Investors sat on the sidelines as the market deteriorated in the second quarter, with the Dow Jones Industrial Average shedding 916 points. "The quarter was defined by June-the worst month since October of 1987 in terms of the S&P 500 [down 119 points]," says John Eckel, analyst at Pinnacle Investment Management.

Nonetheless, some niche parts of the market held up amidst the turmoil. The story revolved around commodities as oil prices soared to record highs. All but one of the top 20 performing equity funds was a specialty natural resources fund. BlackRock Global Resources returned 45.48%; Fidelity Select Energy returned 31.35%. Specialty precious metals gained a little under 7%. But will the good times for commodities continue?

"We've seen the real estate and tech stock bubbles, and now we're looking at an energy bubble," Eckel says. "People are buying commodities and natural resources simply because they've gone up, and we know that style doesn't work for too long. Just because it's overvalued now doesn't mean it won't stay overvalued for a while, but it will come down eventually."

Commodities' performance in the second quarter also caused investors to turn to resource-rich countries like Brazil and Latin America, which was up 12% for the quarter. It's no surprise, then, that countries less abundant in resources suffered. Chinese equities were down 50% for the year; French down 25%. T. Rowe Price New Asia, a Pacific/Asia ex-Japan fund, was down 17.83% for the quarter.

But despite the commodity boost and a falling dollar, investing abroad took a turn for the worse in the second quarter. The average U.S. mutual fund was down 10.3%; the average international fund down 11%. "The idea that emerging markets' performance was separate from the U.S. market has broken down," says Vince Deluard, global equity strategist at TrimTabs. "For a while, investing abroad got you the returns from abroad and from currency. Now it seems the dollar has bottomed, and both U.S. and international markets are depressed."

Financials suffered in the second quarter, as banks' troubles remained splashed across headlines. Half of the worst-performing equity funds were specialty financial funds. Fidelity Select Home Finance and Select Banking each lost over 20%.

But investors, noting their low cost, began picking up these plagued funds. "We've seen a lot of bottom fishing in financials, but so far people have been losing money," Deluard says.

As the market dipped into bear territory, investors sought safety in bond funds. Their needs were not always met. Eaton Vance Floating Rate was the top-performing fixed-income fund in the quarter with a 6.2% return; but at the bottom of the list, Schwab YieldPlus Investor plunged 11.6%. Interest rates on U.S. Treasuries ended the quarter up after a roller-coaster ride, proving that concern sover inflation are well rooted, says Russell Kinell, director of fund research at Morningstar. And as more money was pulled from equity funds, money markets took in nearly $1 trillion in assets year-over-year.

"At some point this money will go back into the stock market and will give equities a big tail wind," Deluard says. "People won't retire on what they're getting from a money market account."