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.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.