Uncertainty over how health-care reform could affect the industry s bottom line spooked some investors earlier this year, but recent earnings reports are telling a different story.

ICU Medical (ICUI)), biotech (Biogen Idec (BIIB)), drug development and pharmaceuticals (Abbott Laboratories (ABT) and Johnson & Johnson (JNJ)), generics (Forest Labs (FRX)) and insurers (United Health (UNH)).

Heading into this earnings season, investors had largely snubbed the sector, which typically draws more attention during periods of weak economic growth. Health-care funds have been among the worst-performing fund groups in 2010, says Morningstar analyst Christopher Davis. The health group is down 5.5% year to date, compared with a 0.9% loss in the S&P 500 over the same period.

Still, some health-care funds have managed gains, and with earnings improving and stock prices depressed, some analysts say the sector presents a value opportunity.

The health-care reform legislation passed early this year has weighed on sector funds, though some areas have been hit harder than others. Pharmaceuticals have been one of the worst-performing areas. Medical equipment and life science companies have held up better.

The reform promises to bring health insurance to millions of Americans who lack it, but it may not significantly lift revenues at pharmaceutical companies until 2014, when state-run health insurance exchanges begin offering coverage, Davis says. In the meantime, pharmaceuticals will bear higher costs, paying higher taxes for expanded prescription drug benefits for Medicare, for instance.

Compounding the uncertainty poised by health-care reform are investors long-term concerns over pharmaceuticals pipelines, Davis says. However, biotech funds have fared better because they don t have the same pipeline issues, he says. Health reform poses less of a threat to biotechnology simply because they still have an ability to preserve their pricing power, he says. Many of them provide therapies that no one else is doing and are tough to replicate. (The Nasdaq biotechnology index has lost 3.3% so far this year, while the Amex pharmaceutical index is down 8.5%.)

So what is the outlook for health-care funds? A lot of health-care stocks are trading at record low valuations, so that could really bode well for the category once investors are less spooked by health-care reform, Davis says. After a while, [the effects of reform] are just baked into the stock prices; it s going to be no surprise.

This week, SmartMoney looked at funds that Morningstar categorizes as health funds. We narrowed the field to those that performed above average for the year to date and for the trailing three- and five-year periods for their peer group; received at least a four-star rating or better from Morningstar; and kept their annual expenses nominal. We were left with the seven below.

As expected, none of the funds are positive on the year. The best year-to-date performer that appeared on the screen, Prudential Jennison Health Sciences Z (PHSZX), is down about 0.44%, a smaller loss than that of the broader market. It focuses on drug companies developing potentially lucrative treatments, sticking mainly with mid- and small-cap drug makers and biotechs.

Often with just a few (or perhaps no) marketable drugs, smaller firms' fortunes hinge on the prospects of just a handful of drugs in development, Davis wrote in a check-up on the fund on Wednesday. Without the stability of a diversified product lineup, the stocks tend to be volatile, soaring on good news and faltering on bad. The Prudential Jennison fund has been more volatile than its competitors, but the volatility has been on the upside, he says. Its largest holding, Incyte Pharmaceuticals (INCY), is up 33.5% for the year.

The second-best performing fund for the year, Fidelity Select Pharmaceuticals (FPHAX), shows that not all pharmaceutical funds are trailing heftily in this environment. Although its top five holdings big pharmas Merck (MRK), Johnson & Johnson, Pfizer (PFE), Teva Pharmaceuticals (TEVA) and Novartis (NVS) are down for the year, the fund has benefitted from big returns out of diabetes-care product company Novo Nordisk (NVO) and specialty pharma company Valeant Pharmaceuticals International (VRX), up 32% and 76%, respectively.

The Criteria: The funds on the table have a minimum investment of $3,000 or less. They're open to new money and charge an annual expense ratio no greater than 1.5%. In addition, their performance track records were above average for their category year to date and over the trailing three- and five-year time periods. All have at least four-star ratings from Morningstar, and as usual, we did not include load funds.