Mutual fund investors found few places to hide in the third quarter of 2004.

Whether they focused on mega-companies with proven records of success or up-and-coming firms on fast tracks to growth, the result was pretty much the same: They lost money.

But not a lot.

Mutual funds dipped last quarter, they didn't dive. The losses were felt almost across the board, spanning many sectors and virtually every type of diversified fund. They wiped out many investors' gains for 2004. But the gains hadn't been all that great to begin with in a year that has fund managers scratching their heads wondering why, if indicators point to a recovering economy, the markets haven't been more generous in doling out the spoils.

"We're having a year that doesn't seem to make a lot of sense," said Robert Morris, director of equity investments at the Lord Abbett fund group.

Morris pointed to strong fundamentals in the national economy, coupled with "sensational" earnings reports from individual companies as arguments for why the markets should be well into a broad-based rally by now.

But financial analysts have a simple explanation for why they aren't: With the White House, prospects for peace in Iraq and the price of crude oil all hanging in the balance, investors remain jittery.

"There just seems to be a lot of uncertainty out there," said Christine Benz, associate director of fund analysis with investment researcher Morningstar Inc. "While there's been a lot of good economic news, with the war and the election and oil prices, those worries have been enough to keep most stock funds sort of flat or slightly negative over the quarter."

That also explains why the few bright spots last quarter tended to be the surest bets. Value funds, which are built around companies that managers deem underpriced, continued to beat out growth funds, which focus on companies that seem poised to expand. Both categories lost money, but value lost less.

"Investors sought far safer investments," said Martin Vostry, research analyst at Lipper Inc. "Investors were moving away from volatile funds and more toward the value."

Large-cap value and small-cap value were down less than 1 percent apiece for the quarter. For the year, small-cap value funds have been the biggest winner, rising just over 7 percent. In the past two years, they've added a robust 26.7 percent.

By contrast, small-cap growth funds have been the biggest loser on both the quarter (down 6.2 percent) and the year (off by 3 percent). They were particularly hurt over the summer by a slumping tech sector, with tech dropping 11 percent and giving back many of the gains accrued over a stellar 2003. "If the tech sector is doing badly, the growth funds are going to do badly. That's a given," Vostry said.

Health funds and telecommunications funds also took losses. Sectors that are generally considered safe choices over the long term -- real estate, utilities and natural resources -- all posted plus signs.

One fund that rode energy, financial services and utilities stocks to strong results was the Forester Value Fund in Libertyville, Ill., which managed to tack on 17.7 percent last quarter through investments in firms such as ConocoPhillips and Lehman Brothers Holdings Inc. Thomas H. Forester, who runs the small fund, said in an e-mail that he was "being opportunistic in a choppy market." Forester said he expects utilities and health care stocks to do well going forward.

Benz said real estate's gains -- nearly 8 percent -- were noteworthy at a time when the Federal Reserve has been ratcheting up rates. Normally a rise in interest rates is enough to scare investors away from the sector, but this time around they seemed to take the hikes in stride. "Rates have ticked up a little bit, but not as much as many market watchers predicted," she said.

Investors found another sign for optimism on somewhat less predictable terrain: emerging markets. With domestic stocks stagnating or slipping, many investors looked abroad and found money to be made in the developing world. Emerging market funds overall gained 7.7 percent. Latin American funds posted the largest improvements of any category at 15.5 percent. But analysts cautioned that those gains could be short-lived.

Emerging markets "are very finicky," said Phil Edwards, managing director at Standard & Poor's. "It wouldn't be hard to imagine a lot of these gains could be given up. It's not a buy-and-hold strategy. You have to be careful."

That admonition could apply to many U.S. stocks as well. Although the markets are now in their third year of recovery following the bursting of the tech bubble and the Sept. 11, 2001, attacks, they have been unable to sustain a rally in 2004. Instead, they've slumped along, ticking up one day and dropping the next. Analysts looking ahead to the rest of the year and to 2005 fret that the fishtailing could continue.

"I wouldn't say there's a lot of direction in the market right now," Edwards said. He noted that the markets actually began to gain ground in September as the quarter drew to a close. But he isn't taking that as a sign of great things to come. "If anything, September was probably a rebound from the prior months' loss. I don't think anyone sees any real leadership," he said.

Analysts have been forecasting all year that large-cap funds will make their move in 2004 after falling in the small caps' shadow during the first two years of the recovery. In the third quarter, large caps did indeed show signs of becoming more competitive with funds dominated by smaller firms. But analysts say they are still waiting for large caps to break through their doldrums and begin leading the market. "Most large-cap managers are still waiting for a spark. I don't think it's happened yet," Benz said. "But the present run of small caps outperforming is starting to look a little long in the tooth."

Analysts, too, are looking hopefully to Nov. 2 as the day when, barring another debacle like Florida in 2000, investors will have at least one major question mark off their minds. The presidential election has traditionally been accompanied by a fourth-quarter bounce as investors head into the new year knowing who will be sworn in on the steps of the Capitol come Jan. 20. Analysts say it doesn't matter to the market overall who's elected, but that a victory for President Bush could put some extra wind at the back of the pharmaceutical, manufacturing and financial services sectors because Bush generally supports policies favored by many of the executives in those industries.

No matter who wins, one thing the election will almost certainly not do, however, is erase concern over the war in Iraq. "If I had to pull out one thing that's at the root of people's bad mood right now, it's the war," said Lord Abbett's Morris.

Nonetheless, he sees an opportunity for investors to start the fourth quarter by focusing less on the war and more on an economy that continues to exhibit substantial growth. If that happens, he said, 2004 could still be salvaged, and investors would have some momentum going into 2005.

"I'm still optimistic that by the end of the year, we're going to be putting a pretty meaningful plus number up on the board," Morris said.

Benz is not quite so sanguine. She sees a more fundamental challenge that could put a damper on investors' hopes.

"You've got a lot of investment managers who think that stocks aren't very cheap right now. Fund managers are telling us that there's just not much to buy," she said. "That seems like it's a much harder nut to crack."