When you get your first-quarter mutual fund statements in the mail, you probably won't like what you see. But before you decide that none of your mutual fund managers have a clue what they're doing, make sure you're giving them a fair shake.

So far, 2008 has been an abysmal year for investors. There haven't been many places to hide -- nearly every type of equity mutual fund has lost money so far, and even international highfliers like Baidu.com (Nasdaq: BIDU) and PetroChina (NYSE: PTR) have come falling back to earth. So unless you parked all your money in bonds, you'll probably see some scary losses.

Time for a performance review
After several years of gains, now is a good time to see how your fund managers do in down markets. The first thing to realize is that while you never want to lose money, you shouldn't expect your fund managers to avoid losses entirely when markets drop sharply. Often, the best you can hope for is that a manager will lose a little less than other funds. In the long run, that kind of outperformance is just as valuable as big bull-market returns.

Next, find the appropriate benchmark to measure your fund's performance against. Using a broad market measure like the S&P 500 can give you a starting point, but using a more specialized benchmark as well can provide a fairer comparison. Morningstar's style boxes provide a good way to classify U.S. stock funds.

For instance, say you own a fund that invests in big growth companies. In 2008, growth funds have done a little worse than the average stock fund, perhaps because of weakness among big tech growers like Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG). One quarter's worth of performance may also be too short to do a full evaluation.

When you expand your horizon to consider the past year, growth funds have actually done much better than their value counterparts by avoiding hard-hit financials like Wachovia (NYSE: WB) and Bank of America (NYSE: BAC).

As a result, you may find that even if a fund has held up relatively well, it may not be doing as well as it should be compared to its peers. Conversely, the fund stinker of your portfolio might actually be doing a bang-up job -- if it's in a hard-hit part of the market, such as Asian stocks.

Remember why you're diversified
The price of a diversified portfolio is that you'll always have some of your funds lagging behind others. The reason to accept that sacrifice, however, is that you can't predict exactly which fund is likely to do best -- and hopefully, on the whole, your portfolio will grow over time.

But that doesn't mean each part of your portfolio shouldn't carry its weight. If a fund is doing worse than other similar funds, you should start thinking about a change. On the other hand, if your funds consistently do better than their competitors, you've got a winner -- hold on and enjoy the rewards.

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