Up-Market Capture Ratio

What Is the Up-Market Capture Ratio?

The up-market capture ratio is the statistical measure of an investment manager's overall performance in up-markets. It is utilized to assess how well a investment manager performed relative to a index during periods when that index has risen.

The up-market capture ratio can measure up to the down-market capture ratio. In practice, the two measures are utilized in tandem.

Computing the Up-Market Capture Ratio

The up-market capture ratio is calculated by separating the manager's returns by the returns of the index during the up-market and duplicating that factor by 100.
$\begin&\frac{\text}{\text}\ - \ \text\ = \ \frac{\text}{\text}\ \times\ 100\&\textbf\&\text=\text\&\text=\text{manager's returns}\&\text=\text\end$

Understanding the Up-Market Capture Ratio

An investment manager who has an up-market ratio greater than 100 has beated the index during the up-market. For instance, an up-market capture ratio of 120 shows that the manager beat the market by 20% during the predetermined period. Numerous analysts utilize this simple calculation in their more extensive appraisals of individual investment managers.

On the off chance that an investment command calls for an investment manager to meet or surpass a benchmark index's rate of return, the up-market capture ratio is useful for recognizing those managers who are doing as such. This is important to investors who utilize a active investment strategy and think about relative returns, as opposed to absolute returns (as hedge funds frequently look for).

Special Considerations

The up-market capture ratio is just one of numerous indicators utilized by analysts to track down great money managers. Since the ratio centers around upside developments and doesn't account for downside (losses) moves, a few pundits offer unquestionable proof that it encourages managers to "go for the moon." But when combined with complementary performance indicators, the up-market capture ratio presents valuable investment understanding.

While assessing an investment manager, it is best to consider the down-market capture ratio, too. This ratio is calculated similarly with the exception of utilizing down-market returns. When the two measures are known, a comparison might uncover that a manager with a large down-market ratio or poor up-market ratio actually outflanks the market.

The market capture ratios of passive index funds ought to be extremely close to 100%.

Illustration of How to Use the Up-Market Capture Ratio

Assuming the down-market ratio is 110 however 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 measure this by isolating the up-market ratio by the down-market ratio to get the overall capture ratio. In our model, isolating 140 by 110 gives an overall capture ratio of 1.27, showing the up-market performance more than counterbalances 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, demonstrating that the manager is beating the market overall.

Features

• The ratio is calculated by contrasting the manager's returns in up-markets with that of a benchmark index.
• The up-market capture ratio measures an investment manager's relative performance during bull markets.
• Investors and analysts ought to consider both the up-and down-market capture ratios together to figure out a manager's overall performance.