Templeton Dragon Fund: A Decent Choice for Exposure to China Amid Headwinds

The Templeton Dragon Fund (TDF) provides investors with exposure to China through an actively managed portfolio. Despite some headwinds in the Chinese economy, the fund is considered decent. It is an underfollowed and little-known closed-end fund that offers investors an easy way to invest in China.

The Templeton Dragon Fund (TDF) is an underfollowed and little-known closed-end fund that provides investors with an easy way to gain exposure to China via an actively managed portfolio. Despite some headwinds in the Chinese economy, the fund is considered decent. It offers investors an opportunity to invest in China with the added benefit of active management, which can provide an extra layer of protection against potential issues in the country.

Over the past ten years, the Templeton Dragon Fund has realized a total return of 60.65%, which is slightly worse than the total return of the MSCI China Index (MCHI) over the same period. However, the fund has shown periods of significant outperformance, such as during the market mania of 2020 and 2021. It also experienced a substantial decline in 2022, highlighting the fund's volatility, which is somewhat surprising given that it does not employ leverage.

The fund's share price has declined by 40.90% over the trailing ten-year period, while the MSCI China Index is up about 35.18% over the same period. This underperformance in share price is partly due to the fund's policy of distributing all of its profits to investors, including realized gains. This approach has resulted in a higher yield compared to the MSCI China Index, currently at 3.38% versus 2.16%.

The fund's yield has decreased from historical levels, with quarterly distributions over the 2020 to 2022 period being significantly higher than the current distribution of $0.10 per quarter. Despite the lower yield, the fund's stable distribution might appeal to income-seeking investors. However, it is best considered a wealth-building fund rather than a great vehicle for income.

When comparing the Templeton Dragon Fund to its peers, it has the highest yield among China-specific funds. However, it is not the highest-yielding fund overall. The majority of its peers are single-country funds, which can provide investors with maximum control over their risk profiles. The Templeton Dragon Fund's high yield, combined with its exposure to China, makes it an attractive option for investors seeking a balance between income and growth.

In conclusion, the Templeton Dragon Fund offers investors a unique opportunity to gain exposure to China with the added benefit of active management. Despite some headwinds in the Chinese economy, the fund's high yield and stable distribution make it an attractive option for investors seeking a balance between income and growth.