Mr McDermott says: “Market cycles tend to run for seven to 10 years and that is how a fund should be evaluated if it is delivering on its investment philosophy.
"However, in practice that is not always the case and we will look at funds that have underperformed for three years or more in a bid to understand why – that in itself does not mean we will sell.
"The most important thing is to see a fund manager stick to their philosophy - the last thing we want to see is a change when things get tough.”
Gary Potter, joint head of multi-manager at BMO Global Asset Management, says that if a client's portfolio is properly diversified then there should always be some funds that are under-perfoming, but other funds that are in favour.
"He says this should allow investors to hold onto under-performing funds for an extended period of time as long as they are properly diversified.
"He says this ability to hold onto an underperformer could be very rewarding when the market cycle changes and the fund begins to perform much better.
Ben Yearsley, investment director at Fairview, says if a fund is underperforming relative to peers, then he expects to have a good line of communication with the manager and a clear explanation as to why the under performance is happening, then he is willing to wait as long as two years for an under-performing fund to turn around.
Ben Willis, head of portfolio management at Chase De Vere, says that while having a properly diversified portfolio has meant owning some value funds over the past decade, he adds that this logic has been “severely tested” in recent years by the sharp underperformance.
He adds: “Rather than setting a precise time limit, we need to analyse the overall portfolio and then make decisions on which funds to jettison.
"This will vary and will be subjective though, in essence, there is usually a very good reason to sell a fund that has underperformed for three years or more.”
Tom Sparke, Investment director at GDIM, says another reason a fund may be underperforming relative to its peers is that it may be taking less risk than other funds within its peer group, and a fund buyer must then decide if they are happy with the lower risk, and believe it is prudent, even if that means a period of underperformance that may last until market sentiment has become more cautious.
He says: “In terms of underperformance, it depends on numerous factors – is the fund taking less risk than peers? Is the style causing the underperformance? What is the degree of underperformance? Many of the answers these questions may lead us to stay with a fund through weaker periods – it is often the case that a sustained period of outperformance follows a period of poorer growth”