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 used to evaluate how well an investment manager performed relative to an index during periods when that index has risen.The up-market capture ratio can be compared with the down-market capture ratio. In practice, both measures are used in tandem.
Definition: The Up Market Capture Ratio is a statistical measure of an investment manager's overall performance in a rising market. It is used to evaluate how well an investment manager performs relative to an index during periods when the index is up. The Up Market Capture Ratio is often compared with the Down Market Capture Ratio to provide a comprehensive view of an investment manager's performance.
Origin: The concept of the Up Market Capture Ratio originated in the late 20th century as the investment management industry evolved. Investors and analysts needed a more refined tool to assess investment managers' performance under different market conditions. The introduction of this metric helped investors better understand and compare the performance of different investment managers.
Categories and Characteristics:
- Up Market Capture Ratio: A ratio above 100% indicates that the investment manager outperformed the market index during up markets; a ratio below 100% indicates underperformance relative to the market index.
- Down Market Capture Ratio: A ratio below 100% indicates that the investment manager outperformed the market index during down markets (i.e., experienced smaller losses); a ratio above 100% indicates underperformance relative to the market index.
Specific Cases:
- Suppose an investment manager has an Up Market Capture Ratio of 120%. This means that if the market index increased by 10%, the manager's portfolio increased by 12%.
- Another investment manager has an Up Market Capture Ratio of 90%, meaning that if the market index increased by 10%, the manager's portfolio only increased by 9%.
Common Questions:
- How is the Up Market Capture Ratio calculated? The formula is:
Up Market Capture Ratio = (Portfolio Return in Up Market / Index Return in Up Market) × 100% - What is the relationship between the Up Market Capture Ratio and the Down Market Capture Ratio? These two ratios are often used together to provide a comprehensive assessment of an investment manager's performance under different market conditions. Ideally, an investment manager should outperform the market index in up markets (Up Market Capture Ratio above 100%) and outperform the market index in down markets (Down Market Capture Ratio below 100%).
