Health care is one of the most contentious issues of 2009. Nobody denies it s a good idea to help the more than 40 million uninsured get coverage. The debate is over how to do it. The White House and Congress each have their own plans. And for months, there has been backroom brokering. It is still unclear what form a plan would take and when or if one will be passed.

A year ago, the health-care sector was in far better shape. After the market meltdown, many investors acted under the assumption that health-care stocks could be good defensive plays for portfolios. The thinking was that consumers would spend money on their medical care regardless of how cash-strapped they were. It didn t quite play out like that. According to Morningstar, the average health-care fund lost 4.5% over the last year.

This week, we focus on the mutual funds trying to navigate the health-care sector. There are 87 health-care funds and share classes in our screener tool. We knocked out those that charged a sales load or high fees. We also searched for above-average track records. We were left with just three funds one of the shortest finalist lists we ve published all year.

When it comes to stock picking, fund managers are used to gauging competition, new products or forecasting earnings. The health-care sector has its own set of obstacles to contend with, like patent expiration, class action lawsuits and failed R&D projects. However, government regulation has always been the big wild card. It s hard maybe impossible to predict what impact new regulations will have on a given sector. It is even more difficult when it comes to health care, an industry that spans technology, pharmaceuticals, managed care and biotechnology.

It's likely reform will leave few areas of the sector untouched, Morningstar analyst Chris Davis wrote in a recent report. An obvious target is Big Pharma, long singled out for high drug prices. Insurers, too, could get squeezed, especially if Congress agrees to a Medicare-like public option for the uninsured. Medicare or Medicaid cuts could hit hospitals hard. Even if Congress settles on a plan that emphasizes expanded access to health care over cost containment, budgetary pressures could lead to price controls or reimbursement cuts down the road.

Of course, expanded coverage could mean new customers for the industry, Davis says. Expanded coverage means drug makers, device makers, and health-service providers could have more than 40 million new customers, he says. So what they lose in pricing power, they could make up in volume. Davis recently highlighted certain health-care funds in this article.

We wouldn t be so quick to follow his lead. Sector bets are always a risky proposition and health care takes that argument up a notch. The average S&P 500 index fund has a 14% exposure to the sector. For most investors, that's plenty.

But the daring can check out T. Rowe Price Health Sciences, a fund making a return appearance on our table below. Manager Kris Jenner, who has a medical degree, splits his portfolio between small-cap pharma and biotech stocks and more mature drug makers or health-care providers. The fund has returned an average annual 9.2% the last decade.

The Criteria: The health-care funds in the table are open to new money, require a minimum investment under $5,000 and charge an expense ratio less than $1.5%. In addition, they also had track records during the trailing three- and five-year time periods that put them in the top 40% of the category. They were also up more than the S&P 500 this year. As usual, we did not include load funds.

Recipe

• Fund Type = Health care/Biotech
• Annualized 3-Year Return (%) = Display Only
• Rank in Classification (%) (3 year performance) <= 40
• Annualized 5-Year Return (%) = Display Only
• Rank in Classification (%) (5 year performance) <= 40
• Expense Ratio <= 1.5%
• Load Fund (type) = No Load
• Minimum Initial Investment <= $5,000
• Open to New Investors = Yes
• Total Net Assets ($ millions) >= 50
• Year-to-Date Return (%) = Display Only