As far as growth mutual funds are concerned, Dryden offers one of the top performing mutual funds out there in its financial services specialty fund; the Dryden Finances Services Fund. With nearly $13 billion under management, the expectations for this fund are quite high. And with a new manager handling the investments since January 2009 (Mark T. Lynch, who has been with the fund in different capacities since the fund’s inception in 2001) there is no reason to believe Dryden will not continue to deliver.

In reviewing this fund’s top holdings, it seems evident that Dryden’s investment management focus is on only the largest-cap banks, both domestically and, more interestingly, overseas. Well, we should make a quick clarification… overseas should really read “foreign” since nearly 12% of its top holdings are in fact Canadian banks. Those 3 banks stand quite high in Dryden’s Top Holdings – numbers 3, 8 and 9.

While Canadian banking is a lot less lucrative than domestic financial institutions, there has been a lot of attention on Canadian banks as they have been leaders in global risk management and in banking system reform. As well, Canadian banks (at least those held by Dryden) have been fortunate to enjoy continued profitability, allowing them to maintain their dividends, something that many others have been unable to uphold.

The rest of the portfolio is actually a lessing in investment management. With just 40 holdings, this fund is tightly managed as far as growth mutual funds go. Dryden has carefully chosen their holdings so as to provide a broad geographical exposure so as to not over-expose their fund to any single banking environment. Its top 3 holdings are represented almost equally by Chinese, US and Canadian banking systems.

The benefits to the Chinese system is that government is heavily involved and with the inflow of money into China, its banks will rank among the largest in the world, providing ample opportunity for investors. On the Canadian front, their banking system is among the most stable in the world. Also highly regulated, their system will stand to benefit from the country’s heavy dependence on resources. While Canadian financial services may no benefit directly from the growing demand for the country’s resources, it will benefit from the flow-off through its large retail presence.

And of course, the damaged domestic banking system has a lot to look forward to. With closer government scrutiny, the domestic system is believed to become one of the safest and largest in the world, but with greater government interest there are also risks to this model. This explains why Dryden has heavily invested in banks that stand to really benefit from different markets, including some of the riskier markets like the domestic and some EU systems.

Areas of concern with the fund would the current manager’s short tenure. While Mark T Lynch clearly has the experience needed to fill the shoes of previous managers of this fund, how he will realistically ensure future performance remains unknown.

As well, the fund has shifted its asset allocation over the past three years, with it taking a Large-Cap blended approach in 2007, then shifting to a Mid-cap blended approach in 2008 and ending 2009 as a Large-cap value fund. While of this can be attributed to recovering stock prices, one must still question whether this has been a management strategy and what other types of investment management changes remain on the horizon.

However, one thing remains clear: the Dryden Financial Services Fund is arguably one of the strongest performing and managed mutual funds in the industry. Their investment management skill speakds for itself and where growth mutual funds are concerned, this is one fund that stands to benefit at least during the first part of this period of economic recovery.