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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

-20.07%

YTD Return (USD)

(as of 10/08/2022)

$17.76

NAV (USD)

(as of 10/08/2022)

-0.14

1 Day NAV Change

(as of 10/08/2022)

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 $11.72 million (31/07/2022)
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 31/07/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Dividend Fund (USD)
-5.13% 1.06% -18.36% -19.05% 0.50% 4.01% n.a. 6.47% 31/01/2013
MSCI China Index (USD)
-9.44% -2.29% -19.58% -28.23% -3.52% -1.42% n.a. 2.63%
As of 30/06/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Dividend Fund (USD)
5.52% 1.86% -13.95% -23.15% 2.22% 5.37% n.a. 7.13% 31/01/2013
MSCI China Index (USD)
6.63% 3.50% -11.19% -31.70% -0.44% 2.29% n.a. 3.74%
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 30/06/2022
Name 2022 2021 2020 2019 2018 Inception Date
Matthews China Dividend Fund (USD)
-23.15% 35.14% 2.85% 0.73% 20.72% 31/01/2013
MSCI China Index (USD)
-31.70% 27.54% 13.28% -6.55% 21.42%

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 31/07/2022)
3.13% Dividend Yield

Source: FactSet Research Systems, Bloomberg, Matthews Asia

Portfolio Characteristics

(as of 31/07/2022)
Fund Benchmark
Number of Positions 40 715
Weighted Average Market Cap $58.5 billion $112.7 billion
Active Share 85.7 n.a.
P/E using FY1 estimates 10.7x 10.0x
P/E using FY2 estimates 9.1x 8.9x
Price/Cash Flow 6.7 5.8
Price/Book 1.3 1.4
Return On Equity 15.7 11.6
EPS Growth (3 Yr) 15.5% 6.0%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 30/06/2022)
2.48%
Alpha
0.76
Beta
88.73%
Upside Capture
84.54%
Downside Capture
0.10
Sharpe Ratio
0.27
Information Ratio
9.88%
Tracking Error
71.39

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

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 31/07/2022)
Name Sector % Net Assets
Tencent Holdings, Ltd. Communication Services 7.7
CITIC Telecom International Holdings, Ltd. Communication Services 4.6
Postal Savings Bank of China Co., Ltd. Financials 4.1
Chongqing Changan Automobile Co., Ltd. Consumer Discretionary 3.4
CSPC Pharmaceutical Group, Ltd. Health Care 3.2
Tsingtao Brewery Co., Ltd. Consumer Staples 3.0
Yangzijiang Shipbuilding Holdings, Ltd. Industrials 2.8
China Merchants Bank Co., Ltd. Financials 2.8
Yum China Holdings, Inc. Consumer Discretionary 2.8
China Suntien Green Energy Corp., Ltd. Energy 2.7
TOTAL 37.1

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 31/07/2022)
  • Sector Allocation
  • Asset Type Breakdown
  • Market Cap Exposure
  • China Exposure
Sector Fund Benchmark Difference
Consumer Discretionary 24.1 30.0 -5.9
Financials 12.8 15.3 -2.5
Communication Services 12.3 17.9 -5.6
Industrials 11.0 6.0 5.0
Health Care 10.5 6.3 4.2
Consumer Staples 9.3 6.0 3.3
Information Technology 6.5 6.0 0.5
Materials 5.6 3.6 2.0
Energy 2.7 2.5 0.2
Real Estate 1.8 3.4 -1.6
Utilities 0.0 2.8 -2.8
Cash and Other Assets, Less Liabilities 3.3 0.0 3.3

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 96.7
Cash and Other Assets, Less Liabilities 3.3
Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 36.7 64.0 -27.3
Large Cap ($10B-$25B) 16.4 20.1 -3.7
Mid Cap ($3B-$10B) 22.9 14.3 8.6
Small Cap (under $3B) 20.8 1.6 19.2
Cash and Other Assets, Less Liabilities 3.3 0.0 3.3
China Exposure Portfolio Weight
SAR (Hong Kong) 28.2
H Shares 23.4
A Shares 17.5
B Shares 9.5
Overseas Listed Companies (OL) 9.3
China-affiliated corporations (CAC) 8.7
Cash and Other Assets, Less Liabilities 3.3

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 June 2022

For the first half of 2022, the Matthews China Dividend Fund returned -13.95%, while its benchmark, the MSCI China Index, returned -11.19% over the same period. For the quarter ending June 30, 2022, the Fund returned 1.86%, while the benchmark returned 3.50%.

Market Environment:

Many events have shaped the global equity markets in the first half of the year: the Russia-Ukraine war and the resulting higher oil price; higher inflation globally; and the interest rate decisions of the U.S. Federal Reserve. Chinese equities markets, however, both onshore and offshore, have traded very much in tandem with China’s approach to managing the COVID virus. Earlier in the year, when investors had the impression that China might gradually phase out its strict COVID policy, Chinese equities enjoyed a small rally. Then Shanghai entered a prolonged, strict lockdown and that drove markets into free fall.

When President Xi Jinping reiterated China’s economic growth target at the BRICS Summit in late June, Chinese equities staged a strong rally from the bottom. In addition, there was speculation that the Chinese government might push more favorable policies toward the Hong Kong market in celebration of the island’s 25th anniversary of returning to China.

Outside of China, the Fed aggressively raised rates by 75 basis points (0.75%) in June due to persistent inflation pressure and many Asian currencies have depreciated as a result, particularly the Japanese yen. While the Chinese yuan also saw depreciation against U.S. dollar it has remained very strong against other currencies. These currency dynamics could become a headwind for China’s exports down the road.

Performance Contributors and Detractors:

During the first half of the year, the Fund’s underweight in the consumer discretionary sector and our stock selection was the biggest detractor to relative performance. Our stock selection in the energy sector was the second-largest detractor. Many oil and coal companies performed well during the first half while our single energy holding, China Suntien Green Energy, a gas pipeline and wind power operator, suffered from low utilization rates due to reduced industrial activities. On the flip side, our stock selection in the information technology (IT) sector was the biggest contributor to performance in the first half.

At the individual stock level, Yangzijiang Shipbuilding was the biggest contributor to performance during the first six months of 2022. The company has fulfilled its promise to investors to separately list its financial investments business and continues to win new vessel orders with more complex technical requirements and higher margins. Yadea Group, a leading e-motorcycle maker, was the second-largest contributor as the company bounced back after giving the market fairly bullish guidance as it seeks to invest and take share in overseas markets. Bank of China (Hong Kong) was also a top contributor as the market expects the lender to benefit from Hong Kong’s rising interest rate, which is tied closely to the Fed’s, and from better credit demand due to post-pandemic recovery.

On the other hand, Tencent, the internet giant, was the biggest detractor from performance as it continues to be haunted by weak first-quarter results and an uncertain regulatory environment. It experienced more negative sentiment when Naspers, its largest shareholder, announced it will gradually sell its stake. China Suntien was a big detractor as was China Education Group, a leading private higher-education operator, and we continue to closely monitor its performance and the regulatory environment.

Notable Portfolio Changes:

We made a switch among Chinese banks during the second quarter. As China Merchants Bank’s former president was placed under investigation by China’s anti-corruption watchdog, the bank’s stock price suffered a heavy sell-off. We believe the probe is not directly related to tenure at China Merchants Bank and the lender’s new president was internally selected which in our view signals the regulator and large shareholders remain confident in the bank’s controls. As China Merchants Bank’s valuation premium in relation to other Chinese lenders fell, we decided to take a position in the stock and sell our holding in PingAn Bank.

We also added Meituan to the portfolio as the food delivery platform continues to show its importance in China’s service economy amid the ongoing pandemic and related lockdowns. We also believe the company’s heavy losses in new businesses will narrow as the sector starts to focus more on profit and less on growth at all costs.

We exited our position in Uni-President China as the company’s food business is likely to suffer from higher soft-commodities prices because of the Russia-Ukraine war.

Outlook:

Although the Chinese economy has recovered some ground after the lifting of the mass lockdown in Shanghai, its growth is still way below full potential. However, there is a glimpse of hope that the Chinese government may turn more pragmatic in terms of its COVID policies and place more importance on economic growth especially after it halved its travel-quarantine days requirement. In addition, the People’s Bank of China is the only major central bank in the world that has the capacity and the willingness to loosen its monetary policy. It is on a different trajectory to the Fed. Thus, we continue to be optimistic that the Chinese economy can swiftly shift back to growth mode if the policy tailwinds are in place. In the meantime, the stringent COVID policy poses major risks to a sustainable market rally.

Rolling 12 Month Returns For the period ended 30/06/2022 - I (Acc)
Name 2022 2021 2020 2019 2018 Inception Date
Matthews China Dividend Fund (USD)
-23.15% 35.14% 2.85% 0.73% 20.72% 31/01/2013
MSCI China Index (USD)
-31.70% 27.54% 13.28% -6.55% 21.42%

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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