Why Bull Market Returns Are Deceptive
Most investors evaluate mutual funds purely on trailing 1-year, 3-year, or 5-year point-to-point returns. However, true wealth preservation is dictated by how aggressively a fund preserves capital when benchmarks plunge. This is where Downside Capture Ratio and Maximum Drawdown (MDD) become vital metrics.
1. Demystifying the Downside Capture Ratio
The downside capture ratio calculates a fund's performance relative to its benchmark during periods of market declines. Funds with high upside capture (>105%) coupled with subdued downside capture (
