NEW YORK ( TheStreet Ratings) -- Ratings initiated coverage of 27 stock mutual funds that accrued a sufficient track record of risk and performance data by the end of May 2011. Only two of these newly rated mutual fund earned initial grades in the 'buy' range.

Just one of the funds that opened for business in May of 2008 received our highest possible rating of A+, or Excellent. None performed better on a risk-adjusted return basis over the last three years than the Highland Long/Short Healthcare Fd A ( HHCAX - Get Report) rising 21.2% in a year and 12.4% annually over three years.

The fund seeks long-term capital appreciation and invests at least 80% of the value of its total assets in securities of companies principally engaged in the design, development, production, sale, management or distribution of products, services or facilitates used for or in connection with healthcare or medicine. The Highland Long/Short Healthcare Fund may also invest in preferred stocks, warrants, convertible securities, debt securities and other securities of any market capitalization issued by such companies.

Top holdings include 5.1% Genesys Ventures L.L.P. , 3.6% Caliper Life Sciences ( CALP), 3.5% Keryx Biopharmaceuticals ( KERX), 3.5% CNS Response ( CNS.OB), and 3.3% Cigna Corp ( CI - Get Report) on the long side of the portfolio. These were balanced to reduce overall exposure to the sector with recent short positions in Becton Dickinson and Co ( BDX - Get Report), Athenahealth ( ATHN), Cerner Corp ( CERN - Get Report), Community Health Systems ( CYH - Get Report), and Mettler-Toledo International ( MTD - Get Report).

One drawback to the Highland Long/Short Healthcare Fund is the 5.92% net expense ratio and a 2% redemption fee should you sell your position within 60 days of purchase. Since the fund takes short positions and uses leverage there is an additional risk of loss as stocks rise in value.

The only other fund starting out in the 'buy' range, Forward Credit Analysis Long/Sh Inv ( FLSRX), also hedges its long positions with bets against companies. 13 funds begin their rating history at 'hold' and 12 have an initial ranking in the 'sell' range.

Research Methodology Ratings condenses the available fund performance and risk data into a single composite opinion of each fund's risk-adjusted performance. This allows the unbiased identification of those funds that have historically done well and those that have underperformed the market. While there is no guarantee of future performance, these Investment Ratings provide a solid framework for making informed, timely investment decisions. The funds listed below have reached their three year anniversary.

Funds rated A or B are considered "Buy" rated based on a track record of higher than average risk-adjusted performance. Funds at the C level are rated as "Hold," while underperformers at the D and E levels our model ranks as "Sell."

-- Reported by Kevin Baker in Jupiter, Fla.

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Kevin Baker became the senior financial analyst for TheStreet Ratings upon the August 2006 acquisition of Weiss Ratings by, covering equity and mutual fund ratings. 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.