Stock Funds Declined In 1st Qtr As Earnings, Oil Fears Escalated; Smaller-cap funds held up better than bigger caps, and value outlasted growth.(SERIES: MUTUAL FUND QUARTERLY)(IBD SPECIAL REPORT)

Byline: KEN HOOVER

Stock mutual funds took a hit in the first quarter of 2005, reversing the previous quarter's solid gain as fear of high oil prices, rising interest rates and corporate profits took a toll on investor morale.

The average domestic equity found lost 1.83% in March and 2.52% for the quarter. That compares with a gain of 2.01% for February and 3.43% for the fourth quarter of 2004.

And no wonder. The news was abysmal. Sometimes, the most obscure bit of news can pummel investors. That happened at the beginning of March when the South Korean central bank announced it was selling dollars. Investors feared other central banks would follow and knocked down the already weakened greenback, although it rallied later in the month.

The Commodity Research Bureau Index soared to a two-decade high. General Motors warned its earnings would come in below expectations, the result of soft SUV sales. The Federal Reserve raised rates for the seventh time since last June, stating that regulators were getting a tad nervous about inflation.

The month closed with Goldman Sachs predicting oil would soar to $105 a barrel.

For the quarter, the Dow Jones industrial average and the S&P 500 both lost 2.59%. The Nasdaq dropped 2.56%, and the small-cap S&P 600 shed 2.28%.