Brent Lynn has beaten 96% of rivals since taking over the Janus Overseas Fund in 2003, in part by investing in stocks from emerging markets such as India and Brazil.

Now Lynn is finding attractive bets at home. Delta Air Lines Inc., Ford Motor Co. and Bank of America Corp. were among his top 10 holdings at Sept. 30. The $13 billion mutual fund has more than doubled its weighting in U.S. stocks in the past three years while cutting emerging-market holdings by one-third.

"Some of the best investing opportunities may be in the developed markets of the United States and Europe," Lynn said in a telephone interview from Denver, where Janus Capital Group Inc. is based. "Growth may not be as exciting as it is in some emerging countries, but there are interesting things going on under the surface."

Investors have poured cash into emerging-market equity funds at a record rate in the past two years, lured by fast growth in Asia and Latin America and by consumers and governments free of the debt burdens faced by their counterparts in the U.S., Europe or Japan. Lynn is one of a growing number of money managers who say the rush into emerging-market stocks has driven up prices to the point where bargains are scarce.

"Investors in general have a very favorable view of those markets," he said.

"The emerging-market story is as great as it has ever been, but the prices you are being asked to pay to participate are increasingly full," said Simon Hallett, the chief investment officer at Harding Loevner LP in Somerville, N.J., whose $10 billion in assets under management include $4 billion in equities in developing countries.

Emerging-market stocks jumped 79% in 2009, triple the 26% return of the U.S. benchmark.

Janus Overseas averaged gains of 15% in the past five years, according to Bloomberg data. Since Lynn became its manager, it has returned about 19% a year, according to Chicago-based Morningstar Inc.

Lynn, 46, joined Janus in 1991 and was an analyst for his first 10 years. He has a bachelor's degree and master's degrees in economics and industrial engineering from Stanford University. Before entering the fund business he spent two years in the Peace Corps teaching English and math in Nepal.

He says he aims to invest in strongly established companies whose stock prices do not reflect their earnings potential.

From 2003 to 2007, Lynn said, he found many of the best businesses in emerging markets and owned by companies such as Mumbai-based Tata Steel Ltd., India's largest steel producer.

At Oct. 31, 2006, the fund had 39% of its assets in emerging-market stocks, "at the high end of historical trends," according to a filing with the Securities and Exchange Commission.

When the emerging-market index dropped 53% in 2008 as the global financial crisis dragged down smaller markets, Janus Overseas lost the same amount, its worst year since being started in 1997.

"The fund will take its lumps in tough times," Greg Carlson, a Morningstar analyst, said in a telephone interview.

"This is a very humbling business," Lynn said. "I was taken by surprise by the complete financial meltdown."

In the fourth quarter of 2008 and the first quarter of 2009, he pared the number of stocks in the portfolio and put most of the money into companies with the financial strength to survive the crisis.

Among them were the Hong Kong-based exporter Li & Fung Ltd., the biggest supplier to the U.S. retailing giant Wal-Mart Stores Inc. and Mumbai-based Reliance Industries Ltd., owner of the world's largest fuel-refining complex.

The stocks, now Lynn's two biggest holdings, have been among the fund's biggest positions for the past four years, regulatory filings show.

As the companies tumbled in 2008, Lynn was convinced that their troubles were temporary and both could use the crisis to take business away from weaker rivals. Li & Fung shares have more than tripled since their October 2008 low; Reliance has more than doubled, Bloomberg data show.

In the second quarter of 2009, Lynn bought companies in what he calls special situations, those undergoing structural changes that have yet to be recognized by other investors. "It happens [that] some of the most attractive special situations were in the United States," he said.

At Sept. 30, the proportion of the fund in U.S. stocks rose to almost 20% from less than 8% three years earlier. Emerging-market stocks fell to 23%, from 37%. European stocks, which were not reported separately in earlier periods, accounted for 25%.

Janus Overseas is allowed to have as much as 20% of its assets in U.S. equities, according to James Aber, a company spokesman.

"Lynn has an extended leash to pursue opportunities," said Andre Fernandes, an assistant portfolio manager of the $68.9 million New Century International Portfolio, a mutual fund in Wellesley, Mass., that owns shares in Janus Overseas.

The fund's top 10 holdings included ASML Holding NV, the Veldhoven, Netherlands, semiconductor equipment maker, and ARM Holdings PLC, a Cambridge, England, designer of chips that power Apple Inc.'s iPhone.

"Europe offers more compelling value than I have seen in years," Lynn said.

The economic fundamentals in countries such as India and China are better than ever, given their strong banking systems, governments with low debt burdens and consumers who are gaining wealth, Lynn said.

In a world "starving for growth," investors have gravitated to emerging markets, he said. Though he retains "significant" holdings in these markets, their popularity has prompted him to look elsewhere. "We want the most exciting opportunities around the world, regardless of geography," he said.

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