The Daily Screen: The Best Japan Mutual Funds

If Japan funds seemed like Love Story last year, they turned into Fatal Attraction this year.

In 1999, the buying frenzy in tech stocks and high hopes for Tokyo's economic reform plans helped push the average Japan fund to a 115.7% return. But this year investors haven't been as eager to keep paying thin-air valuations for tech stocks that are priced to perfection and those snazzy reforms haven't really materialized. So, the average Japan fund is down 23.7% this year, highlighting the fact that for most investors, a broadly diversified foreign stock fund might be a better idea.

While Japan funds, the focus of today's Daily Screen, do have last year's kind of home run potential, they're a feast-or-famine performer. Last year they beat the average foreign stock fund, itself up a solid 44.5%, but they managed that feat only one other time in the 1990s. They lost money in 1995, 1996 and 1997, too.

Over the past 10 years the average foreign stock fund, which has 19% of its assets in Japan, according to Morningstar, has lapped Japan funds with a 10.5% annualized return, compared to 2% for Japan funds over the same period.

Tough Decade Japan funds' performance has lagged behind other foreign funds for some time
	Foreign Stock Funds	Japan Funds
YTD	-15.9%	-23.7%
1-Year	5.2	-6.3
5-Year	9.7	3.6
10-Year	10.5	2
Source: Morningstar. Performance figures are annualized, through Oct. 17.

But if you've got a deep-seated drive to invest in Japan, here are a few mutual funds you might consider. As usual, we've sifted the category for those that manage to beat their average peer over the last one- and three-year periods. Only four funds cleared those hurdles, and here they are, sorted by one-year return.

The Four Tops This quartet is beating its peers over the past few years
Japan fund	1-Year Return	3-Year Return
(FJPNX)Fidelity Japan	8.7%	23%
(SJPNX)Japan	3.2	23.2
Flag Investors Japanese Equity	3.1	23.1
T. Rowe Price Japan	-4.2	12.4
Avg. Japan Fund	-6.3	10.7
Source: Morningstar. Annualized performance figures through Oct. 17.

At the top of the list is (FJPNX)Fidelity Japan, down 20% since Jan. 1, which carries a maximum 3% front-end load but has ridden primarily blue-chip picks to a sterling long-term record.

The no-load (SJPNX)Japan fund, run by Scudder Funds managers, is down a relatively tame 14.6% year to date, perhaps because the fund tends to spread its money around with a slightly price-conscious bent. That approach is similar to the one followed by broker-sold Flag Investors Japanese Equity, which is down 22.4% this year.

Another no-load offering, T. Rowe Price Japan fund, focuses on big-cap stocks with global franchises. While that has helped the fund build a solid record over time, it's still down 22.7% since Jan. 1.

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