# How to Calculate the Up-Market Capture Ratio for Investment Performance

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> **Definition**
>
> The up-market capture ratio is a performance metric that measures how well an investment manager performs relative to a benchmark index during periods of market growth.

## What Is the Up-Market Capture Ratio?

The up-market capture ratio is a metric used to compare an [investment manager's](https://www.investopedia.com/terms/i/investment-manager.asp) performance against a benchmark [index](https://www.investopedia.com/terms/i/index.asp) in rising markets. Investors can calculate it by dividing the manager's returns by the returns of the index during the period of time when the market is in an upward trend. It contrasts with the the [down-market capture ratio](https://www.investopedia.com/terms/d/down-market-capture-ratio.asp) that is used to assess performance in declining markets. Investors and analysts may want to consider the up- and down-market capture ratios together to obtain a comprehensive view of a manager's overall investment performance.

### Key Takeaways

*   The up-market capture ratio evaluates an investment manager's performance compared to an index during market upswings.
*   A ratio above 100 indicates the manager outperformed the index in rising markets.
*   It's useful for assessing managers in active investment strategies focused on relative returns.
*   The ratio should be considered with the down-market capture ratio for a complete performance picture.
*   Passive index funds generally have capture ratios close to 100%.

## Calculating the Up-Market Capture Ratio

To calculate the up-market capture ratio, divide the manager’s returns by the index’s returns during the up-market, then multiply by 100.

$\begin{aligned}&\frac{\text{Up}}{\text{Down}}\ - \ \text{MCR}\ = \ \frac{\text{MR}}{\text{IR}}\ \times\ 100\\&\textbf{where:}\\&\text{MCR}=\text{market capture ratio}\\&\text{MR}=\text{manager's returns}\\&\text{IR}=\text{index returns}\end{aligned}$

## How the Up-Market Capture Ratio Works

An investment manager with an up-market ratio over 100 outperformed the index during an up-market period. For example, an up-market capture ratio of 120 indicates that the manager outperformed the market by 20% during the specified period. Many [analysts](https://www.investopedia.com/terms/a/analyst.asp) use this simple calculation in their broader assessments of individual investment managers.

The up-market capture ratio helps identify managers meeting or exceeding a [benchmark](https://www.investopedia.com/terms/b/benchmark.asp) index’s returns, as required by some investment mandates. This is crucial for investors using [active](https://www.investopedia.com/terms/a/activeinvesting.asp) strategies that focus on relative returns rather than [absolute](https://www.investopedia.com/terms/a/absolutereturn.asp) ones.

## Important Considerations When Using the Up-Market Capture Ratio

Analysts use the up-market capture ratio as one of many indicators to find good money managers. Since the ratio only focuses on gains and ignores losses, some critics argue it encourages risky behaviors. However, the up-market capture ratio provides valuable insights when used with other performance indicators.

Consider the down-market capture ratio as well when [evaluating](https://www.investopedia.com/terms/a/appraisalratio.asp) an investment manager. This ratio uses the same calculation method but applies it to down-market periods. Once both measures are known, a comparison may reveal that a manager with a large down-market ratio or poor up-market ratio still outperforms the market.

> **Tip**
>
> The market capture ratios of passive index funds should be very close to 100%.

## Practical Example of the Up-Market Capture Ratio in Action

If the down-market ratio is 110 but the up-market ratio is 140, then the manager has been able to compensate for the poor down-market performance with strong up-market performance.

You can quantify this by dividing the up-market ratio by the down-market ratio to get the overall capture ratio. In our example, dividing 140 by 110 gives an overall capture ratio of 1.27, indicating the up-market performance more than offsets the down-market performance.

The same is true if the manager performs better in down-markets than up-markets. If the up-market ratio is only 90 but the down-market ratio is 70, then the overall capture ratio is 1.29, indicating that the manager is outperforming the market overall.

## The Bottom Line

The up-market capture ratio is a metric investors and analysts use to evaluate investment managers' performance in rising markets. It's derived by comparing managers' returns with the returns of a benchmark index during the same period of time. For a full view of performance, consider both up-market and down-market capture ratios, the latter of which looks at performance during down markets. An up-market capture ratio above 100% indicates that a manager has outperformed the benchmark index during rising market conditions. Typically, those analyzing investment manager performance use the up-market capture ratio along with other performance metrics for the greatest insight into investment strategies.