In a market where the mighty have fallen, many investors are having a hard time separating the strong from the meek. As a result, they're...

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In a market where the mighty have fallen, many investors are having a hard time separating the strong from the meek. As a result, they’re preparing to bail out on any manager whose performance has faltered.

While it certainly makes sense to abandon a fund that has fallen and can’t get up, it’s tough to tell just how much strength and vigor an issue has while the entire market is hurting.

And new research shows there is a distinct benefit to sticking with a high-performing manager through a patch of rough performance.

That survey is good news for buy-and-hold investors who picked a management star and need a motive to hang around hoping for a comeback, but it doesn’t make it easier to decide whether a fund’s current performance problems are temporary or permanent.

The study, by Baird Advisory Services Research, looked at more than 1,300 funds, defining “high performers” as those that topped their benchmark by 1 percent annually over the 10 years ended in 2007. Some 505 funds qualified.

The key finding was that many of those top funds went through periods where they got killed by the market or their peer group.

More than three-quarters of these high achievers had at least one three-year stretch where the fund lagged its benchmark by 1 percent or more.

More than half of the funds experienced benchmark underperformance of 3 percent or more and nearly one-third actually lagged by 5 percent or more over a three-year period.

Despite those periods of underperformance, the funds were able to be superior performers over the full 10-year window.

Tim Byrne, director of Baird’s Private Wealth Management Research, Products and Services, said the moral of the study is that even the best money managers have periods where they don’t look so good, but the longer an investor sticks with them the better the chances for success, for high performance over time.

“The problem is that people buy a fund after the manager has proven that they are a high performer, but they sell the first time there’s a problem,” Byrne said. “They wind up chasing performance — buying high and selling low — instead of sticking with a manager who has proven that they can deliver if you give them enough time.”

The problem comes in deciding which managers deserve a long leash.

Byrne said he looks to see if a manager has “proven that they can dig out of a hole, because you have to believe they can create return fast enough to help you catch up from any down period. … You want them to be able to live up to the expectation you had for the fund when you first bought it, which means you have to believe they can get performance back to what you expected over time.”

Chuck Jaffe is senior columnist at MarketWatch. He can be reached at cjaffe@marketwatch.com or Box 70, Cohasset, MA 02025-0070.