Up-Market Capture Ratio

Definition

The Upside Market Capture Ratio is a statistical measure used to evaluate an investment manager's performance during rising markets. It assesses how a portfolio performs relative to a benchmark index when the index is going up. It is often used in conjunction with the Downside Market Capture Ratio to provide a comprehensive view of an investment manager's performance.

Origin

The concept of the Upside Market Capture Ratio originated in the late 20th century as portfolio management and performance evaluation methods evolved. It helps investors understand how an investment manager performs relative to a benchmark index during different market phases.

Categories and Features

The Upside Market Capture Ratio is typically categorized into two: above 100% and below 100%. A ratio above 100% indicates that the portfolio outperformed the benchmark index during rising markets, while below 100% indicates underperformance. Its main feature is to help investors identify which investment managers can deliver excess returns during market upswings.

Case Studies

Case Study 1: Suppose an investment manager has an Upside Market Capture Ratio of 120%, meaning that when the market rises by 10%, the manager's portfolio rises by 12%. Case Study 2: Another manager has a ratio of 90%, indicating that under the same market conditions, their portfolio only rises by 9%. These cases illustrate the performance differences among investment managers during market upswings.

Common Issues

Common issues include how to interpret the values of the Upside Market Capture Ratio and how to use it in conjunction with the Downside Market Capture Ratio. A misconception might be that a high ratio is always good, but it actually requires a comprehensive analysis considering market conditions and investment goals.