One of the best investment plays on a recovery in Japan may be Komatsu Ltd., which makes bulldozers and other construction equipment, according to James Moffett, lead portfolio manager of the Scout International Fund.
The $7.9 billion fund, which focuses on developed and emerging markets outside of the United States, already owned shares of Komatsu before the devastating earthquake and tsunami hit on March 10.
Global investors may have overreacted to the disaster, according to Moffett, who has been in the money management business for more than 40 years. Japan's market initially traded down 20 percent in two days after the earthquake but has lately made back about half the loss by the close on March 22.
"It's going to take a lot of bulldozers to clean up that mess," said Moffett, based in Kansas City, Missouri. "They'll solve the problems just as they did after the Kobe earthquake."
Moffett's experience has helped the Scout fund outperform most of its rivals over the past three years. The fund was the Lipper award winner in the international large-cap growth category. The award recognizes consistent performance over three years adjusted for the amount of risk the fund took.
The fund lost an average of 1.69 percent annually for the three years ended December 31, 2010, better than the average loss of 5.36 percent a year, according to Lipper data.
The fund seeks to focus on companies growing faster than average but without paying a premium price. "It's an old-fashioned, bread-and-butter approach," Moffett said. That sometimes leads to stock picks in markets most investors have avoided.
Italy's market has dropped 13 percent annually over the past three years, more than double the annual loss of MSCI's developed markets Europe Index.
But Moffett's fund owns oil services provider Saipem Spa and eye glasses maker Luxottica Group Spa, which have posted strong gains over the same period. "These are good companies in bad countries," Moffett said.
Still unfolding events across the Middle East are difficult to predict but could help oil stocks around the world, Moffett said. Instead of buying local companies that could be hurt by the political turmoil, Moffett said he is sticking with Canadian and Brazilian alternatives like Imperial Oil and Petroleo Brasileiro S.A.
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