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Mutual Funds

Four Picks for a Packaged Approach

Banks' financial statements are dense stuff, so you might want to let an expert do the grunt work by investing through a fund. Veteran bank expert David Ellison, who manages FBR Large Cap Financial (symbol FBRFX), began turning bullish on the sector in July. He's looking for cheap stocks of companies that won't have to raise any more cash. The fund is down 19% over the past year to September 8 -- that beats 78% of financial-sector funds. It returned 7% annualized since its 1997 inception.

Jeff Arricale, who manages T. Rowe Price Financial Services (PRISX), says he's finding plenty of opportunities within the sector. Among banks, he likes regionals with valuable deposit franchises that trade close to their liquidating value. He hedges some of his stock exposure to big companies by buying their convertible bonds. The fund gained 8% annualized over the past ten years, but it's down 23% over the past year.

To forgo stock picking entirely, consider a financial-sector exchange-traded fund. KBW Bank ETF (KBE) offers exposure to bank stocks only, while Financial Select Sector SPDR (XLF) provides a cross-section of the entire financial sector. Both funds have lost more than 30% over the past year but gained 43% and 27%, respectively, from the sector's most recent bottom, on July 15, to September 8.