Is a two-year slump a reason to sell your mutual fund? How to assess underperformance

A fund’s recent underperformance alone is not a reason to sell. Compare it with its benchmark and peers across several time periods, and assess whether it still fits your portfolio and investment strategy.

I bought a mutual fund because it was one of the top performers when I invested. It has since underperformed for two years. How do I distinguish between a temporary period of underperformance and a fund that genuinely no longer belongs in my portfolio?

– Name withheld on request

Choosing a mutual fund can be overwhelming, and investing in a top performer may seem like a natural starting point. However, strong past returns do not guarantee future performance.

Our analysis of mutual fund performance over 13 years found that, on average, only 36% of the best-performing funds in one year remained among the top performers the following year. It is normal for funds to lose their rankings, so underperformance alone is not a reason to panic or exit.

Start with your portfolio