James Cullen, whose U.S. mutual fund outperformed the Standard & Poor's 500 Index for the past three years, is buying shares of companies...

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James Cullen, whose U.S. mutual fund outperformed the Standard & Poor’s 500 Index for the past three years, is buying shares of companies such as Diageo and Cemex that stand to benefit from an increase in middle-class incomes in countries including China and Mexico.

Diageo, the world’s largest liquor maker, reported a 67 percent gain in Chinese sales of Johnnie Walker whiskey during the second half of last year. The London-based company is the second-biggest non-U.S. holding in the Pioneer Cullen Value Fund after Anglo American, a South African mining company.

“You have a middle class in Asia that’s forming rapidly,” Cullen said from his office in New York. “That’s the big market for brand names, and that’s where demand is going to be.”

As of May 10, Cullen’s $77 million fund had risen 22 percent in the past 12 months, ranking first of 93 similarly managed value funds tracked by Bloomberg that concentrate assets in stocks perceived as being cheap relative to earnings and other financial yardsticks.

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The fund advanced at an average annual rate of 11 percent during the past three years, exceeding the 5 percent return of the S&P 500 index.

Through American depositary receipts, the Pioneer Cullen fund has about 15 percent of its money in companies outside the United States and Canada, including Diageo and Mexico’s Cemex and America Movil.

“He tends to own more foreign stocks than his competitors,” said Sonya Morris, an analyst at Morningstar, a fund-industry research firm in Chicago. “That may be part of the explanation behind the above-average performance.”

The typical value fund has about 5 percent of its assets in international companies, Morris said.

Cullen tends to hold 30 to 35 stocks. He chooses from among the cheapest 20 percent of companies in the S&P 500 based on an evaluation of earnings and on book value and dividends.

“The discipline is the first thing, and then there’s the research,” said Cullen, who started in the investment business 40 years ago. “Cheap stocks with a story is the simplest way to put it.”

Diageo owns four of the world’s top-10 liquor brands, including Smirnoff vodka and Baileys liqueur. Diageo’s American depositary receipts are up 1.6 percent this year, compared with the 1.1 percent drop of the S&P 500. Diageo now accounts for 3.3 percent of the fund’s assets.

Cullen bought shares of Cemex, the world’s third-largest cement producer, in March 2004 and April 2004 and added to the position a year later. In that time, the stock advanced 23 percent. Cullen expects construction and the rebuilding of homes to rise as mortgage lending increases.

Since February 2004, Cullen has built a stake in Mexico City-based America Movil, Latin America’s biggest wireless-telephone company.

Cullen sold his fund to Boston-based Pioneer Investment Management this year but remains the fund’s sole manager. Since Cullen signed the deal with Pioneer, the fund’s assets have almost doubled, he said.