Last year, financial firms found themselves in an unprecedented downward spiral. As the nation s largest banks and Wall Street firms teetered on the brink of disaster, they relied on a hand from the federal government. The companies that survived saw their share prices plunge and, in the case of Citigroup (C), fall to around the unthinkable $1 per share mark. These firms and the mutual funds that followed them have a long road to recovery.

There is still considerable debate over whether the nation s financial system is back on solid footing. The Federal Deposit Insurance Corporation s list of troubled banks has grown to more than 400 institutions, up from 65 two years ago. However, some investors appear willing to gamble that financial firms have seen the worst. The average financial firm is up 24% the last three months, according to Morningstar, slightly better than the S&P 500.

Mutual fund investors have a limited number of choices when it comes to financial offerings. There are just 64 funds and share classes in our database that focus on this sector. We knocked out the ones that charge sales loads and instead concentrated on those that had good track records and charged low fees. We were left with just four funds. They are listed on the table below.

We mention this foursome with one big caveat: We don t believe most investors will ever need to own one. Obviously, there is a risk factor at the heart of our argument. We also remind investors that a plain-vanilla index fund has around 15% of its assets in this niche. That s plenty for most mainstream investors and a big enough percentage to impact a diversified portfolio if the three-month rally continues for a while.

Even aggressive investors may find exchange-traded funds are to their advantage vs. mutual funds. ETFs are structured like index funds, except they trade throughout the day like a share of stock. That trading flexibility could come in handy if the category starts to cool off and investors need to sell or trim their positions.

That said, if you are taking the mutual fund route, consider T. Rowe Price Financial Services (PRISX). We interviewed manager Jeff Arricale two years ago, just as the financial system was showing signs of cracking. He knows the industry intimately, but has struggled since our interview to keep the fund posting good results. Last year it lost 40%. (Not bad, considering the year.) However, the fund is up 33.5% year to date. Its top holdings include JP Morgan Chase (JPM), Bank of America (BAC) and Wells Fargo (WFC).

The Criteria: The financial mutual funds on the table below are open to new money, require a minimum investment under $5,000 and charge less than a 1.5% annual expense ratio. In addition, they are in the top 40% of their category during the trailing three- and five-year time periods, and they're up more than the S&P 500 on a percentage basis this year. As usual, we disqualified load funds.

Recipe

Fund Type = Financial Services
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 (%) >= S%P 500