Investors piled into highflying technology and dot-com funds in the late 1990s like lemmings over a cliff, and now some analysts see a bloody sequel but with commodities, real estate and international stocks recast as the sirens luring performance-chasers into the abyss.

"I worry the fervor surrounding energy stocks is starting to look like what happened with tech funds in the 1990s, and as we know that didn't end well," said Sonya Morris, fund analyst at investment research firm Morningstar Inc.

Over the past year, natural-resources and developing-markets stock funds have both gained 54%, according to Morningstar.

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Highlighting the popularity of emerging-markets funds, they've already gathered nearly $33 billion so far in 2006, already well above last year's total inflows, according to fund tracker Emerging Portfolio Fund Research.

Meanwhile, precious-metals funds have more than doubled in value the past 12 months, and investors have shoveled cash into new exchange-traded funds that invest in gold and silver such as $7.4 billion StreetTracks Gold Trust (GLD) , iShares Comex Gold Trust (IAU) and iShares Silver Trust (SLV) .

Some bloated metal funds such as $3.9 billion Vanguard Precious Metals and Mining (VGPMX) have shut their doors to new investors because they've grown so large. Among Morningstar's database of funds, the best-performing funds over the previous year through the end of April are U.S. Global Gold Shares (USERX) at 149%, Midas Fund (MIDSX) with 139% and ProFunds Precious Metals (PMPIX) at 136%.

Still, a recent correction in the metals markets is a stark reminder of how unpredictable and fickle commodities are, and evidence suggests some hedge funds began pulling money off the table months ago.

Another shuttered fund, BlackRock Global Resources (SSGRX) , has delivered annual gains of more than 55% over the last three years and is one of the top-performing natural-resources funds during the period.

Yet Morningstar's Morris cautions "this is one of the most tempestuous funds in a stormy category" in her latest analysis of the portfolio.

"And while its highs are certainly alluring, its lows can test even the most intrepid investor's staying power," she said, adding that in 1998 the portfolio suffered three consecutive quarters of double-digit losses, and lost almost half its value for the year.

Other newly launched ETFs such as United States Oil Fund (USO) and Deutsche Bank Commodity Index Tracking Fund (DBC) have made it easier for individual investors to tap oil and other commodities.

"Anyone with a pulse knows that energy stocks, commodities and international companies have done well," said Don Cassidy, senior research analyst at Lipper Inc. "Whether it's overdone depends on where the global economy is headed," he said, adding a slowdown could hit demand for commodities from key developing economies such as India and China.

Fund investors' tendency to chase returns and their terrible collective record at timing markets are well documented -- for example some analysts use mutual-fund flows as a contrarian indicator.

Russell Investment Group portfolio strategist Stephen Wood in a recent study for financial advisers says investors' self-inflicted woes are compounded by habitually underestimating market volatility in the near term.

Most investors are likely familiar with charts of stock-market returns in the 20th century that chronicle the steady rise of the U.S. economy despite two world wars, a Great Depression, the bear market of the mid-1970s triggered by oil and inflation, the more recent dot-com crash and other market corrections.

Proponents of buy-and-hold investing often draw a straight "best fit" line suggesting that since 1926, investors who would've simply purchased a broad basket of stocks such as the S&P 500 index (SPX) and held it through the downturns would have averaged gains of roughly 10% a year.

However, there is a chasm between the returns the stock market offers up, and what investors actually keep.

One reason is that in the real world, financial markets in the short term are much more volatile, or prone to dramatic price swings, than the "averages" suggest, which plays havoc with investors' most important emotions: fear and greed.

Wood pointed to separate 20-year studies by Russell and Dalbar Inc. that estimate mutual-fund investors as a group trail the S&P 500's annual return of 13.2% by between 4 and 9.5 percentage points.

"What would I say to fund investors who think they can correctly time the market's moves?" mused Wood. "Good night and good luck."

Richard Ferri, chief executive at advisory firm Portfolio Solutions LLC, said although the data from the performance studies by Dalbar and others are controversial and disputed, the basic message is correct.

"Today, fund investors are chasing energy, international and value stocks and setting themselves up to get hurt later," said Ferri, who added investors frequently overlook the drain of high fund fees.

Average is not normal

Using a simple average of stock-market performance over an 80-year period doesn't realistically portray the temporary manias and crashes that upset both markets and investors' psyches, says Russell's Wood.

"Most people would say the stock market averages 10% or 11% annually over the long run, but that rarely happens," he said, adding that averages by definition eliminate a lot of important information.

For the period 1926 to 2005, in nearly half the years U.S. stocks delivered gains in excess of 15%, and about 30% of the time the market finished in negative territory.

Only in 18 of the 80 years did returns fall in a range that was even close to "normal," or between flat and a 15% gain, according to Wood.

"Investors can pretty much give up on the idea of having a 'normal' experience," he noted. "A far more common result is likely to be an extremely good, or an extremely bad, equity market return."

Adding to the difficulty, investors bolt into hot-performing assets just in time for the peak and similarly, they shun undervalued stocks when markets are in retreat mode, he said, thereby reversing the "buy low, sell high" mantra.

"The way our brains are constructed, when markets are up or down big, it affects the way people perceive information and make decisions," Wood said. Investors ride euphoric highs and ignore risk in bull markets, while becoming overly depressed and paralyzed in bear markets.

Morris agreed, noting that Morningstar has examined dollar-weighted fund returns -- which give a clearer picture of investors' experience in the markets -- showing they appear to use low-volatility funds better than those given to big fluctuations. This doesn't bode well for new investors rushing into notoriously volatile commodities markets.

"Investors need to know themselves and their tolerance for risk," she added, suggesting that investors look at a fund's worst 3-month downturn and ask themselves if they could ride out such a setback and stick to their long-range plan.

Cassidy noted that Lipper sees a consistent pattern of mutual-fund flows chasing a particular market in the days after a big stock move to the upside.

According to Wood, investors are clinging as tightly as ever to their performance-hunting habits -- it's just that real estate, bonds, energy stocks and commodities have replaced Internet and tech companies as the new darlings. Part of the problem is that it's safer -- psychologically if not financially -- to be wrong when running with the herd.

It's also difficult to stifle envy fueled by stories at cocktail parties or in the press about everyday people getting rich in the hot mutual fund of the moment, he said.

"Haven't we seen this movie before?" wonders Wood. "As long as investors keep hitting the rewind button, is there any reason to expect that they will realize different results?"

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