Up-Market Capture Ratio

Definition

The Up-Market Capture Ratio is a statistical measure that shows how a particular investment or fund performed in relation to an index or benchmark during periods of positive returns. If a fund has an up-market ratio greater than 100, it generally gained more than the benchmark during positive return periods. Conversely, if the ratio is less than 100, the fund returned less than the benchmark.

Phonetic

ʌp-mɑːrkɪt kæptʃə ˈreɪʃiːoʊ

Key Takeaways

Here are the three main takeaways about Up-Market Capture Ratio:

1. Performance in Positive Market:Up-market capture ratio measures the performance of an investment against a market benchmark when the market is rising. A high up-market capture ratio means the investment generally outperforms the market during up-markets.
2. Investment Evaluation: It is a key metric in evaluating an investment’s overall risk and return characteristics. Up-market capture ratio serves as a gauge of how an investment hypothetically performed during periods when the benchmark served had positive returns. It can provide valuable insights into investment performance during bullish markets.
3. Comparison Tool: The up-market capture ratio also offers a useful comparison tool, allowing investors to compare performances between the particular investment and the chosen positive market benchmark over a given period(s).

Importance

The Up-Market Capture Ratio is a crucial business and finance metric as it provides a tangible measure of a fund or investment manager’s performance during positive market conditions. This ratio shows how well an investment capitalizes on growth periods in comparison to a benchmark index. For investors, an understanding of the Up-Market Capture Ratio can guide them in selecting investments that maximize gains during bullish markets. Further, it gives an indication of a fund’s ability to participate in the growth of the market, and as such, is crucial in comprehending the effectiveness of investment strategies and anticipating potential returns during market upswing.

Explanation

The Up-Market Capture Ratio is a key analytical tool in the finance and business sectors with the central purpose of assessing the performance of an investment, portfolio, or fund during positive market conditions. It specifically measures how well an investment manager performs in periods of market success. The ratio enables investors to assess if their investment managers perform better, worse, or at the same level as the general market in periods of market upswings.The utility of the Up-Market Capture Ratio comes from its ability to provide an insight into the risk/reward parameters of an investment. If a fund has an Up-Market Capture Ratio higher than 100%, it means the fund is grossing greater returns than the market during favourable periods. On the other hand, an Up-Market Capture Ratio less than 100% indicates underperformance in relation to the market. As such, the metric is invaluable for investors when making strategic decisions about their investment portfolios.

Examples

Up-market capture ratio is used by investment analysts to evaluate how well a fund or investment manager performed against a relevant benchmark during periods where that benchmark offered a positive return. Here are three real-world examples from the investment and financial industry:1. **Fidelity Contrafund**: This popular mutual fund’s up-market capture ratio has historically outperformed the S&P 500 index during strong market performance periods, allowing it to attract additional investors who were seeking to maximize their returns during bull markets.2. **Vanguard 500 Index Fund**: If this fund has an up-market capture ratio of 100%, that means it would likely return the same growth as the benchmark (in this case, the S&P 500) in periods of positive returns for the benchmark. Should the S&P500 grow 10%, the fund also grows 10%. 3. **Goldman Sachs Technology Opportunities Fund**: For example, let’s say this fund has an up-market capture ratio of 110% against the Nasdaq. This implies that when the Nasdaq has positive performance, the fund, on average, outperforms by 10%.These examples show how the up-market capture ratio varies among different funds, how it reflects the investment strategy of the fund, and how investors can use it to compare their options before making a decision.

Frequently Asked Questions(FAQ)

Related Finance Terms

• Down-Market Capture Ratio
• Beta Coefficient
• Capital Appreciation
• Portfolio Performance
• Risk-Adjusted Returns

Sources for More Information

• Investopedia
• Morningstar
• Fidelity
• Charles Schwab