From the November 2004 issue of Investment Advisor • Subscribe!

November 1, 2004

Long-Term Potential Rises in the East

Compared with American stocks, mutual funds that invest in Asia and the Pacific Rim have slightly underperformed over the recent one-year period, but the region remains attractive, money managers and others say, because economies there have been gathering speed faster than many other regions around the globe.

The average Asia Pacific fund that holds Japanese companies returned 13.3% for the one-year period through September 30, while the Standard & Poor's 500-stock index rose 13.8%. For the three years through September, the funds gained 11%, on average, compared with the index's 4.0% rise. Looking back five years, Asian funds slipped 1.1% on average, and the index eased 1.3%.

Lorraine Tan, vice president and a director of research for Standard & Poor's Asian equity unit, says that now is a particularly good time to invest in the region because, except for Japan, its economic growth relative to the U.S. and the rest of the world is stronger. Asian holdings can diversify portfolios and provide exposure to fast-growing economies in China and India, Tan argues.

"I think we're still at a pretty early stage of a very long-term move" in the region, said Anthony Cragg, who oversees the Strong Asia Pacific Fund (SASPX). "We're seeing a major shift in economic power to the East, obviously primarily led by China."

Cragg's fund was among the best performers in the Asia Pacific/Japan category for the one-, three-, and five-year periods through Septembe 2004.

In picking stocks, Cragg buys undervalued shares and growing companies, regardless of their size. That flexible approach is mandated because he invests in 13 countries that are at differing stages in their economic evolution, he says. Japanese stocks typically account for the largest chunk of Cragg's holdings, reflecting the size of the country's economy, which is the second largest in the world.--Richard Diennor

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