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Asia Growth & Income

Matthews China Dividend Fund

Snapshot
  • Total return strategy seeks to access the growth of China with lower volatility
  • Unconstrained all-cap portfolio with a quality bias
  • Flexible approach offers participation in both growth and value markets

31/01/2013

Inception Date

-12.60%

YTD Return (USD)

(as of 28/06/2022)

$19.42

Price (USD)

(as of 28/06/2022)

$15.82 million

Fund Assets

(as of 31/05/2022)

Objective

Seeks total return with an emphasis on providing current income.

Strategy

The Fund seeks to achieve its investment objective by investing, directly or indirectly, at least 65% of its total assets, in income-paying publicly traded common stocks, preferred stocks, convertible preferred stocks, and other equity-related instruments of companies located in China. For purpose of this policy, China includes the People's Republic of China, its administrative and other districts, such as Hong Kong, as well as Taiwan. The Fund may also invest in convertible fixed-income securities.

Risks

The value of an investment in the Fund can go down as well as up and possible loss of principal is a risk of investing. Investments in international, emerging and frontier market securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation, which may adversely affect the value of the Fund's assets. Investing in Chinese securities involve risks. Heightened risks related to the regulatory environment and the potential actions by the Chinese government could negatively impact performance. The Fund invests in holdings denominated in foreign currency, and is exposed to the risk that the value of the foreign currency will increase or decrease. The Fund invests primarily in equity securities, which may result in increased volatility. There is no guarantee that the Fund or the companies in its portfolio will pay or continue to pay dividends. Investments in a single-country fund may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country.

These and other risks associated with investing in the Fund can be found in the prospectus.

Fund Facts
Inception Date 31/01/2013
Fund Assets $15.82 million (31/05/2022)
Base Currency USD
ISIN: LU0871673488 (USD)
Bloomberg Symbol MATACDI:LX (USD)
Benchmark MSCI China Index
Geographic Focus China and Taiwan: China includes its administrative and other districts, such as Hong Kong
Fees & Expenses
Management Fee 0.75%
Total Expense Ratio As of 31/03/2022 1.00% ( USD )

Performance

  • Monthly
  • Quarterly
  • Calendar Year
  • Rolling 12 Month
    Returns
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As of 31/05/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Dividend Fund (USD)
0.95% -10.12% -18.45% -25.95% 2.61% 4.92% n.a. 6.58% 31/01/2013
MSCI China Index (USD)
1.19% -10.70% -16.71% -35.86% 0.01% 1.46% n.a. 3.06%
As of 31/03/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Dividend Fund (USD)
-6.89% -15.53% -15.53% -15.91% 1.37% 6.67% n.a. 7.11% 31/01/2013
MSCI China Index (USD)
-8.00% -14.19% -14.19% -32.47% -2.88% 3.67% n.a. 3.45%
For the years ended December 31st
Name 2021 2020 2019 2018 2017 2016 2015 2014
Matthews China Dividend Fund (USD)
0.32% 24.30% 14.82% -10.44% 38.09% 6.09% 7.94% 0.92%
MSCI China Index (USD)
-21.64% 29.67% 23.66% -18.75% 54.33% 1.11% -7.62% 8.26%
For the period ended 31/03/2022
Name 2022 2021 2020 2019 2018 Inception Date
Matthews China Dividend Fund (USD)
-15.91% 43.26% -13.54% 3.44% 28.18% 31/01/2013
MSCI China Index (USD)
-32.47% 43.81% -5.66% -6.08% 39.15%

Source: Brown Brothers Harriman (Luxembourg) S.C.A.

Since inception performance for share classes with less than one year of history represents actual performance, not annualised. In addition, for share classes less than a year old, Year to Date Return is calculated since inception. Where no past performance is shown there was insufficient data available in that year to provide performance.

Performance details provided are based on a NAV-to-NAV basis with any dividends reinvested, and are net of management fees and other expenses. Performance data has been calculated in the respective currencies stated above, including ongoing charges and excluding subscription fee and redemption fee you might have to pay.

All performance quoted represents past performance and is not indicative of future performance. Investors may not get back the full amount invested. Investors investing in funds denominated in non-local currency should be aware of the risk of currency exchange fluctuations that may cause a loss of principal.

Additional performance, attribution, liquidity, value at risk (VaR), security classification and holdings information is available on request for certain time periods.

Yield

(as of 31/05/2022)
3.24% Dividend Yield

Source: FactSet Research Systems, Bloomberg, Matthews Asia

Portfolio Characteristics

(as of 31/05/2022)
Fund Benchmark
Number of Positions 38 739
Weighted Average Market Cap $73.7 billion $128.3 billion
Active Share 83.9 n.a.
P/E using FY1 estimates 10.5x 10.2x
P/E using FY2 estimates 8.9x 9.2x
Price/Cash Flow 6.6 6.0
Price/Book 1.2 1.4
Return On Equity 15.7 12.5
EPS Growth (3 Yr) 13.9% 14.6%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 31/05/2022)
2.51%
Alpha
0.76
Beta
88.55%
Upside Capture
84.54%
Downside Capture
0.12
Sharpe Ratio
0.26
Information Ratio
9.90%
Tracking Error
71.88

Fund Risk Metrics are reflective of Class I USD ACC shares.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 31/05/2022)
Name Sector % Net Assets
Tencent Holdings, Ltd. Communication Services 10.1
Postal Savings Bank of China Co., Ltd. Financials 4.6
CITIC Telecom International Holdings, Ltd. Communication Services 4.6
BOC Hong Kong Holdings, Ltd. Financials 3.5
CSPC Pharmaceutical Group, Ltd. Health Care 3.1
Yangzijiang Shipbuilding Holdings, Ltd. Industrials 3.1
China Everbright International, Ltd. Industrials 3.1
China Suntien Green Energy Corp., Ltd. Energy 3.0
CK Hutchison Holdings, Ltd. Industrials 2.9
Fortune REIT Real Estate 2.9
TOTAL 40.9

Top 10 holdings may combine more than one security from the same issuer and related depositary receipts.

Source: Brown Brothers Harriman (Luxembourg) S.C.A

Portfolio Breakdown (%)

(as of 31/05/2022)
  • Sector Allocation
  • Asset Type Breakdown
  • Market Cap Exposure
  • China Exposure

Sector data based on MSCI’s revised Global Industry Classification Standards. For more details, visit www.msci.com.

Asset Type Fund
Common Equities and ADRs 95.5
Cash and Other Assets, Less Liabilities 4.5
China Exposure Portfolio Weight
SAR (Hong Kong) 36.0
H Shares 21.7
A Shares 13.9
China-affiliated corporations (CAC) 11.2
Overseas Listed Companies (OL) 7.5
B Shares 5.4
Cash and Other Assets, Less Liabilities 4.5

Definitions: SAR (Hong Kong) companies are companies that conduct business in Hong Kong and/or mainland China. China-affiliated corporations [CAC], also known as "Red Chips," are mainland China companies with partial state ownership listed in Hong Kong, and incorporated in Hong Kong. China A Shares are Mainland Chinese companies incorporated in China and listed on the Shanghai or Shenzhen exchanges, available mostly to local Chinese investors and qualified institutional investors. H Shares are mainland Chinese companies listed on the Hong Kong exchange but incorporated in mainland China. B Shares are mainland Chinese companies listed on the Shanghai and Shenzhen stock exchanges, available to both Chinese and non-Chinese investors. Overseas Listed [OL] companies are companies that conduct business in mainland China but listed in overseas markets such as Japan, Singapore, Taiwan and the United States.

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

Ratings

  • OVERALL
  • 3 YEAR
  • 5 YEAR

Past performance is no guarantee of future results. High ratings and rankings does not assure favorable performance.

Overall Morningstar RatingTM is reflective of the noted share class. Fund ratings represent an opinion only and are not a recommendation to buy or sell any fund. Copyright ©2021 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is provided for reference purposes only.

The Overall Morningstar®️ Rating for a fund is derived from a weighted-average of the performance figures associated with its three-, five- and (if applicable) ten-year ratings.

Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

Portfolio Managers

Sherwood  Zhang, CFA photo
Sherwood Zhang, CFA

Lead Manager

Yu  Zhang, CFA photo
Yu Zhang, CFA

Co-Manager

S. Joyce Li, CFA photo
S. Joyce Li, CFA

Co-Manager

Commentary

Period ended 31 March 2022

For the quarter ending 31 March 2022, the Matthews China Dividend Fund returned -15.53%, while its benchmark, the MSCI China Index, returned -14.19%.

Market Environment:

Chinese equities fell sharply during the first quarter of 2022, as multiple negative impacts created significant market headwinds. The first shock was the Russian invasion of Ukraine, and the severe economic sanctions imposed on Russia by the West which caused the halting of trading of Russian equities. Many emerging markets funds with Russian equities exposure were forced to raise liquidity to cover the resulting losses and redemptions. Since Chinese equities are the most liquid assets in the emerging markets, they suffered a heavy sell off. Additionally, as Russia and China had recently jointly announced that their mutual cooperation “has no limit,” market participants worried that China’s supportive position toward Russia may result in damaging “secondary sanctions” from the West, dampening global investors’ sentiment towards Chinese equities.

The second shock was China’s continued implementation of its zero-COVID policy. As COVID cases started to increase in Jilin Province and Shanghai, government officials resorted to locking down the entire city. Locking down Shanghai—a business and financial hub of China—results in not only the loss of economic activity within the city itself but also impacts the production and logistic chain in other parts of China as well, making it look increasingly unlikely that China will be able to achieve the GDP growth target it set earlier this year. An additional shock this quarter stems from an increasingly hawkish U.S. Federal Reserve. Responding to sustained inflation pressures, the Fed has increased the number and magnitude of its forecast rate increases. This has resulted in a stronger U.S. dollar and soaring interest rates during the quarter, a combination that is typically negative for emerging markets equities.

Performance Contributors and Detractors:

On a sector basis, stock selection within the consumer discretionary and energy sectors were the largest detractors from relative Fund performance. Our stock selection within the information technology and communication services sectors were the largest contributors to relative performance.

Turning to individual holdings, E Ink, a global leader of ePaper technology firm based in Taiwan, was the top performance contributor to absolute performance during the quarter. The company continued to forecast strong revenue potential, lifting sentiment for the stock. Postal Savings Bank of China was the second largest performance contributor for the quarter, as the bank reported robust earnings growth for 2021, making it one of the fastest earnings growers among large Chinese banks. Additionally, the bank’s operating costs may soon decline, as it seeks to renegotiate the agency fee it is paying to its parent company, China Postal Group.

On the other hand, China Education Group, which operates for-profit colleges, was the largest detractor to absolute performance. During the quarter, there was an unverified “official” document circulating among investors that the Chinese government will target private higher education institutions for tighter regulation, causing some panic selling of the stock. After talking to both company management and other industry sources, we believe the document is forged, and see the potential for operation resilience, especially during the economic down turn. Leading internet platform company Tencent was the second largest absolute performance detractor for the quarter, as investors continued to worry about the industry’s substantial regulatory pressures. The recent stall of new online game licenses on its platform also limits the company’s earning growth near term.

Notable Portfolio Changes:

During the quarter we added fast-food chain operator Yum China Holdings and reinitiated a position in China Tourism Group Duty Free. We believe these two companies are well positioned for a domestic tourism recovery, and will ultimately gain market share from their ailing competitors. We also took the opportunity of a biotech/health care sector sell-off to add a position in leading pharmaceutical contract manufacturer Asymchem Laboratories Tianjing. Asymchem’s strong expertise in its small molecule process has helped it win a large contract with a leading global drug company to make drugs targeting the COVID-19 virus.

We exited e-commerce giant Alibaba Group, as the dual headwinds of slower consumer spending and regulatory uncertainty persist for the company. We also sold Tsingtao Beer to fund other investments, as we are concerned the company’s margin improvement may stall this year, with its recent reported strong earnings growth fueled by unsustainable large, one-off government subsidies. Additionally, we exited diesel engine manufacturer Weichai Power Co., as its product cycle looks to have peaked and we are disappointed with the lack of progress of company’s corporate governance improvement.

Outlook:

Looking ahead, we are optimistic that the headwinds that precipitated Chinese equities’ sell off in 2021 will recede. So far in 2022, we have not seen new internet regulations, and various local municipal governments are relaxing home purchase restrictions. We are also seeing some concrete progress being made on the auditing issue raised by the SEC to Chinese securities regulators. And finally we believe there will be some relaxation of travel restrictions later this year, despite the current strict lock down in Shanghai.

 

Rolling 12 Month Returns For the period ended 31/03/2022 - I (Acc)
Name 2022 2021 2020 2019 2018 Inception Date
Matthews China Dividend Fund (USD)
-15.91% 43.26% -13.54% 3.44% 28.18% 31/01/2013
MSCI China Index (USD)
-32.47% 43.81% -5.66% -6.08% 39.15%

Sources: Brown Brothers Harriman (Luxembourg) S.C.A, Matthews Asia, FactSet Research Systems, Bloomberg

 

Performance figures discussed in the Fund Manager Commentary above reflect that of the Institutional Accumulation Class Shares and has been calculated in USD. Performance details provided for the Fund are based on a NAV-to-NAV basis, with any dividends reinvested, and are net of management fees and other expenses. Past performance information is not indicative of future performance. Investors may not get back the full amount invested.

The information contained herein has been derived from sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Matthews Asia and its affiliates do not accept any liability for losses either direct or consequential caused by the use of this information.

Information contained herein is sourced from Matthews Asia unless otherwise stated. The views and opinions in this commentary were as of the report date, subject to change and may not reflect the writer’s current views. 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 the Fund’s future investment intent. It should not be assumed that any investment will be profitable or will equal the performance of any securities or any sectors mentioned herein. The information does not constitute a recommendation to buy or sell any securities mentioned.

Investors should not invest in the Fund solely based on the information in this material alone. Please refer to the Prospectus for further details of the risk factors. 

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