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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

-17.24%

YTD Return (USD)

(as of 05/12/2022)

$18.39

NAV (USD)

(as of 05/12/2022)

+0.64

1 Day NAV Change

(as of 05/12/2022)

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 $8.54 million (31/10/2022)
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 31/10/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Dividend Fund (USD)
-12.80% -23.04% -37.17% -38.23% -6.68% -3.32% n.a. 3.48% 31/01/2013
MSCI China Index (USD)
-16.81% -28.75% -42.70% -47.82% -13.73% -9.55% n.a. -0.95%
As of 30/09/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Dividend Fund (USD)
-9.34% -16.27% -27.95% -29.50% -1.61% 0.19% n.a. 4.99% 31/01/2013
MSCI China Index (USD)
-14.54% -22.44% -31.12% -35.29% -7.06% -5.42% n.a. 0.95%
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 30/09/2022
Name 2022 2021 2020 2019 2018 Inception Date
Matthews China Dividend Fund (USD)
-29.50% 14.99% 17.49% 0.84% 5.11% 31/01/2013
MSCI China Index (USD)
-35.29% -7.24% 33.76% -3.77% -2.05%

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 31/10/2022)
3.86% Dividend Yield

Source: FactSet Research Systems, Bloomberg, Matthews Asia

Portfolio Characteristics

(as of 31/10/2022)
Fund Benchmark
Number of Positions 37 721
Weighted Average Market Cap $48.7 billion $77.3 billion
Active Share 80.8 n.a.
P/E using FY1 estimates 9.4x 7.8x
P/E using FY2 estimates 8.1x 7.5x
Price/Cash Flow 5.5 4.3
Price/Book 1.1 1.1
Return On Equity 14.8 12.0
EPS Growth (3 Yr) 7.2% 5.0%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 31/10/2022)
3.66%
Alpha
0.74
Beta
86.38%
Upside Capture
80.17%
Downside Capture
-0.39
Sharpe Ratio
0.65
Information Ratio
10.78%
Tracking Error
77.64

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

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 31/10/2022)
Name Sector % Net Assets
Tencent Holdings, Ltd. Communication Services 7.4
CITIC Telecom International Holdings, Ltd. Communication Services 5.6
Yangzijiang Shipbuilding Holdings, Ltd. Industrials 4.9
CSPC Pharmaceutical Group, Ltd. Health Care 4.1
Yum China Holdings, Inc. Consumer Discretionary 3.7
Alibaba Group Holding, Ltd. Consumer Discretionary 3.7
Tsingtao Brewery Co., Ltd. Consumer Staples 2.9
Postal Savings Bank of China Co., Ltd. Financials 2.9
Yantai Changyu Pioneer Wine Co., Ltd. Consumer Staples 2.9
China Suntien Green Energy Corp., Ltd. Energy 2.9
TOTAL 41.0

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 31/10/2022)
  • Sector Allocation
  • Asset Type Breakdown
  • Market Cap Exposure
  • China Exposure
Sector Fund Benchmark Difference
Consumer Discretionary 28.0 29.0 -1.0
Communication Services 13.0 15.9 -2.9
Health Care 9.8 6.7 3.1
Financials 9.7 16.7 -7.0
Consumer Staples 9.6 6.0 3.6
Industrials 8.5 6.4 2.1
Information Technology 6.6 6.4 0.2
Materials 5.6 3.9 1.7
Energy 2.9 3.1 -0.2
Real Estate 2.5 3.2 -0.7
Utilities 0.0 2.7 -2.7
Cash and Other Assets, Less Liabilities 3.8 0.0 3.8

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 96.2
Cash and Other Assets, Less Liabilities 3.8
Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 34.4 55.8 -21.4
Large Cap ($10B-$25B) 17.0 22.8 -5.8
Mid Cap ($3B-$10B) 21.7 16.9 4.8
Small Cap (under $3B) 23.2 4.5 18.7
Cash and Other Assets, Less Liabilities 3.8 0.0 3.8
China Exposure Portfolio Weight
SAR (Hong Kong) 31.3
H Shares 19.8
A Shares 14.4
Overseas Listed Companies (OL) 13.1
B Shares 9.6
China-affiliated corporations (CAC) 8.0
Cash and Other Assets, Less Liabilities 3.8

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 ©2022 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 2022

For the quarter ending 30 September 2022, the Matthews China Dividend Fund returned -16.27%, while its benchmark, the MSCI China Index, returned -22.44%.

Market Environment:

Chinese equities experienced another quarter of sell-off after a brief rally during the month of June. As the sporadic outbreak of COVID cases among Chinese cities continued, we witnessed the mass lockdown of mega cities such as Chengdu and Shenzhen as China’s government stuck to its zero-COVID policy. During the earnings season, many listed companies also reported weak first-half year results triggering poor sentiment. In addition, China’s housing market continued to struggle as potential buyers and local government cast doubts on whether some financially distressed developers can finish and deliver their pre-sold homes on time. In extreme cases, consumers who secured pre-sold homes with a mortgage started a campaign to boycott their loan repayments to pressure lenders and the state to help troubled developers complete projects. These rare protests added to concerns over systemic risk.

While China’s central bank reduced its long-term lending rate by 15 basis points (0.15%) in August, this is probably viewed as too small a stimulus and is being blunted by the global interest rate environment. During the third quarter, the U.S. Federal Reserve raised interest rates twice by a total of 150 basis points (1.50%). The increased rate differential between China and the U.S. and China’s worsening export outlook caused the Chinese renminbi to weaken against the U.S. dollar, falling below 7 for the first time since 2021.

Performance Contributors and Detractors:

During the quarter, the Fund’s underweight and stock selection in the consumer discretionary and communication services sectors made the biggest contributions to relative performance. On the flip side, our stock selection in the energy sector was the biggest drag on performance during the quarter as oil and coal companies that we don’t hold performed well and our single energy stock, China Suntien Green Energy, experienced low utilization rates.

Among individual holdings, China Tourism Group Duty Free was the top contributor to absolute performance. We took advantage of the poor first day performance of the company’s Hong Kong IPO (initial public offering) and built a position at a significant valuation discount to the company’s A-shares which the Fund has held for a long time. AK Medical was another top contributor. The orthopedic implants-maker reported stronger-than-consensus first-half earnings and a national procurement tender result indicated that leading domestic players, such as AK Medical, may be poised to take significant market share from multinational national companies. Yangzijiang Shipbuilding also continued its strong first-half price momentum and was the third-largest contributor. A weaker renminbi is also usually positive for its business.

On the other hand, internet giant Tencent was the largest absolute performance detractor. The company reported its first ever drop in revenue as the Chinese economy weakened. However, with its cost-cutting measures and potential value crystallization from its large investment portfolio, we believe the stock deserves our long-term investment. Pharmaron Beijing, a leading contract research organization (CRO), was the second-largest detractor as the company reported a weaker-than-expected margin for the first half. Given that management forecast a heavier investment in a new facility outside of China could continue to pressure margins we are carefully reevaluating the situation. Postal Savings Bank of China was also a big detractor as investors worried about homebuyer mortgage boycotting given the bank’s high exposure to home loans. We believe the concern is overdone as most of the bank’s loans are to the secondary home market.

Notable Portfolio Changes:

We re-initiated a position in Alibaba Group as the valuation is too cheap to ignore, and we believe the company will benefit from a likely rebound in consumer spending some time next year. Alibaba has also been applying for primary listing status in Hong Kong and if successful, it could become accessible to mainland-based Chinese investors which could in turn give a boost to its share performance. We also added Hong Kong Exchanges & Clearing. Although there is tangible progress being made on the U.S.-China cross-border auditing inspection agreement we still believe many U.S.-listed companies could seek a dual listing in Hong Kong or upgrade to primary-listing status in Hong Kong to get increased access to the mainland-based investor pool. The exchange operator would be a big gainer from this trend in our view.

We exited our position in CK Hutchison, a Hong Kong conglomerate, as most of its businesses are facing strong headwinds. We also exited China Everbright Environment as its business performance didn’t meet our expectations and we sold out of Asymchem Laboratories as future international revenue growth may face increased uncertainty due to geo-political tensions.

Outlook:

Uncertain industry regulation, draconian real estate cooling measures and a zero-COVID policy have been the three largest challenges to China’s economic growth since last year. We believe the regulation risk to internet stocks is now largely behind us and the Chinese government is increasingly relaxing its restrictive property measures. A few cities have been pushing out policies to lure back property buyers as uncertainty over the economy and job security have made buyers hesitant about committing in the market.

It‘s now time for China to take a more pragmatic approach towards COVID and revive the mobility of its consumers. Hong Kong relaxed its COVID policy in September, essentially adopting a co-exist with the virus strategy. This could be a model for mainland China to adopt. If that happens it would bode well for our holdings positioned for a domestic consumption-led economic rebound. On the other hand, further delaying a re-opening of China could put its economy in a worse position and, given the recessionary threats to the global economy, China’s export markets would be hard pressed to help the economy recover.

Rolling 12 Month Returns For the period ended 30/09/2022 - I (Acc)
Name 2022 2021 2020 2019 2018 Inception Date
Matthews China Dividend Fund (USD)
-29.50% 14.99% 17.49% 0.84% 5.11% 31/01/2013
MSCI China Index (USD)
-35.29% -7.24% 33.76% -3.77% -2.05%

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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