Founded in November 2009, the Matthews China Dividend Fund (MCDFX), rated five stars by Morningstar, offers a hard-to-beat combination of relatively low risk and relatively high potential gains, suggests Stephen Leeb, editor of The Complete Investor.
The lower risk comes in part from its attractive yield, currently around 3.7 percent (compared to around 1 percent for the Fidelity fund), which provides a cushion against market volatility. At any time the fund seeks to have at least 80 percent of its net assets invested in dividend-paying Chinese stocks.
Also contributing to the lower risk is diversification and lack of excessive concentration in any one sector. Its largest sector, telecom, accounts for only 10 percent of holdings. Risk metrics like price/cash flow, P/E, and price/book are all lower for the Matthews fund than its peers.
The stronger growth potential comes from the Matthews fund’s more pronounced tilt towards smaller-cap stocks, which during strong markets generally outperform.
Of course, especially when it comes to smaller caps, selection is key. We like the credentials of the Matthews fund’s management team. Both the lead manager, Yu Zhang, and the co-manager, Sherwood Zhang, are Chinese and both did undergraduate studies in China. Both also are CFAs.
Since its inception, Matthews China Dividend fund has had only one down year, 2011. Three-year annualized returns have the Matthews fund gaining 10.8 percent. During the past 12-month period, the Matthews fund generated a very respectable 26 percent total return.
