Top Funds: Banks Out, Financial Services In

Considering the fates met by one-time banking giants Wachovia (WB Quote - Cramer on WB - Stock Picks), Washington Mutual (WM Quote - Cramer on WM - Stock Picks) and IndyMac and not to mention Countrywide Financial, Lehman Brothers and AIG (AIG Quote - Cramer on AIG - Stock Picks), it would seem financial services mutual funds were the last places in which an investor should have been in recent months, right?

Wrong!

Excluding leveraged and "inverse" funds, which because of their unique structures virtually always dominate the upper and lower extremes of performance arrays, the six best open-end stock mutual funds in the third quarter were specialists in financial services.

And to add proof that contrary investing was carried to an extreme during the period, a pair of funds focusing on the much maligned real estate sector also made the accompanying table of the 10 best performing stock funds for quarter just ended -- excluding the leveraged and inverse players.

Investors who got into -- or already owned and decided to stick with--the financial services firms on the adjoining list during the summer financial maelstrom were rewarded double-digit percentage gains for their anguish.

Two of the financial services funds, John Hancock Regional Bank (FRBAX Quote - Cramer on FRBAX - Stock Picks) and Forward Banking & Finance (HSSAX Quote - Cramer on HSSAX - Stock Picks), each vaulted more than 20% during the quarter. Both are heavily invested in regional banking firms, as is FBR Small-Cap Financial Fund (FBRSX Quote - Cramer on FBRSX - Stock Picks), which also holds small mortgage and investment stocks.

The Rydex Series-Banking Fund (RYKAX Quote - Cramer on RYKAX - Stock Picks) achieved a gain of 12.1% during the quarter with more mainstream holdings such as Wells Fargo (WFC Quote - Cramer on WFC - Stock Picks), US Bancorp (USB Quote - Cramer on USB - Stock Picks), HSBC (HBC Quote - Cramer on HBC - Stock Picks) and Bank of America (BAC Quote - Cramer on BAC - Stock Picks).

Slightly more diversified within the financial sector than RYKAX is the Burnham Financial Industries Fund (BURFX Quote - Cramer on BURFX - Stock Picks), which in addition to banking firms such as Citigroup (C Quote - Cramer on C - Stock Picks) and JPMorgan Chase (JPM Quote - Cramer on JPM - Stock Picks), holds Met Life Insurance(MET Quote - Cramer on MET - Stock Picks) and Ameriprise Financial(AMP Quote - Cramer on AMP - Stock Picks).

The only general investment fund on the list, Ridgewood Large-Cap Growth Stock (STCIX Quote - Cramer on STCIX - Stock Picks), advanced 11.4% during the quarter with investments in blue-chip stocks such as IBM (IBM Quote - Cramer on IBM - Stock Picks), Google (GOOG Quote - Cramer on GOOG - Stock Picks), Microsoft (MSFT Quote - Cramer on MSFT - Stock Picks), Apple (AAPL Quote - Cramer on AAPL - Stock Picks), Intel (INTC Quote - Cramer on INTC - Stock Picks) and Baxter International (BAX Quote - Cramer on BAX - Stock Picks).

Ridgewood Large-Cap Growth is the only fund in the table with gains for the latest quarter, the most recent 12 months and the past three years.

Surprise! Financial Funds Have Been Hot in 2008
Name (Ticker), Rating	INVESTMENT OBJECTIVE	3-Month Total Return (%)	12-Month Total Return (%)	3-Year Annual Return (%)	Minimum Initial Investment
J Hancock Regional Bank A (FRBAX), E- *	Financial Service	24.45	-20.07	-3.19	1,000
Forward Banking & Finance A (HSSAX), E- *	Financial Service	22.65	-14.20	-5.05	4,000
FBR Small Cap Financial Fd (FBRSX), E-	Financial Service	14.49	-7.14	-3.63	2,000
Rydex Series-Banking Adv (RYKAX), E-	Financial Service	12.11	-35.46	-13.40	2,500
Burnham Financial Services A (BURKX), E *	Financial Service	11.90	-11.95	-0.42	2,500
Burnham Financial Industries A (BURFX), C+ *	Financial Service	11.72	-4.59	6.72	2,500
RidgeWorth Lrg-Cap Growth Stock A (STCIX), D+ *	Growth-Large Cap	11.36	0.06	8.54	2,000
Hilliard-Lyons Senbanc Fund (SENBX), E-	Financial Service	10.51	-37.03	-14.62	250
Neuberger Berman Real Estate Fund (NBRFX), C	Real Estate	10.11	-7.38	6.95	1,000
Stratton Monthly Dividend Reit Shs (STMDX), C-	Real Estate	9.29	-5.93	4.58	2,000
* Front-end sales charge indicated. Data as of 9/30/2008. Source: TheStreet.com Ratings & Bloomberg For more information, check out an explanation of our ratings.