The Matthews China Fund (Trades, Portfolio) disclosed this week that its top five trades during the third quarter included new holdings in JD.com Inc.'s Hong Kong shares (HKSE:09618, Financial) and Xinyi Glass Holdings Ltd. (HKSE:00868, Financial), a position boost in AVIC Jonhon Optronic Technology Co. Ltd. (SZSE:002179, Financial) and reductions in JD.com Inc.'s American depository receipt shares (JD, Financial) and China Construction Bank Corp. (HKSE:00939, Financial).
The fund seeks long-term capital appreciation by investing at least 80% of its assets in companies located in China. To gauge sustainable growth capabilities, the fund examines the company's balance sheet, number of employees, size and stability of cash flow as well as management integrity.
According to its quarterly letter, the fund returned 13.05% during the three months ended Sept. 30, compared with the MSCI China Index return of 12.57%. As of quarter-end, the fund's $1.23 billion equity portfolio contains 47 stocks, with nine new holdings and a turnover ratio of 15%.
Fund takes stake in JD's Hong Kong shares and reduces holding in U.S. shares
The fund purchased 998,780 shares of JD's Hong Kong shares, dedicating 3.14% of the equity portfolio to the position. Likewise, the fund sold 499,390 shares of JD's U.S. shares, chopping the position in half and reducing the equity portfolio 2.88%. Hong Kong shares averaged 270.01 Hong Kong dollars ($34.81) during the quarter while U.S. shares averaged $69.52.
The fund said in its letter that JD contributed to the fund's performance on the heels of the company's increased demand for its services during the Covid-19 pandemic. The Beijing-based company ranks second among Chinese e-commerce retailers in terms of transaction volume, after Hangzhou-based Alibaba Group Holding Ltd. (BABA).
Other gurus with holdings in JD's U.S. shares include Chase Coleman (Trades, Portfolio)'s Tiger Global Management, Dodge & Cox and Andreas Halvorsen (Trades, Portfolio).
Xinyi Glass Holdings
The fund purchased 10,058,000 shares of Xinyi Glass Holdings, giving the stake 1.66% weight in the equity portfolio. Shares averaged HK$12.47 during the third quarter.
GuruFocus ranks the construction company's profitability 9 out of 10 on several positive investing signs, which include a four-star business predictability rank and an operating margin that has increased over 10% per year on average over the past five years and is outperforming over 93% of global competitors.
AVIC Jonhon Optronic Technology
The fund purchased 2,444,517 shares of AVIC Jonhon Optronic Technology, increasing the holding 488.63% and the equity portfolio 1.37%. Shares averaged 45.38 yuan ($6.82) during the third quarter.
The Luoyang-based company researches and develops optical, electrical and fluid technology and equipment. GuruFocus ranks the company's profitability 9 out of 10 on several positive investing signs, which include a 4.5-star business predictability rank and an operating margin that outperforms over 91% of global competitors.
China Construction Bank
The fund sold 21.895 million shares of China Construction Bank, reducing the position 37.62% and the equity portfolio 1.71%. Shares averaged HK$5.74 during the third quarter.
According to GuruFocus, the Beijing-based bank's debt-to-equity ratio outperforms 63.99% of global competitors while its equity-to-asset ratio underperforms 64.32% of global banks.
Disclosure: No positions.
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