That's largely thanks to the fact that just 43 percent of reporting companies beat their revenue estimates in the second quarter, the lowest percentage in over three years. In aggregate, S&P 500 sales grew by just 0.7 percent last quarter.

Given the weak sales environment, cost-saving measures helped drive earnings growth. Share buybacks, which make for easier per-share comparisons, also made a strong contribution to earnings growth. In the first quarter of this year, S&P 500 companies spent more than $84 billion buying back their shares and more than $400 billion has been repurchased over the past year.

Firm numbers on second-quarter buyback spending aren't available yet. However, with more than $2 trillion sitting on corporate balance sheets, it's a safe bet that second-quarter spending was at least in line with-if not greater than-the first. In fact, share repurchases have become de rigueur for creating shareholder value over the past few years.

There's little reason to suspect that trend will soon shift, since the global economic situation is likely to remain problematic for the rest of this year. The US dollar should remain strong until Europe gets a better handle on its debt crisis and deals with a creeping recession-an extremely unfavorable environment for multinationals. These problems in the developed world will continue to dampen emerging market growth.

That said, investors have been willing to put aside their qualms about revenue growth and instead stick with the earnings winners. The biggest winners over the past few years have been companies that aggressively repurchased their shares.

PowerShares BuyBack Achievers (NYSE: [[PKW]]) is an exchange-traded fund (ETF) that holds companies that have repurchased at least 5 percent or more of their outstanding shares for the trailing 12 months. The fund rebalances quarterly to account for any changes in repurchase programs.

This strategy has proven extremely effective since 2008, with the fund outperforming the S&P 500 by a wide margin each year. While the S&P 500 has returned 1.2 percent during the trailing 5 years, Power-Shares BuyBack Achievers has gained 4.5 percent.

Many of the ETF's holdings-including Intel (NSDQ: [[INTC]]), IBM (NYSE: [[IBM]]) and Walt Disney (NYSE: [[DIS]])- have beaten their earnings estimates by wide margins. Uncover more top ETF picks by checking out my Top ETFs to Own Now report.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Technology companies have caught the attention of US investors lately. Cash-heavy balance sheets have sparked a wave of mergers and acquisitions (M&A) activity, and several technology companies have started to pay dividends. Many market watchers have interpreted these developments as signs that the US technology industry has matured, and that the heady, high-growth days of the early 2000s are a thing of the past. Meanwhile, Asian technology companies are still growing at a rapid clip. Internet penetration rates remain low in many parts of the region, and rising household incomes mean that consumers have more leeway to make discretionary purchases. We recently spoke with Michael Oh, manager of Matthews Asia Science and Technology (MATFX), about the opportunities and obstacles in this exciting space.

Describe the fund’s mandate and your investment strategy.

The fund’s mandate is to invest in Asian technology- and science-related companies in sectors such as technology, health care and telecommunications. The fund’s chief strategy is to invest in companies that can tap into the growing wealth and spending power of Asian consumers, with a focus on companies that are oriented to the domestic economy.

What differentiates Asian technology companies from their counterparts in the US?

If you compare Asian technology firms to global companies you’ll notice some real differences. Take the search industry, for example. Most of the industry in Asia is dominated by a single player. In China, Baidu.com’s (NSDQ: BIDU) search offering controls more than 80 percent of the market. NHN Corp (Seoul: 035420) holds a 70 percent share in South Korea where local companies make up more than 90 percent of total market.

Local companies dominate these markets because their strategies are tailored to meet the unique demands of Asian users. Global strategies often fail in Asia. For example, e-commerce is still relatively new to China, and many clients don’t understand the power of online search yet.

Baidu has more than 3,000 sales representatives in China who are educating small to midsize merchants about the value of e-commerce. Baidu understands that there’s a need for this kind of education, which is why its sales force outnumbers that of Google’s (NSDQ: GOOG) by 10-to-one.

Google, on the other hand, believed that its superior technology would attract clients. That strategy hasn’t worked well.

Then you have a country like South Korea, where people are very familiar with Internet-related industries and online search. The country’s No. 1 player in search was a latecomer to the game, but the firm delivered a unique set of services.

Korean Internet users love to get information online, so NHN came out with a knowledge-based search service where people can ask questions and then someone else will answer them. Through this service, NHN has accumulated an impressive database of search terms.

The Asian search industry is very different from the model that’s succeeded in the US and Europe, enabling local companies to lead the way.

Are any of these local leaders expanding into global markets?

Many Asian companies are now entering other regional markets. NHN went into Japan and became the largest children’s online game company in the country. Now they’re starting an online search service in Japan that’s tracking pretty well. Baidu.com has also chosen to enter the Japanese market.

A handful of US tech companies now pay dividends to attract investors. Is a similar trend underway in Asia?

High-growth companies in the Internet space rarely pay a dividend. However, many hardware manufacturers in Taiwan pay generous dividends. It’s not unusual for some of these companies to pay dividends of 3 percent. And the valuations have become attractive lately. Some of the large-cap tech companies are at their cheapest valuations in years.

Asian companies in general have healthy balance sheets and tech companies are no exception. We are seeing some M&A activity, especially from Japanese companies taking advantage of the strong yen. Some companies are also investing more to strengthen their competitive position.

You have several telecommunications firms including China Mobile (NYSE: CHL) and PT Telekomunikasi Indonesia (NYSE: TLK) in your portfolio. Is telecommunications still a growth industry in Asia?

While the penetration rate for telephone services has reached 70 to 80 percent in some Asian countries, telecom is still very much a growth industry in China and other emerging nations in the region. While many people have cellular phones, the revenue per user (RPU) lags that of Western countries. The reason is that a relatively small number of subscribers in Asian emerging markets use mobile data services. But as smartphones become increasingly popular in Asia, data use will rise and RPU will increase substantially. Based on this trend, the valuations of most telecoms are very attractive and have the added benefit of being defensive in downturns.

Protection of intellectual property remains lax in the region, particularly in China. How would you characterize the threat that this poses to technology firms operating in Asia?

We focus primarily on Internet companies that provide services that are hard to replicate. Nonetheless, intellectual property protection remains a danger, particularly in the media and software industries. You can easily buy pirated DVDs of newly released on almost any street in China.

That’s why we focus more on distributors in the IT and health care space. These companies don’t depend on one blockbuster product or drug because they distribute a number of products.

The Internet penetration rate in Asia is still very low.  For example, China’s Internet penetration rate is only about 30 percent, while India’s clocks in at just 5 percent. However, although China’s Internet penetration rate may lag the US, more than 300 million people already use the Internet in the country.

Once that rate reaches 70 percent, the number of absolute users will be more than the entire population of the US and Western Europe combined. That’s a huge opportunity and makes for quite an investment case.

If you look at consumer and corporate spending on information technology (IT), it’s still very low compared to the US or Western Europe. Overall penetration rates for all IT products, from personal computers to televisions, remains on the low side, even though Asia is now the largest market for these goods in terms of total units.

Asia is one of the world’s fastest-growing regions, and the growth in total expenditure on technology should outpace increases in gross domestic product. Asian technology companies will also benefit from higher household incomes.

If you look at US consumer spending on technology products, this segment has risen steadily since 1960. Today, the Chinese consumer’s income level is comparable to what we saw in the US back in 1960. As incomes grow in Asia, spending on technology should follow suit.

Are there any other significant risks?

Technology investors, especially those focusing on Asian markets, should have a long-term perspective. A lot of volatility will accompany this growth, but that’s pretty much the case for any tech fund you buy; the technology industry tends to be highly volatile. The region’s weak intellectual property protection remains another risk.

Can you tell us about a few of your favorite companies?

Baidu.com is our biggest holding, and we invested in the company when it went public. It’s really the best example of our strategy because it’s one of the firms in the best position to benefit from domestic growth. It will see rewards from both China’s growing Internet penetration rate and the broad growth of e-commerce as the Chinese economy continues to expand.

Synnex Technology International (Taiwan: 2347) has a presence in India and China and distributes IT products throughout Asia. The company should benefit from secular growth trends in the IT sector.

We like the domestic champions that are also globally competitive. A good example of that would be Samsung Electronics (South Korea: 005930), a long-dominant player in South Korea that has become a globally recognized brand.

It’s built a market-leading position in flash memory and dynamic random access memory (DRAM) products. Flash memory technology is used in almost all smartphones and tablet computers, while DRAM is the backbone of the PC industry. Samsung is well positioned to benefit from the explosion of smart mobile devices that will hit the markets.

How do you define transformational investment?

Lieber: Investing in companies that are transforming their business should provide exceptional growth opportunities. That gives us wide latitude.

Our view of transformational strategies could include Howard Schultz, the founder of Starbucks Corp (NSDQ: SBUX), waking up one morning and saying “business ain’t what it’s supposed to be, I’d better do something different,” and closing 900 stores.

It could include an automotive company like Tenneco (NYSE: TEN) deciding that the industry is in trouble and it had better concentrate on emissions and ride control products. Those are transformational events.

We’re also looking for evolutionary developments in an industry. Snap-on (NYSE: SNA) is a classic example. People are probably familiar with Snap-on’s white and red trucks that visit auto dealers and repair shops selling wrenches and other car repair equipment.

We bought the stock when management identified auto engine diagnostics as the greatest growth area in servicing vehicles. Now Snap-on sells more than $15 wrenches; the firm sells a computer that you plug into the engine to tell you what’s wrong. This major transformation also involved bringing in a new president and building an innovation center in Kenosha, Wis.

We see opportunities in fundamentally healthy businesses that don’t have the dynamics management had projected for them, as well as those that are in a stage of innovative growth. So our holdings range from Priceline.com (NSDQ: PCLN) to Westport Innovations (TSX: WPT, NSDQ: WPRT), which specializes in special emissions control devices for diesel engines.

Would it be fair to characterize this as a value strategy?

Hunt: It’s a combination of valuation, what the company is doing and whether the markets recognize it yet. The majority of earnings generated by the companies we hold may come from places that weren’t traditionally a part of their earnings stream. That becomes a very interesting change in their revenue profile. Sometimes the market doesn’t pick up on this change until it’s well on its way.

Lieber: Autoliv (NYSE: ALV), a Swedish-American company that started out as a seatbelt maker, is an excellent example of changing earnings streams. It went on to become an airbag maker and now produces sophisticated airbags and safety-detection devices that use infrared technology. That’s adding a whole new transformative growth opportunity.

What’s your outlook for the US economy?

Lieber: In a recent meeting of our research and portfolio management group, we used atypical economic language and described the economy next year as likely to be “creepy-crawly.”

Creepy describes a slowly advancing, somewhat struggling economy trying to overcome unemployment, the reluctance of consumers to spend and their predilection to save.

Crawly refers to the stimulus of international trade and the opportunity for US exporters to enter stronger markets.

How does that outlook affect the companies in your portfolio?

Lieber: It’s a motivational impulse. Let’s say you’re running a business that’s going nowhere in a struggling economy and you ask yourself what you can do to get your business going. Often the answer is to think of how to transform your business and get it back on track.

That sparks product innovation and operational changes that can create distinct competitive advantages.

Can you provide some examples of transformational companies?

Hunt: Cummins (NYSE: CMI) demonstrates a combination of a couple of different factors. The firm’s core business is providing US companies with truck engines. Navistar International Corp (NYSE: NAV), a truck manufacturer and key customer, changed how it sources its engines, which looked like an issue for Cummins.

In the interim, Cummins had worked on expanding internationally and adding to its product portfolio. Now half of Cummins’ earnings before interest and taxes come from joint ventures that are outside of the US, including in India and China.

Additionally, there’s a set of global regulatory reforms in truck emissions standards that’s driving a replacement cycle for truck engines across the world. Cummins adapted to these new requirements and has an offering for almost any country. The firm also has entered new markets like marine and oil and gas.

This is a company that responded to a set of business challenges in a variety of ways changing the nature of its earnings profile.

The stock has reacted strongly to the numbers the company has. While the fundamental demand in the businesses they serve has advanced modestly, the firm’s stock price and earnings have increased dramatically.

Atlas Air Worldwide Holdings (NSDQ: AAWW) is a company that performed some charter services. It bought a giant freight charter company in Alaska called Polar Air but wasn’t making money on its regularly scheduled freight service. Management quickly realized the firm was running like a hamster on a wheel, so they blew up the company’s legacy business model.

Now the company runs planes on a “wet charter” basis for airlines such as British Airways (London: BAY) and Singapore Air (Singapore: C6L). Atlas Air Worldwide provides the crews, and the company pays for fuel and is guaranteed a certain amount of airtime. The firm has entered some of its planes into the military flying pool--a highly lucrative business.

Management’s moves transformed the company from one that barely brought in enough money to one that has a more dynamic revenue steam and is growing earnings.

We’ve owned the stock for the last 18 months, and the change in Atlas Air Worldwide’s earnings profile has enabled it to outperform its peers. The firm continues to add planes in this business model and is branching out into other business models as well.

Traditionally, operators in this space have struggled to make money, but Atlas Air Worldwide’s management has found a business model that makes it much easier to pay for the planes and grow earnings.

Lieber: Everyone has read the story about Oracle (NSDQ: ORCL) and [former Hewlett-Packard CEO] Mark Hurd. Oracle has partially transformed itself from a software company into more of a hardware company. We think that’s a very interesting development, and we’re as intrigued as everyone else by how quickly Hurd moved from Hewlett-Packard (NYSE: HPQ) into Oracle management.

We think Oracle’s CEO Larry Ellison has run a brilliant program of constant transformation with the acquisition of 65 companies over a period of years. But this time he’s made a very fundamental shift as evidenced by the Hurd hiring. He will attempt to increase margins at the recently-acquired Sun Microsystems, a relatively low-profit hardware company, from 40 to 60 percent. It’s a multiple transformation.

Is your investment strategy risky given the weak economic environment?

Lieber: The opposite is true because we’re not starting until the company has a decent base, and if that base can be transformed into a growth vehicle, then we’ve got it. So in a way, you have a value proposition in starting with a dull company that transforms into an innovative company. This should result in lower risk than what’s typical.

For example, we own shares of a tiny company called HearUSA (AMEX: EAR), a retail hearing aid business. They’ve just started a deal with the American Association of Retired Persons (AARP) under which the AARP will promote hearing aids through HearUSA’s retail facilities. It’s a small-time business, but nonetheless, it’s an incrementally interesting growth opportunity because the AARP is known for being able to drive demand.

What’s your best piece of advice for investors over the next year?

Lieber:  Going back to our “creepy-crawly” outlook, look for companies that don’t depend on the general pace of the economy for recovery, but have unique strengths that they can exploit.

Hunt:  We’re talking about companies where growth is driven by something beyond simple GDP growth. Potential drivers include regulations, a change in the way people do things, or a secular story that isn’t only dependent on volume growth. Companies that are making sales outside of the US to countries that are experiencing economic growth are worthy of attention as well.

Some Western commentators have suggested that dangerous bubbles lurk beneath China’s impressive economic growth. Others worry about inflation in the wake of the government’s stimulus efforts. What’s your take on these concerns?

I’m in Hong Kong right now and spent the week visiting Shanghai, Shenzhen and other Chinese cities. On this trip I realized that there’s definitely a bubble in the high-end housing sector. Luxury condominiums command huge prices in Shanghai and Beijing, as well as in the second-tier cities. Housing prices heated up in 2007 and 2008, only to take a breather in 2009. The recent run-up has surpassed the previous peak.

It’s easy to attribute this jump to the government’s massive stimulus program, which injected so much liquidity into the marketplace. There may be a degree of truth to this assessment, but the trend has genuine structural supports; people want to buy houses to live in.

China’s consumer price index, a gauge of inflation, was up 1.9 percent in December; I’d guess that figure will head higher over the next 12 months. Investors should assume that authorities will tighten monetary policy at some point. The markets appear to expect this eventuality, but I regard this correction as healthy--in fact, I’ve been waiting for a pullback for quite some time. Some stocks that I couldn’t buy over the last six months are returning to valuations that warrant a second look. Any correction in Chinese equities is exciting, especially for investors who look three to five years down the road.

Which sectors do you favor in China?

Although I just noted that China’s housing markets are heating up, that’s only one of the sectors on my radar. Real estate stocks may be undergoing a correction, but the group’s long-term fundamentals remain extraordinarily attractive. And there are so many real estate companies to choose from. One of our top holdings is China Vanke (Shanghai: 200002), one of the biggest real estate developers in the Shenzhen area and one of the best-managed names out there.

I also still like Ctrip.com International (NSDQ: CTRP), a leisure travel agent in China and one of our biggest positions. The stock trades at a hefty valuation these days but still offers plenty of long-term upside--the Chinese love to travel. More immediately, the company should benefit from the Shanghai 2010 Expo, which kicks off in May and should attract a lot of travelers from within and outside China.

In the near term, I’d be a bit more cautious on cyclical groups, especially the auto industry. Shares of car companies outperformed last year and are likely due for a break. At the same time, it’s a good sector to be in if you look three to five years ahead.

Health care names generally lagged in last year’s rally, but the long-term fundamentals are attractive. There’s also opportunity in telecom stocks; the sector underperformed throughout Asia, and valuations are cheap.

That being said, it was easy to pick stocks last year; if you bet on a sector, chances are that 80 percent of the names went up. This year selectivity will be the key to success. Investors should focus on identifying the best player in each sector; I’d steer clear of the second- or third-best names, unless there’s a huge valuation gap--an unlikely occurrence after last year’s rally.

Chinese equities were great last year but won’t produce 50 to 60 percent gains this year. I’m still overweight Chinese stocks, but I’m taking profits in some of last year’s highflying names and allocating the proceeds to other markets that offer more upside in the near term.

Which Asia-Pacific markets do you favor for 2010?

Believe it or not, I’m shifting some of that capital to Japanese equities. At the end of last year Japanese stocks accounted for 31.5 percent of our investable assets, but our benchmark [the MSCI Asia Pacific Index] has a 40.7 percent weighting. We plan to gradually increase our exposure to 40 percent.

Japan’s market has performed horribly for the past two years, though it appears to have bottomed and has rebounded strongly over the past few months. I expect this momentum to continue. I prefer companies with high free cash-flow yields relative to market capitalization or enterprise value; based on that metric, the Japanese market holds many opportunities for investors.

We’re keen on companies that are levered to the Asian growth story, not traditional exporters.

Business in Japan is undergoing a shift from West to East; last year Japan’s total exports to Asia surpassed exports to the US for the first time. Our favorite names are pursuing this shift aggressively and in smart ways. We’ve found some mid- and small-cap names that generate 40 to 50 percent of their revenue from Asia.

One trend I’ve noticed is that companies that do well in China often participate in joint ventures with or have close ties to Taiwanese firms. Taiwanese companies have a solid track record of penetrating the Chinese market, and their management teams speak Mandarin. For historical reasons, Taiwan and Japan also share similar cultures.

What are some examples of these and other cross-border collaborations?

Tingyi Holding Corp (Hong Kong: 0322) is a Chinese company that operates beverage and instant noodle businesses, but the management is Taiwanese. The company formed a strategic relationship with the Japanese firm Sanyo Foods, an alliance that has provided the Chinese noodle maker with a lot of know-how. Whereas Japan’s instant noodle industry is well-established, Tingyi offers more upside because of sheer sales volume and the efficiency of a recently opened factory in China. A longtime favorite of the Matthews Asia Funds, Tingyi’s shares soared last year--the secret is out on that stock.

Softbank Corp (Japan: 9984), a leading Japanese telecom, media and Internet company, is another example of this phenomenon and one of our top positions. The firm’s CEO Masayoshi Son boasts strong ties to China, and Softbank owns 30 percent of Alibaba Group, the parent company of Alibaba.com (Hong Kong: 1688) and Taobao.com. This stake provides the company with sizable exposure to some of the top Chinese Internet players, but it’s not on the balance sheet.

We also added a New Zealand firm after Haier Electronics Group (Hong Kong: 1169), one of China’s biggest appliance makers bought a 20 percent stake in the company. This investment could catapult the company from a regional player in its home market and Australia to a global brand over the next five years.

As you can see, where a company does its business is far more important than the country it calls home.

At the end of last year, financials accounted for 28.6 percent of the fund’s portfolio. What’s your take on the sector?

In addition to real estate companies in China, Hong Kong and Singapore, the portfolio also includes three banks: India’s HDFC Bank (NYSE: HDB), China Merchants Bank (Hong Kong: 3968) and PT Bank Rakyat Indonesia (Persero) (Indonesia: BBRI). Each of these core holdings boasts strong fundamentals, though the stocks will experience ups and downs.

These investments represent a bet on the Asian consumer and growing middle class. It’s not science--households need a mortgage, a car loan and credit cards. My strategy is to pick the sector’s top players. HDFC, for example, is India’s best bank and arguably Asia’s best-run financial institution.

What’s your advice for investors looking to tap the Asian growth story over the next several years?

Remember that the economic changes underway in China aren’t taking place uniformly--that’s what makes the market so exciting.

For example, there’s a huge gap between Beijing, Shanghai and other coastal cities and the second- or third-tier cities that are further inland. Whereas Shanghai resembles London or New York City, the scene is completely different when you fly an hour west. In the major coastal metropolises, you see cars from global auto companies; in the second- or third-tier cities the cars are made by local auto companies. The wage disparity between the two Chinas is huge, but there’s no question that the average wage will continue to rise.

Investors seeking to profit from China’s growing domestic demand should bear this in mind. I’d look at high-end consumer brands; as incomes rise, the Chinese are gravitating to high-end, luxury brands--just like the Japanese did over the past 20 to 30 years, though that trend seems to be abating. At the same time, investors should consider companies that produce affordable, mass-produced goods and consumer staples that are in demand.

Real estate is another area that should provide long-term growth. In China it’s not as culturally acceptable to rent; the emerging middle class is keen on buying properties.

Outside of China, the consumption story isn’t as exciting. But even developed economies such as Japan and South Korea lack certain services that predominate in the West. For example, those countries don’t have a profusion of asset-management companies along the lines of Goldman Sachs (NYSE: GS). Generally speaking, those firms are in Singapore and Hong Kong. Even in China, the big banks offer wealth management and are doing it quite well. This could be another growth area.