On March 11 an earthquake measuring 9.0 on the Richter scale struck northern Japan, shaking the country’s Tohoku region and triggering a 33-foot high tsunami that traveled six miles inland. At the time of writing, the disaster’s death toll has eclipsed 10,000. With more than 16,000 people still missing, that number could more than double.

The crisis could worsen still. Japanese workers are struggling to contain a potential meltdown at the Fukushima nuclear plant. The facility’s nuclear reactors, some of which were close to 40 years old, use water to cool the nuclear fuel rods. While the reactors mostly withstood the impact of the massive earthquake, the resulting tsunami knocked out the backup generators that power the plant’s cooling systems in an emergency.

Until workers succeed in cooling these nuclear fuel rods, there is a significant risk that fires and explosions that could spread radiation throughout the region. Elevated levels of radiation have been detected in Tokyo’s tap water, and vegetables grown near these reactors have been declared unsafe to eat.

Our thoughts are with the victims of the disaster and the families who mourn them. It may seem insensitive to speak of profit and loss when the human toll from the tragedy continues to climb. But as investors, we must also consider how to position our portfolios following this catastrophic event. And historical precedent suggests that this is a favorable time to establish a position in Japan.

On Jan. 17, 1995, the Japanese city of Kobe was struck by one of the most significant earthquakes on record. That disaster caused more than USD100 billion in damage, equivalent to 2.5 percent of the nation’s gross domestic product (GDP) at the time. The Nikkei 225 Stock Average plunged 1,000 points the following day. Over the following six months, the Japanese market lost about a quarter of its value and Kobe, which was one of the world’s busiest ports, never regained its status as Japan’s premier port facility.

Despite those headwinds, the Nikkei managed to end the year in positive territory. Recovery efforts in large part helped the Japanese economy post solid growth that year.

It’s not unreasonable to expect another positive performance from Japanese equities in the wake of the most recent disaster. In 1995 the nation’s broad Topix index traded at more than 50 times earnings and Japanese corporate balance sheets were laden with debt. The Topix currently trades at less than book value and Japanese corporations boast improved profit margins and shrinking debt levels.

An investment in Japan does carry risk; the full impact of the natural disaster remains unclear. But Japan has risen from the ashes before, and history makes a compelling investment case for the country.

Matthews Asia Funds is perhaps the foremost mutual fund house for those seeking to invest in Asia. Matthews Japan (MJFOX, 800-789-2742) is one of the best funds available for investors willing to risk a direct bet on Japan. Of the eight Japan-focused stock funds that pass our criteria for inclusion in The Rukeyser 100, Matthews Japan’s 1.3 percent three-year return ranks it in the No. 2 slot. Over the past year, the fund has returned more than 25 percent.

That solid performance results from management’s long experience investing in Japanese equities. Taizo Ishida, who has helmed the fund since 2006, employs an all-cap growth strategy that allows him to roam the capitalization spectrum of Japanese equities. Small- and mid-cap names account for almost half of the fund’s investable assets. Ishida’s preference for purchasing stocks at low multiples is likely to result in an even greater bias toward small-cap stocks in the coming months.  

Many investors have sold off small-cap Japanese companies on the assumption that they will be among the hardest hit by the natural disasters. But small-cap names tend to be more oriented toward the domestic market than large- and giant-cap companies. These larger companies are often export-oriented and have come under pressure as a sharply rising yen has made their goods less competitive in foreign markets.

The fund carries a 1.3 percent expense ratio, which is in line with other Japan-focused stock funds. The country’s recovery will unfold over years rather than weeks, and low expenses will be a key consideration for investors who seek to play Japan’s market. Additionally, Matthews Japan’s 3.7 percent yield has been bolstered by the sell-off and rising dividend payments by Japanese corporations. But don’t buy into the fund if you’re looking for a quick profit; like all of Matthews’ offerings, the fund carries a 2 percent redemption charge should you sell your shares after less than 90 days.

Investors with a moderate risk tolerance should consider a 5 percent allocation to the fund if they lack significant exposure to the Japanese market. Investors with a lower tolerance for risk might consider a smaller allocation or even a more diversified fund such as Matthews Asia Pacific (MPACX, 800-789-2742).

Co-managed by Ishida and Sharat Shroff, the fund invests across the Asia-Pacific region with a value-sensitive approach and a strong focus on small- and mid-cap names. The fund’s most notable risk is a 40 percent allocation to emerging Asian countries such as Thailand, Malaysia and Vietnam. About one third of the fund’s investable assets are currently devoted to Japan, all of which are names found in the Matthews Japan portfolio.