The list of culprits – published by Chelsea Financial Services – highlighted poor performance from heavyweights Fidelity, Legal & General, and SWIP.

Reading that their fund has underperformed can seriously test the faith and patience of an investor but it does not necessarily mean it is time to sell-out.

There are a number of reasons funds underperform and identifying the cause should be the first step taken by worried investors.

Why do funds underperform?

The main reason for a fund to underperform is if the manager’s style is out of favour with the market.

For example, Tom Dobell, manager of the M&G Recovery fund, a long-time investor favourite, struggled with a period of underperformance compared to his peers.

However, much of his underperformance was attributed to the fact that his style was out of favour.

“Investing in undervalued companies means he has a long holding period before he realises value from his investments,” says Adrian Lowcock, senior investment manager at Hargreaves Lansdown.

“In recent years this has taken longer as a lack of M&A [merger and acquisition] activity has not provided an exit for some of his investments. This means the holding period on his investments lasts longer than is normal. However his approach will come back in favour, investors just need to be patient.”

Invesco Perpetual’s Neil Woodford and Fidelity’s Anthony Bolton are two further examples of top fund managers who have experienced dips in performance throughout their careers. Again, this at times was down to their style.

“They are contrarian or value managers so are looking for investments whose full value is not appreciated by the market. It can be very lonely being a contrarian and investors need to be patient which is tough,” Lowcock says.

Of course, some times the manager is entirely at fault. They could have made bad stock picks, miss-timed the market or simply got their asset allocation wrong if they run a more diversified fund.

Currencies can also play a negative role in the performance of a non-UK fund.

Time to jump ship?

Darius McDermott, managing director of Chelsea Financial Services, says investors should consider a number of factors before ditching a poor performing fund.

First, he suggests asking the manager to explain the underperformance: “If the manager can’t articulate why, to me this is a warning sign. If the manager can explain the underperformance and how they think it may turn around in the future, and the investor is happy with the explanation, they may decide to stick with the fund.”

He also believes investors should consider the longevity of the manager: “I’d give a more experienced manager with a track record more breathing space if they had a year or two of underperformance than I would a new manager who has only been investing for three years, for example.”

Lowcock, meanwhile, suggests investors ask themselves whether the manager is actually underperforming.

“Check against the right benchmark,” he says.

“For example, a manager only investing in FTSE 100 companies will have looked bad for the past decade compared to the FTSE All Share but this is not a fair comparison. Also check how their peers have done. Look at sector peers as well as those with a similar investment style. If the environment has changed have they adapted to it the other manager not?”

Extracts of this article were first published on YourMoney.com in October 2013.