Down-Market Capture Ratio

The down-market capture ratio is a statistical measure of an investment manager's overall performance in down-markets. It is utilized to assess how well a investment manager performed relative to an index during periods when that index has dropped. The ratio is calculated by separating the manager's returns by the returns of the index during the down-market and increasing that factor by 100.
$\begin&\text\ =\ \frac{\text}{\text} \times 100\ &\textbf\&\text=\text{manager's returns in down market}\end$

$\begin&\frac{\text}{\text}\ - \ \text\&\qquad= \ \frac{\text{Manager's Returns}}{\text}\ \times\ 100\end$

Breaking Down-Market Capture Ratio

An investment manager who has a down-market ratio of under 100 has outflanked the index during the down-market. For instance, a manager with a down-market capture ratio of 80 shows that the manager's portfolio declined just 80% as much as the index during the period being referred to. Numerous analysts utilize this simple calculation in their more extensive evaluations of investment managers.

While assessing an investment manager, it is best additionally to consider the up-market capture ratio. This ratio is calculated similarly besides down-market returns are supplanted with up-market returns. When the up-market capture ratio is known, you can compare it with the down-market ratio, and it might uncover that a manager with a large down-market ratio actually beats the market.

Illustration of Down-Market Capture Ratio

For instance, assuming the down-market ratio is 110, yet the up-market ratio is 140, then, at that point, the manager has had the option to make up for the poor down-market performance with strong up-market performance. You can evaluate this by isolating the up-market ratio by the down-market ratio to get the overall capture ratio. In our model, partitioning 140 by 110 gives an overall capture ratio of 1.27, demonstrating the up-market performance more than balances the down-market performance. The equivalent is true assuming that the manager performs better in down markets than up markets. Assuming the up-market ratio is just 90, yet the down-market ratio is 70, then, at that point, the overall capture ratio is 1.29, showing that the manager is beating the market overall.