Japan has long dominated the economies of what is called the “Asia-Pacific” region. However, in recent years as Japan’s economy faltered, the landscape there has changed dramatically with the emergence of smaller powerhouses like South Korea and Taiwan, and the evolving rise of Mainland China as an economic juggernaut.

While most Asia-Pacific mutual funds tend to keep sizable positions in Japan (still the world’s second-largest economy), such portfolios can now broadly diversify as the region offers a wide array of investment options.

East Asian countries (including Japan) have benefited tremendously from strong domestic demand, high consumer spending, rising employment, higher wages, political reforms and exports to neighboring China. However, these nations remain particularly vulnerable to high energy prices and the strength of the U.S. economy–presenting some challenges in the current climate.

One of the top funds in this sector, the $244-million NACM Pacific Rim Fund (PPRAX), has two-thirds of its assets invested in Japan and Australia. Financials and industrials (at 52% total) represent the portfolio’s two largest sectors.

The NACM fund holds 83 stocks, although the ten top issues represent almost 24% of total assets. The fund can invest without regard to market-cap size –the median cap is currently $5.1 billion.

Another strong performer is the $233-million Eaton Vance Asian Small Companies Fund (EVASX). Portfolio manager Cho-Yu Kooi seeks undervalued small companies with a history of earnings growth and products having an identifiable long-term demand. The portfolio is highly diversified by geography. Singapore-based companies represent 27.8% of assets, with significant exposure to Taiwan, Korea and Thailand. As of June 30, the fund had no exposure to Japan.

Reflecting the volatile nature of both small-cap stocks and some Asian markets, the fund skyrocketed 85.3% in calendar 2004, stayed essentially flat the following year, then rose another 36.4% in 2005.