If you're skittish about the turbulent markets of Asia, consider the challenge facing David K. Thomas.
As lead portfolio manager of one of the most successful Asia-Pacific mutual funds, Mr. Thomas faces daily decisions on whether to hold, buy, or sell Asian securities. For now, he's hanging tight, gritting his teeth, riding the tiger.
His Putnam Asia Pacific Growth Fund (800-225-1581) is both holding and buying securities. That, despite being down about 15.4 percent for the year, as of Nov. 25. The average Asia-Pacific fund is off 25 percent.
Recent carnage notwithstanding, Thomas is bullish on long-term Asian fundamentals, particularly in China and Hong Kong. The China connection should help shore up the entire Pacific region, he says.
The bottom line, Thomas says, is that investors should consider an Asia fund if they aren't already in one.
Retreat from Thailand
With many Asian markets down 30 percent or more, he says "any downside risks" are outweighed by upside potential.
Still, his current stance is cautious:
Thomas has sharply reduced holdings in Japan and Malaysia and abandoned Thailand and South Korea.
Australian holdings are up substantially, in part as a defensive play.
The fund now has 11 percent of assets in cash, up from 4 percent in June. Still, Thomas says shareholders are holding firm, with relatively few selling shares.
Thomas does not minimize the extent of Asia's currency crisis. He calls it a "meltdown," the worst regional financial challenge in a quarter century.
Yet fundamentals remain strong for many Asian companies, he says.
Faith in the basics
His approach is one of both "top down" and "bottom up" - looking first at a country's economy, then at specific companies.
Thomas likes firms with strong management that pays careful attention to how capital is used. He avoids speculative stocks. And he currently has no money in Japanese financial firms. He likes Japanese manufacturers Sony and Canon, and AFLAC, an American insurer operating in Asia.
Kevin McDevitt, an analyst at Morningstar in Chicago, says Putnam's "diversified, cross-country" approach has built the "sturdiest house" on the Asia-Pacific fund block. Its three-star (average) rating from Morningstar tops the Asia-Pacific class.
The fund, with $700 million in assets, has a minimum investment of $500 ($250 for IRAs), and an up-front commission of 5.75 percent.
The fund remains heavily positioned in Japan (40 percept of assets), Hong Kong (20 percent) and Australia (17 percent). Singapore is at 6 percent, Taiwan and New Zealand 2 percent each, while Malaysia, the Philippines, and Indonesia account for another 2 percent together.