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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

0.72%

YTD Return (USD)

(as of 03/12/2021)

$22.31

Price (USD)

(as of 03/12/2021)

$19.49 million

Fund Assets

(as of 31/10/2021)

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 and emerging market securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. 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.

The risks associated with investing in the Fund can be found in the prospectus.

Fund Facts
Inception Date 31/01/2013
Fund Assets $19.49 million (31/10/2021)
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 30/09/2021 1.00% ( USD )

Performance

  • Monthly
  • Quarterly
  • Calendar Year
  • Rolling 12 Month
    Returns
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As of 30/11/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Dividend Fund (USD)
-1.68% -5.29% 0.32% 6.52% 11.94% 11.32% n.a. 9.46% 31/01/2013
MSCI China Index (USD)
-5.97% -7.87% -19.09% -16.85% 6.82% 9.31% n.a. 5.78%
As of 30/09/2021
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Dividend Fund (USD)
-3.20% -8.72% 2.53% 14.99% 10.86% 11.68% n.a. 9.93% 31/01/2013
MSCI China Index (USD)
-5.01% -18.13% -16.59% -7.24% 6.09% 9.28% n.a. 6.27%
For the years ended December 31st
Name 2020 2019 2018 2017 2016 2015 2014
Matthews China Dividend Fund (USD)
24.30% 14.82% -10.44% 38.09% 6.09% 7.94% 0.92%
MSCI China Index (USD)
29.67% 23.66% -18.75% 54.33% 1.11% -7.62% 8.26%
For the period ended 30/09/2021
Name 2021 2020 2019 2018 2017 Inception Date
Matthews China Dividend Fund (USD)
14.99% 17.49% 0.84% 5.11% 21.35% 31/01/2013
MSCI China Index (USD)
-7.24% 33.76% -3.77% -2.05% 33.27%

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 31/10/2021)
2.54% Dividend Yield

Source: FactSet Research Systems, Bloomberg, Matthews Asia

Portfolio Characteristics

(as of 31/10/2021)
Fund Benchmark
Number of Positions 45 739
Weighted Average Market Cap $71.0 billion $182.9 billion
Active Share 88.3 n.a.
P/E using FY1 estimates 13.6x 12.3x
P/E using FY2 estimates 11.7x 11.0x
Price/Cash Flow 9.3 9.1
Price/Book 1.7 1.9
Return On Equity 15.1 12.7
EPS Growth (3 Yr) 17.5% -6.2%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 31/10/2021)
5.39%
Alpha
0.70
Beta
85.10%
Upside Capture
77.84%
Downside Capture
0.80
Sharpe Ratio
0.25
Information Ratio
10.42%
Tracking Error
74.38

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

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 31/10/2021)
Name Sector % Net Assets
Tencent Holdings, Ltd. Communication Services 4.8
Shanghai Baosight Software Co., Ltd. Information Technology 4.4
China Suntien Green Energy Corp., Ltd. Energy 4.3
Alibaba Group Holding, Ltd. Consumer Discretionary 3.8
Postal Savings Bank of China Co., Ltd. Financials 3.7
Silergy Corp. Information Technology 3.4
CITIC Telecom International Holdings, Ltd. Communication Services 3.3
BYD Co., Ltd. Consumer Discretionary 2.9
Pharmaron Beijing Co., Ltd. Health Care 2.8
China Education Group Holdings, Ltd. Consumer Discretionary 2.8
TOTAL 36.2

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 31/10/2021)
  • 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 95.8
Cash and Other Assets, Less Liabilities 4.2
China Exposure Portfolio Weight
SAR (Hong Kong) 42.7
H Shares 17.7
A Shares 9.9
B Shares 8.4
Overseas Listed Companies (OL) 7.8
China-affiliated corporations (CAC) 7.0
Unassigned 2.4
Cash and Other Assets, Less Liabilities 4.2

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 30 September 2021

For the quarter ending 30 September 2021, the Matthews China Dividend Fund returned -8.72%, while its benchmark, the MSCI China Index, returned -18.13%.

Market Environment:

Chinese equities were under extreme pressure during the third quarter, as market participants were shocked by regulatory developments in China around data security and the anti-monopolistic behavior of certain internet companies. These measures were announced soon after the severe measures focused on the after-school tutoring industry at the end of the second quarter. Lackluster consumption growth data and news around the potential for large real estate developer China Evergrande Group to default on its bonds weighed on market sentiment quite negatively as well.

The MSCI China Index, which has significant exposure to the internet sector, was down -18.1% during the quarter. While China’s domestic A-share market performed relatively better, it was also down significantly during the quarter. Market participants were initially quite confused with the Chinese Communist Party’s goal of “common prosperity” as stated by the Party during a high-level official meeting. Government officials and policy experts clarified that “common prosperity” does not mean robbing wealth from the rich but rather enabling people of all backgrounds to have a fair share of success in society. In early September, President Xi Jinping announced that a third stock exchange on mainland China, the “Beijing Stock Exchange,” will be set up to focus on serving small- and medium-size companies. We believe it is a clear signal that the Party is not going to ditch private entrepreneurs. In addition, in September China officially submitted its application to join the CPTPP (the Comprehensive and Progressive Agreement on Trans Pacific Partnership). This is also a clear signal that China wants to continue to remain open to global trade and investment while maintaining the pace of economic reform.

Performance Contributors and Detractors:

China Suntien Green Energy, a natural gas utility company with significant exposure in alternative energy, was the top contributor to Fund performance during the third quarter. Market participants were excited about the possibility that rising coal prices could lead to higher electricity prices and higher emission standards could raise natural gas demand by industrial companies in Hebei province, where Suntien operates its pipeline. Given that the share price doubled during a single quarter, we have taken some profit and trimmed the position. Shanghai Baosight Software, an industrial software developer and data center operator, reported 50% earnings growth for the second quarter, helping to make it the second largest contributor to absolute Fund performance during the quarter. Kunlun Energy, another gas utility company, is the third largest performance contributor, as it completed the divestment of a gas pipeline and paid out a significant share of the proceeds to shareholders via a special dividend.

On the contrary, Shimao Services Holdings, a property management company which performed well for the first half of the year, was the largest absolute performance detractor for the quarter. Weighing on Shimao’s stock price were concerns about whether China Evergrande Group’s financial distress could spread to the entire real estate industry in China, and potentially cause a significant slowdown of the property management industry’s growth as well. We share those concerns, but still believe the property management industry is much more focused on the existing housing stock with recurrent revenue income, rather than “lumpy” property sales. In addition, the financial position of the property management industry is also much stronger than property developers. For now, we continue to like Shimao Service’s focus on high end residential properties, with expanding service into commercial and public institutions. Two internet giants, Tencent Holdings and Alibaba Group, were the second and third largest absolute performance detractors during the quarter as their share prices were hammered due to regulatory concerns.

Notable Portfolio Changes:

During the third quarter, we re-initiated a position in Hainan Meilan International Airport. After the airport’s parent company, the HNA Group, declared bankruptcy earlier this year, the restructuring of HNA’s assets is in our view likely to result in the Hainan provincial government taking control of the infrastructure assets, which could be beneficial for Hainan Meilan to improve financials and consolidate other airport assets on the island province. We are also hopeful that the company will benefit from the re-opening of domestic and international travel. Another portfolio addition was China Jushi, a leading manufacturer of glass fiber, which is increasingly used in many sectors such as wind power turbines, electric vehicles and construction. Jushi is already the largest glass fiber manufacturer in China, and with its U.S. plant is ramping up this year, could benefit from potential infrastructure stimulus programs in the U.S.

We have exited the positions of Topsports International and New China Life, as we think these two companies are increasingly facing strong structural challenges to grow their revenue and earnings, thus we decided to redeploy capital elsewhere. In addition, we have exited three ADRs (American Depository Receipts), namely Miniso Group Holdings, Kanzhun and Full Truck Alliance, as ADR issuers are facing increasing regulatory risks from both the U.S. and China—data security demands from China and delisting threats from the U.S. We think it is sensible to allocate capital accordingly.

Outlook:

The structural consumption growth trend in China faces a temporary slowdown in 2021 in our view, caused by weak consumer sentiment and strict government measures seeking to stop the spread of COVID-19 variants. Meanwhile, the ongoing manufacturing and industrial up-cycles moderated recently on challenges from raw material cost inflation and supply chain shortages. We believe China’s equity markets have largely priced in a rising inflation expectation and near-term growth moderation. Looking ahead, we remain constructive on Chinese equities, anticipating a positive inflection point in monetary and fiscal policies in China to support its domestic economy.

Current and future portfolio holdings are subject to change and risk. There is no guarantee that a company will pay or continue to increase dividends.

Earnings growth is not representative of the fund’s future performance.

 

Rolling 12 Month Returns For the period ended 30/09/2021 - I (Acc)
Name 2021 2020 2019 2018 2017 Inception Date
Matthews China Dividend Fund (USD)
14.99% 17.49% 0.84% 5.11% 21.35% 31/01/2013
MSCI China Index (USD)
-7.24% 33.76% -3.77% -2.05% 33.27%

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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