For U.S. stock funds, a modest advance for '07

You were more likely than not to make money in U.S. stock mutual funds in 2007.

But some investors may wonder if it was worth the risk.

The average domestic stock fund scored a total return of 6.4% last year, according to investment research firm Morningstar Inc. That was the weakest calendar-year gain since the bull market began late in 2002, and was down from the 12.6% average return in 2006.

By contrast, money market mutual funds generated an average yield of 4.7% for the year, based on preliminary calculations from IMoneyNet Inc.

So U.S. stock funds, on balance, beat the relatively low-risk money fund return by less than two percentage points -- arguably not much of a reward for the trouble.

But underneath average performance figures, of course, there's usually a lot going on. And that was the case in 2007.

As the housing market's woes triggered deep concerns about the health of the American economy in the latter part of the year, many investors sought the perceived safety of large-company U.S. stocks. The result was a momentous shift in market leadership, away from the small-company shares that had long led the current bull market.

Many funds that focus on small-capitalization "value" stocks, for example, were in the red for the year. The average fund in the category sank 6%, according to Morningstar.

Fund returns include price appreciation or depreciation plus any dividend or interest income.

As smaller stocks struggled, the resurgence of big-name stocks was best exemplified by a sharp turnabout in the fortunes of the Fidelity Magellan fund, which scored an 18.8% advance for the year.

At the same time, U.S. investors refused to turn away from other sectors that had made them a boatload of money for the last five years and that continued to perform well in 2007.

At the top of that list: most foreign stock markets. The average foreign stock fund gained 15.7% for the year, according to Morningstar. It marked the sixth consecutive year that foreign funds outperformed U.S. funds.

Foreign markets benefited from strong economic growth abroad and from the dollar's continuing slide, which made overseas investments worth more when translated from stronger foreign currencies into the weaker dollar.

Natural resources funds, many of which focus heavily on energy stocks, also had another bang-up year, gaining 37.2% on average. After stalling out in 2006, the price of crude oil set a series of record highs in 2007 and flirted with $100 a barrel in recent days, before pulling back Monday.