Up-Market Capture Ratio
Candlefocus EditorThe ratio is calculated by dividing the manager’s return for a given period by the benchmark’s return for the same timeframe. This ratio is then expressed as a percentage. For example, if a manager achieved a 10% return in a quarter where the benchmark posted 5%, the Up-Market Capture Ratio would be 200% (10/5 = 2).
In addition to the Up-market Capture Ratio, analysts also consider the Down-Market Capture Ratio (or Loss Capture Ratio) when analyzing a manager’s overall performance. The down-market capture ratio measures how effective a manager is at cautiously preserving capital during bear markets. By understanding both ratios, investors can get a full view of the manager’s ability to interest both in driving profits and in mitigating losses.
The Up-market Capture Ratio is often used by institutional investors, financial analysts, and risk managers. For instance, if two investment managers were being compared, the one with a higher up-market capture ratio would be more attractive to the investor. Similarly, the higher down-market capture ratio offers investors more confidence that their capital is safe during turbulent times.
It is important for investors to understand that any single performance metric should not be relied upon to make an investing decision. The ratios should rather serve as one tool among many used to evaluate a manager’s overall performance. To gain a truer understanding of a particular manager’s skill, investors should also consider other performance metrics such as Sharpe ratio, volatility, and drawdown, in addition to the Up-Market Capture Ratio. By considering both the Up- and Down-Market Capture Ratios in context of other performance metrics, investors can gain a better overall picture of a manager’s ability to generate profits while managing risk.