The Driehaus International Discovery Fund, the second-best performing mutual fund in its category over the past five years, is investing in Hong Kong to take advantage of surging tourism from mainland China.

The loosening of visa requirements for Chinese visitors is a boon for companies such as Lifestyle International Holdings Ltd., the owner of Hong Kong's Sogo department store, said Eric Ritter, co-manager of the Driehaus fund. The fund has bought 2.06 million shares of Lifestyle since the company went public four months ago.

"We're trying to put an acorn in the fund -- a seed," Ritter said in a telephone interview from his office in Chicago. Ritter, 40, oversees the fund with Emery Brewer, 40, and Ivo St. Kovachev, 45, both based in Prague.

The $315 million Driehaus fund rose at an annual rate of 15.6 percent over the past five years. Only the First Eagle Overseas Fund, run by Jean-Marie Eveillard and Charles de Vaulx, has a better record among 102 international stock funds tracked by Bloomberg.

This year Ritter, Brewer and St. Kovachev reduced their stakes in emerging markets such as Russia and increased their positions in Western Europe. They also are buying shares of Chinese companies such as China Mengniu Dairy Co., attracted by a government estimate that consumer spending will rise more than 10 percent this year.

China Mengniu controlled 21 percent of China's liquid-milk market last year when sales rose 16-fold. Shares of the company are up 25 percent since its initial public offering on June 10.

Shares of Lifestyle International are up 25 percent since its IPO on April 14. Lifestyle said it would use part of its proceeds from the stock sale to expand in Shanghai, Hong Kong and Taiwan.

The Driehaus fund also increased its holdings of telecommunications companies such as Bharti Tele-Ventures Ltd., India's second-largest mobile-phone operator, and Grupo Televisa SA of Mexico, the world's largest Spanish-language broadcaster.

Bharti's fiscal first-quarter earnings rose almost 10-fold after lower rates helped boost cell phone subscribers. The company's stock more than doubled in the past year. Grupo Televisa is gaining market share by offering new programs, including reality shows such as "Big Brother II."

During the past 12 months, the Driehaus fund is up 15 percent, lagging behind the 23 percent advance of the Morgan Stanley Capital International Europe, Australasia and Far East Index, a benchmark for international investors.

The fund is down 5.6 percent this year, ranking No. 149 of 151 competing funds. Brewer cited concern about the possibility of slowing economic growth in China, as well as rising U.S. interest rates and oil prices.

The Driehaus fund has almost half of its assets in shares of companies based in Western Europe, up from 44.5 percent at the start of the year. Because it's less risky than other regions, "we've moved a lot of money there," Brewer said.

Last month, the fund bought shares of Axalto Holding NV, a former unit of Schlumberger Ltd. that makes chip cards for mobile phones and credit cards. Demand for the French company's so-called smart cards is increasing as banks and credit card companies shift away from magnetic strips to boost security.

Brewer, who has degrees from the University of Utah in Salt Lake City and the University of Rochester (N.Y.), joined Driehaus Capital Management Inc. in 1994 and helped start the firm's Discovery fund in 1999. He oversees the fund's emerging markets investments, and while the fund has cut back on those stocks, Brewer said some opportunities remain.

The fund has also boosted its position in Grupo Aeroportuario del Sureste SA, the Mexican airports operator. The company runs airports in tourist destinations including Cancun and Cozumel.

Many American tourists are going to Mexico instead of Europe because of concern about terrorism and weakness of the dollar relative to the euro, Brewer said. Shares of Grupo Asur, as it is also known, are up 40 percent in the past 12 months.

While Brewer and St. Kovachev increase the fund's European investments, Ritter is scaling back holdings in Japan because of concern about declining retail sales. Sales in June declined by a seasonally adjusted 0.6 percent from May as supermarkets and car showrooms missed out on a rebound in consumer spending.

Ritter responded to the report by selling the fund's shares of Aeon Co., Japan's biggest shopping center operator. As of June 30, the Driehaus fund had 23 percent of its assets in Japan, compared with 9.4 percent for the rest of Asia.

"We're still positive on Japan, but a little bit less so," said Ritter, who joined Driehaus Capital in 1996.

Ritter said he's pessimistic about prospects for real estate investment trusts in Japan as appealing properties for these companies to buy become harder to find. The fund recently sold shares of Kennedy-Wilson Japan Inc., a unit of Beverly Hills, Calif.-based Kennedy-Wilson Inc.

Ritter said he will focus on Japanese exporters, which may get a boost from the weaker yen. In recent months, the fund bought shares of Trend Micro Inc., the world's third-largest maker of antivirus software, and Nintendo Co., the world's biggest maker of handheld game machines.