The Daily Screen: The Best Financial-Services Funds

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It's not completely clear who the next president will be, but it's obvious that financial stocks and financial-sector funds are back from the dead.

Just a few years ago these funds, which typically invest in banks, brokerages, insurers and money management shops, were the hottest around. Investors saw a booming economy, industry consolidation and the vast wave of baby boomers building a retirement nest egg as key growth catalysts. In 1995, 1996 and 1997, the average financial sector fund beat the S&P 500.

In 1998 and 1999, however, rising rates and slowing growth put the sector in neutral -- rising rates typically pinch financial stocks' profits. The stabilization of interest rates and a spate of mergers this year have the sector marching north again, to the tune of a 19.6% gain, while the S&P 500 is underwater.

Financial Rewards The financial sector has been a shining light in a challenging 2000, and looks good over 10 years as well.
	Avg. Financial Services fund	S&P 500
YTD Return	19.6%	-1.6%
1-Year Return	11.6	5.7
5-Year Return	19.6	21.4
10-Year Return	25	19.2
Source: Morningstar. Annualized performance figures through Nov. 8.

Since financial stocks tend to have lower valuations and volatility than technology stocks, investors smarting this year from a tech-heavy portfolio might look for a value fund or consider a financial sector fund. We've sifted the financial sector fund category for those funds that beat their average peer over the last one- and three-year time periods, according to Morningstar. Here's a top-10 list, ranked by one-year returns.

We've also screened leading funds' holdings to see what stocks they're betting on, but lets look at the funds first.

Leading Financial Services Funds These funds have topped their peers over one- and three-year periods.
Fund	1-Year Return	3-Year Annualized
(FSLBX)Fidelity Select Brokerage & Investment	41.9%	25.3%
(FSPCX)Fidelity Select Insurance	30.7	19.4
(GFSAX)AIM Global Financial Services	26.9	21.5
(PRISX)T. Rowe Price Financial Services	25.1	16.3
(FIDAX)Hancock Financial Industries	24.6	12.5
(TITNX)Titan Financial Services	22.2	12.5
(DVFYX)Davis Financial Y	20.2	16.2
(FSFSX)Invesco Financial Services	19.6	14.8
(ICFSX)Icon Financial	18.7	11.7
(FAFDX)Fidelity Advisor Financial	14	14.7
Avg. Financial Services fund	11.6	10.4
S&P 500	5.7	16.7
Source: Morningstar. Annualized performance figures through Nov. 8.

As you can see, this list proves Fidelity isn't just a growth shop. The firm has a history of changing its sector fund managers more often than many of us change our shower curtains, but the Boston behemoth's deep bench of analysts typically keeps them on track. That's the case here with three Fidelity financial sector funds on the list: (FSLBX)Fidelity Select Brokerage & Investment Management, (FSPCX)Fidelity Select Insurance and (FAFDX)Fidelity Advisor Financial. One thing to keep in mind is that the first two levy a maximum 3% front-end load or sales charge, while the second levies sales charges through various share classes.

If you work with a broker and want broader exposure to the sector, Fidelity Advisor Technology might be worth a look. If you invest on your own and don't mind paying a maximum 3% sales charge you might look at (FSPTX)Fidelity Select Financial Services, which barely missed making our list. Both funds are managed by James Catudal.

The broker-sold (FIDAX)John Hancock Financial Industries fund also stands out because lead manager Jim Schmidt is probably the most tenured financial specialist out there. He's run the (FRBAX)John Hancock Regional Bank fund since the 1980s.

If sales charges are anathema, take a look at the no-load (PRISX)T. Rowe Price Financial Services and (FSFSX)Invesco Financial Services funds, which are both solid options.

As for the stocks that propelled these funds, there aren't many surprises. The stocks these managers' liked most are the biggies like Citigroup(C), which is in all these funds as of their most recent portfolio report.

Two holdings that are boil down to bets on the fund business itself are Marsh & McLennan(MMC), which owns fund titan Putnam Investments, and railroad concern Kansas City Southern(KSU), former parent of the top-selling Janus Funds. Over the summer, Kansas City Southern spun Janus out as Stilwell Financial(SV), bundling the firm with Berger Funds and record-keeper DST Systems.

No doubt these funds have since dropped their Kansas City Southern stakes.

Under the Hood The stocks with the biggest weighting in the combined portfolios of the 10 above funds.
Stock	Weighting in Top- Ten Funds	Number of Top-Ten Funds Owning the Stock
Citigroup(C)	4%	10
Morgan Stanley/Dean Witter(MWD)	3.3	9
American Express(AXP)	3.2	8
American International Group(AIG)	2.7	8
Marsh & McLennan(MMC)	2.5	7
Lehman Brothers Hldgs(LEH)	2.4	7
Bank of New York(BK)	2.3	7
Wells Fargo(WFC)	2.1	8
Kansas City Southern Inds(KSU)	2	6
Chase Manhattan(CMB)	2	8
Source: Morningstar. Holdings as of funds' most recent portfolio reports.

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