The Daily Screen: The Best Japan Funds

And you thought things were bad here. No matter how you look at them, Japan funds are a battered bunch.

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After losing money in five of the nine years between 1990 and 1998, the average Japan fund rode small-cap and tech stocks to a whopping 117% gain in 1999, according to Morningstar. But this year the old stumbling blocks of slowing economic growth and corporate restructurings that don't live up to expectations have smacked the Japanese markets.

The average Japanese fund is down more than 27% this year, and the category's average annual gain over the past 10 years is a negative 0.9%. You'd have to look far and wide to find a fund category that couldn't eke out a profit over the past 10 years -- think precious metals funds -- so, there's good reason to think long and hard before committing money to a Japanese fund.

Sea of Red
	Japan Fund Average	S&P 500
YTD Return	-27.8%	-5.7%
1-Year Return	-18.1	-2.3
5-Year Return*	2.4	20
10-Year Return*	-0.9	18.4
Source: Morningstar. *Annualized. Performance through Nov. 20.

Then again, Japan is a major, developed market and ignoring it can mean missing out on some big run-ups like last year's. For most investors, the sensible route to Japan-stock exposure is through a diversified international stock fund. These funds currently have a 19% Japan position, on average. If you're looking for a solid foreign stock fund, check out our recent screen of foreign funds. But if you're a long-term investor who absolutely, positively believes Japan stocks will post solid returns over the next 10 or 20 years, we've done some scouting for you.

We've sifted the 23-fund category to unearth funds that beat their average peer over the past one- and three-year periods. Only five funds made the cut. Here they are, ranked by one-year returns.

Leading Japan Funds
Fund	1-Year Return	3-Year Return*
(FJPNX)Fidelity Japan	-6.3%	26.7%
(FJEAX)Flag Investors Japanese Equity A	-10.1	27.3
(SJPNX)Japan	-7.2	27
(PRJPX)T. Rowe Price Japan	-17.6	15.9
(TGJEX)TCW Galileo Japanese Equity	-3.1	19.2
Average Japan fund	-18.1	-2.3
S&P 500	14.1	15.4
Source: Morningstar. *Annualized. Performance through Nov. 20.

Though all these funds have lost money over the past 12 months, Japan fans might look at this bunch if only because they've weathered the current storm better than their average peer.

The (FJPNX)Fidelity Japan fund is down 24% since Jan. 1, but its solid stock-picking and focus on blue-chip stocks has led to one of the category's better track records. The fund's 11.5% five-year annualized return beats 95% of its peers. One thing to keep in mind, however, is that the fund levies a 3% front-end sales charge when you buy shares.

Both the no-load (SJPNX)Japan fund, run by Scudder Funds, and the broker-sold (FJEAX)Flag Investors Japanese Equity fund follow a somewhat price-conscious approach. That's helped both funds post solid returns relative to their peers with less volatility. Both funds beat more than 90% of their peers over the past three years.

The no-load (PRJPX)T. Rowe Price Japan fund focuses primarily on stocks of big companies with global franchises. This strategy can reduce the fund's bet on the Japanese market since the companies it buys are often doing significant business in other markets. Still, the fund is down more than 28% since Jan. 1.

If you're the curious and gutsy type, you might be looking to bypass Japan funds and head straight for the stocks themselves. We've got some ideas on that too. We've screened the portfolios of the five Japan funds on our list to come up with a cumulative top-10 holdings list. Many of Japan's biggest stocks, such as electronics titan Sony(SNE), for instance, are also traded in the U.S.

Under the Hood Stocks with the biggest weighting in the combined portfolios of the five funds listed above.
Stock	Weighting	Top-Five Funds Owning the Stock
Sony(SNE:NYSE)	3.2%	5
NTT DoCoMo(NTDMY:OTC BB)	3.1	4
Nippon Telegraph & Telephone (NTT: NYSE)	2.8	5
Fujitsu(FJTSY:OTC BB)	2.4	5
Rohm(ROH:NYSE)	2	5
Canon(CAJ:NYSE)	1.9	4
Toyota Motor(TM:NYSE)	1.7	2
Matsushita Electric (MC:NYSE)	1.7	4
Nomura Securities(NRSCY: OTC BB)	1.6	3
Kyocera(KYO:NYSE)	1.6	4
Source: Morningstar. Holdings as of funds' most recent portfolio reports.

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