First Eagle Leads Top U.S. Mutual Funds Sticking With Japan Amid Selloff

Some of the top U.S. mutual funds with the biggest allocations to Japan are sticking with their investments, saying it’s too early to assess the impact of the country’s worst earthquake on record.

“You have to ask what real value has been affected company by company, and it’s not easy getting that information in these circumstances,” Kimball Brooker of First Eagle Investment Management LLC in New York, who helps manage the $12.5 billion Overseas Fund, said yesterday in a telephone interview.

The fund had 29 percent of its holdings in Japan stocks as of Feb. 28, making it one of 12 funds with more than $500 million in assets and more than 25 percent invested in Japan, according to company information and data compiled by Bloomberg. Fidelity Investment’s $593 million Japan Fund, which is 98 percent invested in Japan, and the $994 million Pacific Basin Fund, with 37 percent, held the highest stakes in that group.

Investors fled Japanese stocks, sending the Nikkei 225 (NKY) Stock Average 16 percent lower since the start of the week, after the 9.0-magnitude temblor and subsequent tsunami led to what Prime Minister Naoto Kan called the country’s worst crisis since World War II. Millions remained without electricity or water following the quake, which may have killed 10,000.

“We are closely examining and evaluating developments in Japan and the potential impact on companies in our portfolio,” Ray Lewis, a spokesman for Brandes Investment Partners in San Diego, said in an e-mailed statement. “We remain committed to a long-term investment perspective.”

Biggest Losses

Brandes managed two funds among the top 12 U.S. funds investing in Japan. The $807 million Brandes Institutional International Equity Fund (BIIEX), with 33 percent in Japan, fell 2.7 percent yesterday. The $1.74 billion Columbia International Value Fund, owned by Minneapolis-based Ameriprise Financial Inc. (AMP) and run by Brandes, declined 2.6 percent. That fund had 32 percent allocated to Japan.

The 12 funds together fell an average 2.6 percent yesterday, led by a 7.4 percent decline in the Fidelity Japan Fund. That fund is the only one of the 12 to focus exclusively on Japan. Vincent Loporchio, spokesman for Boston-based Fidelity, declined to comment.

Ryan Lund, an Ameriprise spokesman, declined to comment on the $642 million Columbia Multi-Advisor International Value Fund, which fell 2.2 percent yesterday.

Stock Bargains

Kathleen Cardoza, a spokeswoman for Chicago-based Nuveen Asset Management, declined to comment on the $1.47 billion Nuveen Tradewinds International Value Fund, which fell 2.1 percent.

Yesterday’s decline in Japanese stocks, the biggest in two years, pushed valuations below levels in November, when a 19 percent rally began, luring investors who say equities will prove bargains as the country rebuilds from its largest earthquake on record.

AMP Capital Investors Ltd., which oversees about $98 billion in Sydney, raised its Japan rating to “overweight” from “neutral” yesterday after the Topix Index’s 7.5 percent tumble made its price equal to its net asset value, said Nader Naeimi, an strategist for the firm. Polar Capital Holdings Plc’s Japan Fund, which beat more than 85 percent of peers since 2006, bought steel and construction companies, said James Salter, the fund’s manager.

‘Good Business’

David Herro, the Chicago-based manager of the $6.9 billion Oakmark International Fund, said in February that Japanese equities were comparatively cheap at more than 70 percent off their 1989 record high. Herro said Japanese stocks should become even more attractive as exporters increase trade with China and companies start returning cash to shareholders.

The Nikkei 225 Stock Average fell for a second day today, losing 11 percent to 8,605.15 in Tokyo. The broader Topix index declined 9.5 percent to 766.73. All the 33 industry groups in the Topix retreated.

First Eagle’s Brooker said he may see buying opportunities, in construction for example, if prices continue to fall and the companies’ business isn’t at risk of lasting damage. First Eagle also runs the $25.5 billion Global Fund, with about 18 percent of its holdings in Japan stocks.

Insurers Vulnerable

“If you’ve picked a good business, it’s investing in all the future cash flows, not just the next two months’,” he said. “We’re very focused trying to buy at a significant discount, typically 30 percent to 40 percent below the intrinsic value.”

The most vulnerable holdings of the First Eagle Overseas Fund, he said, may be Tokyo-based insurers MS&AD Insurance Group Holdings (8725) and NKSJ Holdings Inc. (8630) The fund’s largest holding is Osaka-based bicycle components maker Shimano Inc. (7309), which sells 85 percent of its product outside Japan and could emerge without significant damage to operations, he said.

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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