Up-Market Capture Ratio

Up-Market Capture Ratio

What it is

The up-market capture ratio measures how well an investment manager or strategy performs relative to a benchmark during periods when the benchmark rises. It shows the percentage of the benchmark’s gains captured by the manager in up markets.

Key takeaways

• Calculated as (manager return in up-market / benchmark return in up-market) × 100.
• A ratio above 100 means the manager outperformed the benchmark during rising markets; below 100 means underperformance.
• Best used alongside the down-market capture ratio and other performance metrics (volatility, absolute returns, fees).
• Passive index funds typically have capture ratios close to 100.

How to calculate

Up‑market capture ratio = (Manager’s returns during up-market ÷ Benchmark’s returns during up-market) × 100

Example:
* If the benchmark returns 10% in an up period and the manager returns 12%, the up-market capture ratio = (12 ÷ 10) × 100 = 120.

How to interpret

• 100 — manager captured more of the market’s upside than the benchmark (outperformed during up markets).

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• = 100 — matched the benchmark’s upside.
• < 100 — captured less of the market’s upside (underperformed in rising markets).

This metric does not indicate absolute performance (a manager could have strong capture in up markets but still deliver low or negative absolute returns over time).

Using it with the down-market capture ratio

The down-market capture ratio applies the same calculation to periods when the benchmark falls. Evaluating both together gives a fuller picture of a manager’s behavior across market cycles.

A simple comparative measure:
Overall capture factor = Up‑market capture ratio ÷ Down‑market capture ratio

Interpretation examples:
* Up = 140, Down = 110 → Overall capture factor = 140 ÷ 110 ≈ 1.27. This suggests the manager’s strong upside more than offsets its downside capture.
* Up = 90, Down = 70 → Overall capture factor = 90 ÷ 70 ≈ 1.29. Here, the manager limits losses proportionally more than it captures gains, which can still lead to outperformance over time.

Note: This overall factor is a heuristic for comparing upside vs downside capture, not a comprehensive performance metric.

Important considerations and limitations

• Focuses on relative performance only; ignores volatility, drawdowns, correlations, and absolute returns.
• Can incentivize risk-taking if used in isolation, since higher upside capture may come with larger downside exposure.
• Time period selection and definition of “up” and “down” markets can materially affect the result.
• Combine with other measures (Sharpe ratio, maximum drawdown, alpha/beta, fees) for informed decisions.

Bottom line

The up-market capture ratio is a straightforward tool to assess how much of a benchmark’s gains an investment manager captures during rising markets. It’s most informative when used together with the down-market capture ratio and other performance metrics to understand both upside participation and downside protection.