Catching Asia's Small Stocks by the Tail

As East Asia's "tiger" economies limp through their most trying period in years, mutual fund portfolio manager Mark Headley reads in their disheveled stripes a simple message: "opportunity."

Unlike many managers who invest in East Asia outside Japan, Mr. Headley has focused not on giant conglomerates but on small- and mid-size firms with stock valued at $500 million to $1 billion.

The strategy has led his $50 million Matthews Pacific Tiger Fund (800-789-2742) to a Thai maker of engines, an Indonesian photography firm, and a refrigerator company in Guangdong, China. It has also delivered among the highest returns in the class: 24.2 percent in 1996 and 2.4 percent this year through Tuesday.

"It's important to look beyond the big blue-chips in Asia," says Headley. "The first wave of money into Asia in 1992 and 1993 all went into the 'nifty fifty' stuff , but we have said there is extremely attractive stock picking beneath that tier."

Rather than zero in on the most promising market in the region, Headley and senior portfolio manager Paul Matthews seek out irrepressible firms that they believe can rise through even the most violent market and currency swings.

That said, Headley concedes that the fund has flourished largely because it has staked about half of its assets on a promising corner of the Pacific: Hong Kong and China.