A worrying number of investors continue to ditch funds at the slightest sign of trouble, according to FE Trustnet research.

According to a recent poll of FE Trustnet users, more than a quarter of investors – 27 per cent – said that they would only tolerate underperformance in a fund for a maximum of six months before selling it. Of this group, a third said that they would ditch a fund after just three months if they saw it lagging the benchmark.

"Most people are too short-termist," said AWD Chase de Vere’s Patrick Connolly. "Even the very best quality funds with the very best fund managers will have periods where they underperform. Investors need to stick to their decisions and keep long-term goals in mind."

He added: "After two to three years of underperformance people should start reviewing the place of a fund in a portfolio but the most important thing is to understand why a fund is lagging. It might be that something has drastically changed about the approach but more likely is that the portfolio is better suited to a different market condition."

There have been a number of recent high-profile examples where popular funds have underperformed their peer group for long enough for investors to start getting anxious.

The most obvious example is Neil Woodford’s Invesco Perpetual Income and High Income portfolios. The manager underperformed the IMA UK Equity Income average significantly during the market rally of 2009 and 2010, for which he came under fire. He was forced to go on the record and justify his high exposure to defensive sectors such as pharmaceuticals and tobacco.

While many investors scaled back their exposure, or ditched the fund entirely, Woodford’s record since then has silenced the critics. FE data shows that in 2011 the manager’s High Income portfolio returned 8.99 per cent, more than any other UK equity-focused fund.

Year-on-year performance of fund since 2008

	2011 reuturns (%)	2010 reuturns (%)	2009 reuturns (%)	2008 reuturns (%)
Invesco Perp High Income	8.99	10.94	9.81	-19.42
IMA UK Equity Income	-2.9	14.58	22.88	-28.54

Source: FE Analytics

Industry darling Anthony Bolton is another good example. During his tenure at the head of the Fidelity Special Situations portfolio the manager oversaw a number of multi-year periods in which the fund underperformed.

However, over the length of his career there is not a single fund manager in the UK that can boast a better record. Our data shows that £1,000 invested in the manager’s fund when it was launched in December 1979 would have been worth more than £144,000 when Bolton left it at the end of 2007.

Hargreaves Landown’s Rob Morgan says that investors need to recognise that active management is not designed for people with a short-term strategy.

"Investors unfairly expect managers to chop and change their approach to capture all the possible upsides but that isn’t how this industry works," he said. "The best managers never deviate from their approach no matter what is happening around them."

"Looking at six-month performance figures is dangerous because it’s not necessarily the right market conditions for a manager’s style to show its worth and these periods can run for a year or more. You need to hold a fund though several market cycles to get the maximum return. If you want to invest for the short-term then you should go for an ETF."

"People often see their funds do badly in the short-term because they buy off the back of good performance and that is often the very worst time to get into an investment," he continued. "Naturally private investors tend to look at the top of the league tables but this is when funds are most susceptible to short-term blips."

Morgan believes that there is little to be learned about an investment from performance tables alone and the experience and expertise of an IFA really proves its worth when it comes to selling a struggling fund.

"It’s really difficult to recognise when a fund is going sour," he said. "We meet with managers regularly and ask them questions to try and figure out if their view or approach has changed. If a manager is frequently changing direction this can be a good indicator that it is time to think about selling."