs, which include a strong Altman Z-score of 12 and debt ratios outperforming over 77% of global competitors.
Disclosure: No positions.
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