Despite the turmoil in the financial services industry, some mutual funds that specialize in the sector have not only outperformed their benchmark but have delivered double-digit returns, The Wall Street Journal reports.

Notably, some managers achieved this Herculean task by moving into cash, while others invested in banks and other financial services firms either with solid prospects, improving capital reserves or propped up with government subsidies. Still others looked overseas.

Whereas the exchange-traded fund that tracks the largest financial companies, the Financial Select SPDR ETF, is down 35% over the past year and financial services mutual funds are down 22%, the Dryden Financial Services Fund is up 19%, the FBR Small Cap Financial Fund is up 11% and the Burnham Financial Services Fund is up 4.8%.

“The key to our performance over the past year was to avoid complete catastrophe from August through March,” said Mark Lynch, manager of the Dryden fund. He notes that 60% of his holdings are in overseas firms and many of these companies are being supported by their government.

Noting that two of his biggest holdings are Canadian banks,” Lynch said, “Canadian banks came through [the crisis] the strongest of any in the world.”

Anton Schutz, manager of the Burnham fund, said he likes to invest in regional banks and has avoided the sun belt area where foreclosures have been highest, notably Arizona, Nevada, California and Florida. He also employed a simple yet rational strategy by looking for banks with excess capital, which led him to People’s United Financial, TFS Financial, JPMorgan Chase and Bank of America.

David Ellison, manager of the FBR fund, hunkered down with more than 60% of his holdings in cash this past January, February and March. Since then, he has slowly moved back into stocks of banks that had raised their capital reserves, saying “it’s about taking measured risk.”

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