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 used to evaluate how well an investment manager performed relative to an index during periods when that index has risen. The ratio is calculated by dividing the manager's returns by the returns of the index during the up-market and multiplying that factor by 100.

UpDown  MCR = MRIR × 100where:MCR=market capture ratioMR=manager’s returns\begin{aligned}&\frac{\text{Up}}{\text{Down}}\ - \ \text{MCR}\ = \ \frac{\text{MR}}{\text{IR}}\ \times\ 100\\&\textbf{where:}\\&\text{MCR}=\text{market capture ratio}\\&\text{MR}=\text{manager's returns}\\&\text{IR}=\text{index returns}\end{aligned}DownUp  MCR = IRMR × 100where:MCR=market capture ratioMR=manager’s returns

Understanding the Up-Market Capture Ratio

An investment manager who has an up-market ratio greater than 100 has outperformed the index during the up-market. For example, a manager with an up-market capture ratio of 120 indicates that the manager outperformed the market by 20% during the specified period. Many analysts use this simple calculation in their broader assessments of individual investment managers.

If an investment mandate calls for an investment manager to meet or exceed a benchmark index’s rate of return, the up-market capture ratio is helpful for spotting those managers who are doing so. This is important to investors who use an active investment strategy or those more considered with relative returns, rather than absolute returns (as hedge funds often seek).

The up-market capture ratio is just one of many indicators used by analysts to find good money managers. Because the ratio focuses on upside movements, some critics offer compelling evidence it encourages managers to “shoot for the moon,” as the metric doesn’t account for downside (losses) moves. But when combined with complementary performance indicators, the up-market capture ratio does present valuable investment insight.