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U.S. stock mutual funds turned in their worst performance in 13 years during the third quarter, wiping out about $650 billion of investor wealth as the average fund lost almost a fifth of its value.

The average U.S. stock fund fell 19.7 percent in the third quarter, the biggest quarterly drop since 1987, when the average fund lost 21 percent, according to preliminary data from Lipper, the New York-based fund tracking firm.

"It's been a devastating time for mutual fund investors," said Jeff Tjornehoj, research analyst at Lipper. "It's been an eye-opening experience for those who believe bull markets ought to continue indefinitely because they treat everybody so well."

The damage was as broad as it was deep, with 99 percent of all U.S. stock funds losing money in the quarter as the Standard & Poor's 500 Stock Index lost 15 percent of its value -- also the worst performance since 1987.

Of Lipper's 42 fund categories, 41 posted negative returns for this past third quarter.

Every type of diversified stock fund lost money during the quarter. The smallest loss -- 4.5 percent -- was among so-called specialty equity funds, a group that includes funds that can profit through bets that stocks will fall. The biggest losers included aggressive growth funds, like the $22.3 billion Fidelity Growth Company Fund, which lost 27.6 percent.

Science/technology funds, already suffering, had their worst-ever quarter, with a negative return of 40.3 percent.

Gains were wiped out for fund types that were havens through the first six months of the year. Small-company funds, up 12.9 percent at mid-year, lost 15.6 percent. Mid-cap value funds, up 7.3 percent at mid-year, lost 14.4 percent.

Among sector and foreign stock funds, only gold funds made money during the quarter. The average gold fund gained 1.6 percent and is up 15.7 percent for the year.

Among the 25 largest mutual funds, just one -- the $33.4 billion Pimco Total Return, a bond fund -- made money during the quarter. It gained 6.6 percent. Managed by Bill Gross, the fund is also the only large fund with a gain for the year, 9.3 percent.

The worst of the large funds was the $27.8 billion Janus Fund, which lost 27.7 percent for the quarter and 36.6 percent year to date.

The average stock fund is down 25.3 percent year to date. The last time stock funds ended a year with losses anywhere near as large was in 1974, when the average fund lost 25 percent.

That year, assets in stock funds totaled $30.9 billion, compared with $3.39 trillion at the end of August, according to the Investment Company Institute, the fund industry association.

Mutual fund assets have dropped by $1 trillion in the past year. Meanwhile, assets in money market funds, the so-called cash on the market's sidelines, has increased by $800 million, according to Lipper.

"Investors have spoken with their feet," said Thomas J. Lydon Jr., president of Global Trends Investments in Newport Beach, Calif., referring to the moves into safer sectors or out of stock funds. "At the end of bear markets, the average investor gets a bad case of breakeven-itis."

But Lydon, who believes the market is at or near a bottom, urged investors not to dump shares.

"If you haven't sold, hang tight," Lydon said. "If you are fortunate enough to have cash, we are probably looking at one of the best buying opportunities in decades."

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