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Matthews China Dividend Fund
MCDFX

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

11/30/2009

Inception Date

-18.24%

YTD Return

(as of 12/05/2022)

$14.10

NAV

(as of 12/05/2022)

+0.18

1 Day NAV Change

(as of 12/05/2022)

Objective

Total return with an emphasis on providing current income.

Strategy

Under normal circumstances, the Matthews China Dividend Fund seeks to achieve its investment objective by investing at least 80% of its net assets, which include borrowings for investment purposes, in dividend-paying equity securities of companies located in China. The Fund may also invest in convertible debt and equity securities. The Fund seeks to provide a level of current income that is higher than the yield generally available in Chinese equity markets over the long term.

Risks

Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Investing in emerging markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country. There is no guarantee that the Fund or the companies in its portfolio will pay or continue to pay dividends.

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

Fund Facts
Inception Date 11/30/2009
Fund Assets $187.59 million (10/31/2022)
Currency USD
Ticker MCDFX
Cusip 577-125-305
Portfolio Turnover 68.3%
Benchmark MSCI China Index
Geographic Focus China - China includes its administrative and other districts, such as Hong Kong
Fees & Expenses
Gross Expense Ratio 1.12%

Performance

  • Monthly
  • Quarterly
  • Calendar Year
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As of 10/31/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Dividend Fund - MCDFX
11/30/2009
MCDFX
-12.25% -22.88% -37.26% -38.26% -6.91% -3.45% 4.61% 5.50%
MSCI China Index
-16.81% -28.75% -42.70% -47.82% -13.73% -9.55% 0.13% 0.05%
As of 09/30/2022
Average Annual Total Returns
Name 1MO 3MO YTD 1YR 3YR 5YR 10YR Since Inception Inception Date
Matthews China Dividend Fund - MCDFX
11/30/2009
MCDFX
-9.60% -17.08% -28.51% -30.11% -2.24% -0.16% 6.29% 6.62%
MSCI China Index
-14.54% -22.44% -31.12% -35.29% -7.06% -5.42% 2.56% 1.49%
For the years ended December 31st
Name 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
Matthews China Dividend Fund - MCDFX
MCDFX
-0.49% 24.22% 15.00% -9.98% 37.69% 5.70% 9.54% 0.93% 13.35% 27.81%
MSCI China Index
-21.64% 29.67% 23.66% -18.75% 54.33% 1.11% -7.62% 8.26% 3.96% 23.10%

Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.

Assumes reinvestment of all dividends and/or distributions before taxes. All performance quoted represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate with market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund’s fees and expenses had not been waived. Performance differences between the Institutional class and the Investor class may arise due to differences in fees charged to each class.

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

Growth of a Hypothetical $10,000 Investment Since Inception

(as of 09/30/2022)

Source: BNY Mellon Investment Servicing (US) Inc. All performance is in US$.

The performance data and graph do not reflect the deduction of taxes that a shareholder would pay on dividends, capital gain distributions or redemption of fund shares.

Yield

(as of 09/30/2022)
1.47% 30-Day SEC Yield
1.47% 30-Day SEC Yield (excluding expense waiver)
3.45% Dividend Yield

30-Day SEC Yield Source: BNY Mellon Investment Servicing (US) Inc.

Ratings

  • OVERALL
  • out of 91 funds
  • 3 YEAR
  • out of 91 funds
  • 5 YEAR
  • out of 72 funds
  • 10 YEAR
  • out of 51 funds
  • 1 YEAR
  • 2nd
  • 31 out of 110 funds
  • 3 YEAR
  • 2nd
  • 35 out of 81 funds
  • 5 YEAR
  • 2nd
  • 21 out of 67 funds
  • 10 YEAR
  • 1st
  • 9 out of 46 funds
  • SINCE INCEPTION
  • 1st
  • 3 out of 37 funds

Ratings agency calculation methodology

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

Portfolio Characteristics

(as of 09/30/2022)
Fund Benchmark
Number of Positions 39 721
Weighted Average Market Cap $59.6 billion $99.3 billion
Active Share 82.4 n.a.
P/E using FY1 estimates 10.3x 9.0x
P/E using FY2 estimates 8.9x 8.3x
Price/Cash Flow 6.2 5.1
Price/Book 1.3 1.2
Return On Equity 15.4 11.6
EPS Growth (3 Yr) 9.3% 6.7%

Sources: Factset Research Systems, Inc.

Risk Metrics (3 Yr Return)

(as of 09/30/2022)
3.11%
Alpha
0.75
Beta
86.39%
Upside Capture
81.91%
Downside Capture
-0.15
Sharpe Ratio
0.44
Information Ratio
11.06%
Tracking Error
71.87

Fund Risk Metrics are reflective of Investor share class.

Sources: Zephyr StyleADVISOR

Top 10 Holdings

(as of 11/30/2022)
Name Sector % Net Assets
Tencent Holdings, Ltd. Communication Services 8.6
Alibaba Group Holding, Ltd. Consumer Discretionary 5.4
CITIC Telecom International Holdings, Ltd. Communication Services 5.0
Yum China Holdings, Inc. Consumer Discretionary 4.0
CSPC Pharmaceutical Group, Ltd. Health Care 3.8
China Vanke Co., Ltd. Real Estate 3.5
China Tourism Group Duty Free Corp., Ltd. Consumer Discretionary 3.2
Postal Savings Bank of China Co., Ltd. Financials 3.2
Tsingtao Brewery Co., Ltd. Consumer Staples 3.2
China Merchants Bank Co., Ltd. Financials 3.1
TOTAL 43.0

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

Source: BNY Mellon Investment Servicing (US) Inc.

Portfolio Breakdown (%)

(as of 09/30/2022)
  • Sector Allocation
  • Asset Type Breakdown
  • Market Cap Exposure
  • China Exposure
Sector Fund Benchmark Difference
Consumer Discretionary 27.2 30.6 -3.4
Communication Services 12.4 17.5 -5.1
Financials 11.7 15.7 -4.0
Consumer Staples 10.0 6.3 3.7
Health Care 9.3 5.7 3.6
Industrials 7.5 5.8 1.7
Information Technology 5.7 5.3 0.4
Materials 5.3 3.6 1.7
Real Estate 2.8 3.9 -1.1
Energy 2.4 2.9 -0.5
Utilities 0.0 2.7 -2.7
Cash and Other Assets, Less Liabilities 5.7 0.0 5.7

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 94.3
Cash and Other Assets, Less Liabilities 5.7
Equity market cap of issuer Fund Benchmark Difference
Mega Cap (over $25B) 39.5 61.7 -22.2
Large Cap ($10B-$25B) 14.1 19.3 -5.2
Mid Cap ($3B-$10B) 14.6 14.6 0.0
Small Cap (under $3B) 26.2 4.4 21.8
Cash and Other Assets, Less Liabilities 5.7 0.0 5.7
China Exposure Portfolio Weight
SAR (Hong Kong) 28.9
H Shares 23.4
A Shares 14.4
Overseas Listed Companies (OL) 11.8
B Shares 8.4
China-affiliated corporations (CAC) 7.4
Cash and Other Assets, Less Liabilities 5.7

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.

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.

Distributions

Record Date Ex, Pay and
Reinvest Date
Ordinary
Income
Short Term
Capital Gains
Long Term
Capital Gains
Total Distributions
Per Share
% of NAV Nondividend Distribution (Return of Capital)
06/27/2022 06/28/2022 $0.41693 $0.00000 $0.00000 $0.41693 2.8% N.A.
12/14/2021 12/15/2021 $0.10775 $0.11879 $1.23175 $1.45829 7.6% N.A.
06/28/2021 06/29/2021 $0.37761 $0.00000 $0.00000 $0.37761 1.7% N.A.
View History

 

There is no guarantee that the Fund will pay or continue to pay distributions. 

Past performance is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that shares, when redeemed, may be worth more or less than their original cost.

Commentary

Period ended September 30, 2022

For the third quarter of 2022, the Matthews China Dividend Fund returned -17.08% (Investor Class) and -17.08% (Institutional Class), while its benchmark, the MSCI China Index, returned -22.44% over the same period.

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.

Top 10 holdings as of September 30, 2022. Current and future holdings are subject to change and risk.

 

Average Annual Total Returns - MCDFX as of 09/30/2022
1YR 3YR 5YR 10YR Since Inception Inception Date
-30.11% -2.24% -0.16% 6.29% 6.62% 11/30/2009

All performance quoted is past performance and is no guarantee of future results. Investment return and principal value will fluctuate with changing market conditions so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the return figures quoted. Returns would have been lower if certain of the Fund's fees and expenses had not been waived. Please see the Fund's most recent month-end performance.

Fees & Expenses
Gross Expense Ratio 1.12%
Yields as of 09/30/2022
30-Day SEC Yield 1.47%
30-Day SEC Yield (excluding expense waiver) 1.47%
Dividend Yield 3.45%

The 30-Day SEC Yield represents net investment income earned by the Fund over the 30-day period ended 09/30/2022, expressed as an annual percentage rate based on the Fund’s share price at the end of the 30-day period. The 30-Day SEC Yield should be regarded as an estimate of the Fund’s rate of investment income, and it may not equal the Fund’s actual income distribution rate. Source: BNY Mellon Investment Servicing (US) Inc.

Dividend Yield (trailing) is the weighted average sum of the dividends paid by each equity security held by the Fund over the last 12 months divided by the current price as of report date. The annualised dividend yield is for the equity-only portion of the Fund and does not reflect the actual yield an investor in the Fund would receive. There can be no guarantee that companies that the Fund invests in, and which have historically paid dividends, will continue to pay them or to pay them at the current rates in the future. A positive distribution yield does not imply positive return, and past yields are no guarantee of future yields.

Investments in Asian securities may involve risks such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Investing in emerging markets involves different and greater risks, as these countries are substantially smaller, less liquid and more volatile than securities markets in more developed markets. In addition, investments in a single-country fund, which is considered a non-diversified fund, may be subject to a higher degree of market risk than diversified funds because of concentration in a specific country. There is no guarantee that the Fund or the companies in its portfolio will pay or continue to pay dividends.

There is no guarantee that a company will pay or continue to increase dividends. Past performance is no guarantee of future results.

 

Visit our Glossary of Terms page for definitions and additional information.

Index Definitions

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. Neither the funds nor the Investment Advisor accept any liability for losses either direct or consequential caused by the use of this information.

The views and opinions in the commentary were as of the report date, subject to change and may not reflect 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.