Last week Citigroup announced it had lost $7.6 billion in its fourth quarter after taking charges related to repaying government money. That marked the second straight year the company posted an annual deficit. Citi s share price moved a modest 3.5% on the news.

That is a far cry from the market s reaction to industry news just a year ago. Then, financial news from companies such as Citigroup, JPMorgan Chase, Morgan StanleyGoldman Sachs or AIG, sent the market in a downward direction fast. But now, investors appear more confident that the firms at the center of the financial crisis are on the road to recovery. Indeed, SPDR KBW Bank, an exchange-traded fund that tracks an index of big financial institutions, is up 45.9% during the trailing 12-month period. It has gained 10% so far this year.

ETFs and individual stocks aren t the only way to play the financial services sector. Our Lipper database includes 65 mutual funds and share classes that invest in this arena. We weeded through that universe of funds this week by looking for those that charged low annual expense ratios, no sales loads and featured good track records during the trailing three- and five-year time periods. There were just four funds that fit our criteria; they're listed on the table below.

We list those funds without any tacit stamp of approval. We've always had a hard time recommending to Main Street investors positions in sector funds, especially for a category like financial services, which has gone through a momentous shakeup. Granted, the stocks in these funds have historically paid decent dividends and performed well. But most investors will have ample exposure to this industry if they own plain-vanilla index funds. The S&P 500 has a 15% position in financials.

We admit that some investors who are willing to take on a bit more risk may be tempted to jump into this category hoping to catch some companies at the bottom. In that case, ETFs may be a better investment vehicle than a mutual fund. ETFs can be lower on costs and offer greater trading flexibility.

One productive exercise investors can do with the list below is to compare the portfolios of the individual funds to see what the pros are buying. According to Morningstar, T. Rowe Price Financial Services counts among its top holdings JP Morgan, reinsurer AON, Bank of America and Wells Fargo. Royce Financial Services fund owns T. Rowe Price, Interactive Brokers Group, Western Union and AllianceBernstein.

The Criteria: The funds on our list are part of Lipper s financial-services category. They're open to new money, have assets over $50 million, charge an annual expense ratio less than 1.5% and require a minimum investment under $5,000. In addition, they have track records during the trailing three- and five-year time periods that put them in the top 40% of the category. We did not include 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 (%) = Display Only