Mutual funds investing in energy, Russia and small-caps boomed in the first week of 1996, according to fund tracker

Lipper Analytical Services

.

In the unusually volatile five trading days ended Thursday, the top-performing fund,

Lexington Troika Dialog Russia

(really, that's the name), rose more than 9%. Of almost 4,400 funds followed by Lipper, some 123 funds rose at least 5%. Meanwhile, 11 funds, all investing in Japan or gold, fell 5% or more.

The rise in Russian funds may surprise investors who've seen news reports of the turmoil that's gripped Russia since the country's government announced Thursday that President

Boris Yeltsin

would be hospitalized for treatment of pneumonia. But Lawrence Kantor, managing director of

Lexington Management Corp.

, which co-manages the Lexington Troika fund, says investors are focusing on Russia's economic fundamentals, not its political woes.

"In Russia, there's been some pent-up demand as economic conditions start to turn around," Kantor says. "We're moving away from health and political issues and to economic issues, and that's what's really driving the market right now."

Another reason for the fund's gains, according to Kantor:, U.S. investors worried about the lofty levels of domestic markets are shifting assets into international funds. Lexington, which had $13 million in assets when 1997 began, has gotten $1.7 million in new money since New Year's Day, Kantor says.

Improving fundamentals and increasing demand gave Lexington Troika a 9.06% gain for the week ended Thursday, according to Lipper. Russia's markets rose another 7% on Friday alone, although the fund's performance is still being calculated, Kantor says.

Other top gainers for the week included

Vontobel Eastern Europe

(VEEEX), a $51 million fund that gained 8.19% and ranked sixth. Since its inception in Feb. 1996, Vontobel Eastern Europe is up 62.4%, among the best performers of any fund.

Energy funds also extended their gains after a great 1996. The No. 1 fund of last year, $76 million

State Street Research: Global Resources

(MSEGX), rose 6.45% to rank 17th. That puts State Street's one-year gain at an eye-popping 79.2%.

The $380 million

Fidelity Select Energy Service

(FSESX) fund gained 8.19%. In the last year, Energy Service is up 61.8%.

And some small cap funds began the first week of 1997 with a bang after turning in mostly dismal performance in the second half of 1996. Big small cap gainers included the $786 million

Van Wagoner Emerging Growth

(VWEGX), up 6.96%, and the $37 million

Oberweis: Micro-Cap

(OBMCX), which gained 6.46%.

The week's worst performers included Japan funds, which were pummeled by the decline in that country's stock market, and gold funds, whose prices dropped along with the precious metal. The No. 1 loser:

IDS Precious Metals

(INMPX). The $114 million fund fell 6.63%.

By Alex Berenson

aberenson@thestreet.com