Beyond the pigeonhole of pure stock or pure bond mutual funds are so-called alternative funds, which seek out and follow hybrid strategies. TheStreet.com Ratings has reviewed the best-performing open-end funds in the third quarter that fall outside of usual fund categories.

In the third quarter, the carnage was real. The

Diamonds Trust

(DIA) - Get Report

, which tracks the performance of the

Dow Jones Industrial Average

, slid 3.8%, while the

S&P 500 Index

sank the

SPDR Trust

(SPY) - Get Report

by 8.9%. The

PowerShares QQQ

(QQQQ)

, which gauges the Nasdaq 100 Index, collapsed 13.8%.

By comparison, the meager returns generated by the top 10 hybrid-strategy funds look pretty good. The only exception is the 21.3% return generated by the

Direxion Dollar Bull 2.5X Fund

(DXDBX)

-- that performance looks plain great. The U.S. Dollar Index, tracked at 250% leverage by this fund, appreciated 9.6% in the quarter as the economic prospects of the U.S. appeared relatively stronger than those of Europe, Japan and the U.K.

With a flexible portfolio strategy, the

Comstock Capital Value Fund

(DRCVX) - Get Report

ranked second with a return of 5.5% for the most recent quarter and 21.2% over the last 12 months.

At the beginning of the third quarter, the Comstock fund shifted to holding 87% U.S. Treasury bills and bearish positions of 45.8% in bets against the S&P 500 with futures and puts and 23% equities shorts on

Wells Fargo

(WFC) - Get Report

,

Nokia

(NOK) - Get Report

and

SAP

(SAP) - Get Report

.

However, the Comstock fund's 2.6% portfolio position in

PowerShares DB US Dollar Index Bearish Fund

(UDN) - Get Report

, which fell 8.4%, and 2.2% position in

StreetTracks Gold Trust

(SYMBOL)

, which sank 6.9%, tempered what could have been an even stronger quarterly return.

Lastly, the

Direxion 10-Year Note Bull 2.5X Fund

(DXKLX) - Get Report

is up 3.4% for the quarter and 21.7% for the year, a direct beneficiary of the flight to quality during the current market turmoil. Similarly, the

Pimco Stockplus TR Short Strategy Fund

(PSTIX) - Get Report

gained 3.1% in the last three months and 28.1% in the last 12 due to its bets against the stock market.

For more information, check out an

explanation of our ratings

.

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.