Domestic Stock Funds Decline 3.3% in 2Q

The average domestic stock fund declined 3.3% in the second quarter, according to Lipper data, USA Today reports. The S&P 500 index fund, with dividends reinvested, declined 1.4%.

Reversing a trend of the past seven years, large-cap fund declined less dramatically than small-cap funds. Large-cap value funds, for instance, fell 0.1%, compared to small-cap value funds' 3.4% decline.

"We're at a situation where small-caps are overvalued related to large-caps, and what we're seeing here in the second quarter is a response to this reversal in relative valuation," said Norm Fosback, editor of Fosback's Fund Forecaster.

The worst-performing category was science and technology funds, which tumbled 9.6% in the quarter, while emerging-markets funds fell 5%. The top-performing fund category were bear-market funds, which rose 5.7%.

"We're back to square one from the beginning of the year. But that's not very different from our predictions going into 2006," said Vivienne Hsu of Charles Schwab Investment Management.

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