Handing over your savings to a fund manager means that, for a cost, a professional will make investment decisions on your behalf.

But employing the skills of an expert does not necessarily mean you will be financially better off. All managers, no matter how good, can go through periods of poor performance and when this happens it can really test investors’ faith.

You do not have to spend hours going through factsheets with a fine tooth comb to identify the serial underperformers. Fund brokers such as Bestinvest and Chelsea Financial Services frequently publish lists naming and shaming the worst culprits.

The question is, what should you do if one of your funds winds up on such a list.

Like many things in investment, there is no hard and fast rule. Fund managers can underperform for many different reasons, so the best starting point is identifying the cause before making any rash decisions.

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, has been struggling lately compared to his peers. His fund is ranked 261st out of 280 in performance terms over the past three years.

However, much of his underperformance can be attributed to the fact that his style is 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?

But 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?”

Based on the above, it can be difficult to decide how long to give an underperforming manager the benefit of the doubt. McDermott says three years or more should sound warning signs, while Lowcock suggests five years.

The main message, however, is to make sure you know the genuine reason for the slump. The last thing you want to do is switch just as the manager is about to make some serious money.