While subprime issues continue to sink American financial stocks, one mutual fund has found success banking in India.

Mumbai-based HDFC Bank ( HDB) is the third-largest holding in the $1.3 billion ( JVIAX) Phoenix Foreign Opportunities fund at 3.5% of assets under management. Unlike well-known diversified banks from developed nations, which wilted last summer under the heat of the credit crunch, HDFC gained almost 85% in 2007, powered in part by its mortgage lending business.

"It used to take 22 years of income for an Indian citizen to buy a home, now it takes five years," says Peter Newell of Vontobel Asset Management, sub-adviser to the fund. "Demand for homes is at an all-time high; however, they require a 30% down payment for a home in India which serves as a cushion against housing problems like we are seeing in the U.S. and Europe."

Fortunately, Newell and portfolio manager Rajiv Jain saw the oncoming storm in the financial sector in June. Concerned about earnings predictability, they sold out of their positions in names like Northern Rock, UBS ( UBS) and Allied Irish Banks ( AIB) and rotated into energy and materials stocks such as Rio Tinto ( RTP), Petrobras ( PBR) and CVRD ( RIO). The heads-up move enabled the front end-loaded fund, which has a yearly turnover of just under 50%, to return 20% in 2007. It has returned an average of 21.6% annually over the past three years.

"By swapping out of financials into commodities, we went from less predictable to more," says Newell. "And while many materials stocks have had a good run, many of these names still have a ways to go, especially when you consider that China uses just 9% of global energy output and India 3%. That's nothing compared to the United States and it's going to increase."

Newell won't be pinned down to pick his favorite emerging market. Instead, he highlights the potential growth of the cellular industry across emerging markets. The fund holds significant positions in Bharti Airtel in India, Mexico's America Movil ( AMX) and China Mobile ( CHL).

As for developed markets, Newell is partial to Switzerland, where he says he is "finding good companies at good prices."

"We own well-known brands like Nestle, Novartis ( NVS) and Roche, but we are also finding opportunities in companies like chocolate-maker Lindt & Sprungli," says Newell. "People buy chocolate no matter the economic environment and the operating margins are extremely high."

He adds, "And testing their products is the favorite part of our research process."

Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.