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U.S. investors have kept nearly $2 trillion on the sidelines in money market accounts. Waiting for the domestic economy to pick up. Waiting for the benefits of corporate-governance reform to materialize in the form of cleaner balance sheets and higher-quality earnings. Waiting for stocks to reach bargain levels.

Instead of waiting, perhaps they should put some money to work in a place where these desirable goals are already in place: Asia.

Asia excluding Japan was one of the better-performing equity mutual fund categories in 2002. The average Asia ex-Japan fund posted an 11.3% decline during the past 12 months, according to Morningstar. That compares to the 27.7% loss for the average U.S. large-cap growth fund.

For this week's Five Funds, we're highlighting five stellar funds that focus exclusively on Asia ex-Japan. But first, let's run down some of reasons to look to the East:

1. It's growing.

Morgan Stanley strategist Byron Wien predicts Asia will replace the U.S. as the primary engine of global economic growth in 2003. J.P. Morgan forecasts the region's economies will grow 5.6% on average in 2003. And this time around, the growth has less to do with export-based growth sensitive to U.S. and European weakness and more to do with burgeoning domestic economies amid a growing middle class.

It's safer.

Asia remains a volatile region for investing, but the financial crises of the late 1990s have led to significant banking and corporate-governance reform and cleaner balance sheets. Many money managers say the quality of earnings has improved substantially.

It's cheaper.

The staggering selloff of 1997-1998 has left many U.S. investors leery of investing in Asia. Meanwhile, the economic and corporate picture has improved, leaving many equities trading at a discount to U.S. stocks. "I'm seeing many stocks

in Asia with P/E ratios under 10 and dividend yields approaching 5%," said Jacob Rees-Moog, manager of the Eaton Vance Emerging Markets fund.

But the strongest argument in favor of investing in this region is an old saw: diversification. Foreign markets don't always move in tandem with U.S. markets -- Asia was a drag on a diversified portfolio in the late 1990s, but cushioned to downside so far this decade.

Investors should have 15% to 25% of their portfolio in international equities. For the bulk of that international exposure -- 10% to 15% of your assets -- investors are best served with a broad international fund. These more concentrated Asia ex-Japan funds should be a smaller part of your portfolio -- 5% to 10% at most.

Because this region remains more volatile, the rules to selecting a fund hold doubly true: A proven manager is of paramount importance. For this week's Five Funds, we sought offerings run by managers with at least five years of experience and consistent outperformance, and who also keep expenses below the category average.

That doesn't leave many. In fact, four of the five fund choices come from one firm -- Asia-region investing pioneer Matthews Funds (for a recent interview with firm founder G. Paul Matthews,

click here). After trolling the Asia ex-Japan landscape, it came down to a choice: variety for variety's sake, or surety. Surety wins.

1. (MACSX) - Get Free Report Matthews Asian Growth & Income

This mutual fund helmed by G. Paul Matthews provides a combination rare in any category, but especially so in an Asian offering: It may be the safest fund among its peers, and it's also among the top performers.

Matthews Asian Growth & Income fund has $176 million in assets, and the firm calls it "the least aggressive of our funds." It keeps risk in check by investing in convertible bonds and dividend-paying stocks. Convertibles have provided stock-like returns with bond-like risk; meantime, 55% of its 56 holdings pay a dividend, providing steady income. The fund takes concentrated bets, with companies like Korea Telecom and

China Mobile

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making up 5.6% and 4.5% of the fund, respectively. In its latest shareholder report, the fund said it plans to increase its exposure to make a smart bet on Hong Kong conglomerates and real estate outfits.

What makes this fund truly impressive is performance. The Growth & Income fund posted positive returns in each of the past five years, averaging a 14.27% annual return, compared with a negative 0.21% annual return for the average Asia ex-Japan fund, according to Lipper. The fund's five-year performance ranks in the top 2% of its peers. Its one- and three-year returns -- 9.01% and an average annualized 8.93% -- rank in the top 2% and 1%, respectively. Since its Sept. 12, 1994 inception, its 7.35% average yearly return tops every other fund in its group.

Just in case the fund needed another selling point, Matthews' infrequent trading -- its 38% annual turnover is half the category average, according to Morningstar -- helps the fund keep expenses down. The expense ratio of 1.9% is well below the category average 2.28%. (By the way, the fund is allowed to invest in Japan, according to its mandate. It just wisely has never done so.)

2. (MAPTX) - Get Free Report Matthews Pacific Tiger

This is Matthews Funds' flagship Asia ex-Japan fund, co-managed by G. Paul Matthews and Mark Headley. While it shares a manager with Growth & Income as well as a concentrated portfolio of "growth at a reasonable price" stocks, the two funds have different DNA: The two fund's top 10 holdings have only two names in common.

The $107 million Pacific Tiger fund invests in a broad swath of Asian companies -- South Korea, Hong Kong and China are its biggest bets -- as well as dipping into small, mid, and large-cap companies. In the latest shareholder report, Headley -- who joined Matthews at the helm in 1996 -- said he believes mid-cap companies, which make up 44% of the fund, will be a great engine for growth in Asia, but the fund also has a number of small-cap holdings that are "absurdly undervalued" established companies.

The fund posted a 6.47% decline in 2002, besting the average 7.98% decline and placing it in the top 29% of its peers, according to Lipper. Its three-year average return of 8.46% through 2002 is nearly half the 15.97% annual loss for the average Asia ex-Japan fund, putting it in the top 14%. Over five years, it has returned a positive 6.4% -- good for the top 10%.

Expenses come in at 1.9%, below the category average.

3. (PRASX) - Get Free Report T. Rowe Price New Asia

The $4.65 billion T. Rowe Price New Asia fund has not been immune to the violent swings of the Asian stock market during the past decade, but the steady management of Frances Dydasco and her team have topped most of their peers over the long haul.

Dydasco, who has helmed the fund since November 1996, takes a conservative growth approach to New Asia, which led to strong outperformance in 1999 and less volatility than its peers. While the fund holds 111 companies, it isn't afraid to make a concentrated bet: Korean giant Samsung Electronics makes up 9.2% of the fund, according to Morningstar.

Last year, the fund's negative 9.3% return placed it among the top 30% of its Asia ex-Japan peers. A rough 2000 -- a 30.8% loss on the heels of a 99.9% gain in 1999 -- crimped New Asia's three-year performance: Negative 16.69% average annual return, putting it in the top 62%, according to Morningstar. But the fund's longer-term performance has been stronger: The five-year average return of 1.9% and 10-year return of 0.69% are in the top 37% and 38%, respectively.

Dydasco and the experienced staff at T. Rowe Price New Asia, which has an outsize bet on South Korea, have kept trading to a minimum. The 1.22% expense ratio is almost half as much as the 2.28% category average.

4. (MCHFX) - Get Free Report Matthews China

The China region will almost certainly offer great volatility over the next decade. It will almost certainly offer great growth as well: J.P. Morgan expects the nation's economy to grow at a 7.5% clip in 2003. If you want to go along for China's amazing ride during the next two decades, you couldn't do better than having the Matthews China fund as your driver. (Full disclosure of a true believer: Matthews China turns up in my Roth IRA account.)

The $34 million Matthews China fund, co-managed by G. Paul Matthews, Headley and Richard Gao, celebrates its five-year anniversary this month. And it has plenty to celebrate: Its three-year average annual return of 5.03% is good for the top 3% of all Asia ex-Japan funds, according to Morningstar. It ranks first among 17 funds that focus exclusively on China during that period, according to Lipper.

The fund, which invests in mainland China and Hong Kong companies, offers the standard high quality for which Matthews Funds is famous: Low turnover, concentrated holdings, consistently superlative returns and lower-than-average expenses (2.00%).

The caveat emptor with this fund, and the final pick, is this: You are making a highly concentrated, one-nation bet in a volatile region. However, Paul Matthews has been investing in the region for two decades, and his fund may be the best way to invest in China's growth story.

5. (MACSX) - Get Free Report Matthews Korea

Matthews Korea is another five-star (according to Morningstar) offering from Matthews Funds. G. Paul Matthews has run the fund since January 1995, with Headley coming on board in October 1998.

Like the China fund, the $189 million Matthews Korea fund offers extreme volatility. Just read this five-year performance: down 64.8% in 1997; up 96.2% in 1997; up 108% in 1999; down 52.8% in 2000; up 71.1% in 2001.

Over the long haul, the fund is an out-and-out winner. Its five-year average annual return through 2002 of 28.92% is first among 51 Asia ex-Japan funds, according to Lipper. The fund is among the top 10% for one- and three-year periods as well. Meantime, Korea's whipsaw volatility may be diminishing as the domestic economy continues to grow and stabilize.

Investors may have concerns about investing in the Korean peninsula right now, with the rising tensions in Pyongyang. Matthews, for one, says the situation isn't as dire as it was in 1994 and the early 1980s, and he and other Korea-watchers are confident that the situation will be resolved.

The fund makes concentrated bets: Its top three holdings -- Samsung, Korea Telecom and

SK Telecom

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-- constitute more than 25% of its holdings. However, turnover and expenses (1.78%) are low, and you have the Matthews management at the helm.