Upside/Downside Capture

Upside and downside capture ratios show how a fund performs relative to its benchmark during up and down markets separately. The ideal fund has high upside capture and low downside capture.

How It Works:

• Upside Capture: % of benchmark gains captured in up months
• Downside Capture: % of benchmark losses captured in down months

Interpreting Capture Ratios:

Scenario	Upside	Downside	Meaning
Perfect defense	100%	50%	All gains, half the losses
Aggressive growth	130%	120%	More of everything
Conservative	70%	50%	Less of everything, net positive
Index fund	100%	100%	Matches benchmark exactly
Poor manager	80%	110%	Less gains, more losses

The Capture Ratio:

• Capture Ratio = Upside Capture / Downside Capture
• Value > 1.0: Good risk-adjusted performance
• Value = 1.0: No advantage over benchmark
• Value < 1.0: Worse than benchmark on risk-adjusted basis

Example:

• Fund captures 90% of market gains and 60% of market losses
• Capture Ratio = 90/60 = 1.50 — excellent
• In practice: Market up 10% → Fund up 9%. Market down 10% → Fund down 6%.

Why It Matters:

• Losing less in downturns compounds more than gaining more in upturns
• A fund that captures 80% of upside but only 50% of downside massively outperforms over time
• This is the mathematical basis of "defense wins championships" in investing