The Matthews Asia Small Companies Fund (Trades, Portfolio) disclosed this week that its top four new buys during the fourth quarter of 2020 were Phoenix Mills Ltd. (BOM:503100), Andes Technology Corp. (TPE:6533), M31 Technology Corp. (ROCO:6643) and Lemon Tree Hotels Ltd. (BOM:541233).

Overseen by fund manager Vivek Tanneeru, the fund seeks long-term capital appreciation through investments in small-cap stocks in Asian stock markets excluding Japan. The fund looks for companies with the potential for sustainable growth based on fundamental characteristics like balance sheet information, size and stability of cash flows and management depth.

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According to the shareholder letter, the fund returned returned 22.9{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} for the three months ending December 2020, outperforming the MSCI All Country Asia ex Japan Small Cap Index benchmark return of 19.72{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312}. As of the quarter end, the fund’s $190 million equity portfolio contains 64 stocks, with 14 new positions and a turnover ratio of 24{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312}. The top three sectors in terms of weight are technology, health care and industrials, representing 27.43{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312}, 21.98{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} and 20.70{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} of the equity portfolio.

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Phoenix Mills

The fund purchased 610,829 shares of Phoenix Mills (BOM:503100), giving the position 3.42{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} weight in the equity portfolio. Shares averaged 650.27 Indian rupees ($8.96) during the fourth quarter; the stock is significantly overvalued based on Friday’s price-to-GF Value ratio of 1.96.

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GuruFocus ranks the Indian real estate company’s financial strength 4 out of 10 on the back of debt ratios trending toward the industry median debt ratios. Despite this, Phoenix Mills’ profitability ranks 7 out of 10, driven on an operating margin that has increased approximately 3{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} per year on average over the past five years and is outperforming over 76{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} of global competitors.

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Andes Technology

The fund purchased 383,000 shares of Andes Technology (TPE:6533), giving the position 2.41{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} equity portfolio weight. Shares averaged 225.25 New Taiwanese dollars ($8.04) during the fourth quarter; the stock is highly overvalued based on a Friday price-to-GF Value ratio of 2.66.

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GuruFocus ranks the Taiwanese semiconductor company’s financial strength 7 out of 10 on the heels of a double-digit Altman Z-score and a safe Beneish M-score despite a low Piotroski F-score of 3.

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M31 Technology

The fund purchased 263,000 shares of M31 Technology (ROCO:6643), giving the position 1.67{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} weight in the equity portfolio. Shares averaged NT$326.21 during the fourth quarter; the stock is fairly valued based on Friday’s price-to-GF Value ratio of 0.98.

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GuruFocus ranks the Taiwanese silicon manufacturer’s financial strength 9 out of 10 on several positive investing signs, which include a double-digit Altman Z-score and interest coverage and debt ratios that outperform over 95{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} of global competitors.

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Lemon Tree Hotels

The firm purchased 5,712,363 shares of Lemon Tree Hotels (BOM:541233), giving the position 1.66{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} weight in the equity portfolio. Shares averaged 33.57 rupees during the fourth quarter of 2020.

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GuruFocus ranks the Indian hotel operator’s financial strength 3 out of 10 on several warning signs, which include debt ratios that underperform over 70{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} of global competitors.

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See also

On Friday, the day of the Lunar New Year, several Asian stock markets are undervalued based on Berkshire Hathaway Inc. (NYSE:BRK.A)(BRK.B) CEO Warren Buffett (Trades, Portfolio)’s market valuation indicator. For example, the Singapore stock market is projected to return 13.3{e0233a5a8ca3dab8ed448c5451aba2c38c77d167988a5d203483ecea09d61312} per year, based on the total market valuation to gross domestic product measure for Singapore.

Disclosure: No positions.

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James Li

I am an editorial researcher at GuruFocus. I have a Master’s in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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