The average domestic stock fund declined 3.3% in the second quarter, according to
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