Upside vs. Downside: how to judge if a fund really outperforms

The ideal active investment would give you many times the market return on the way up, and capture only a fraction of the downside as markets fell. Sadly, these investment gems aren’t commonplace. However, there are some investments that get some of the way there, capturing plenty of market upside and little of its downside. One way to measure this is to look at the Upside/Downside Capture ratio (UDCR). 

What is Upside/Downside Capture Ratio?

This ratio allows us to score funds by the amount of upside they capture relative to the amount of downside. 

• • A score higher than 1: the fund is capturing more upside than downside, a positive signal for investors. 
  • A score of 1: the fund captures upside and downside equally – suggesting it is largely in line with its benchmark. 
  • A score less than 1: the fund captures less upside than it does downside. That suggests it is underperforming. 

For example, if a fund’s upside capture is 120% and its downside capture is 80% it will have a ratio of 1.5, which would suggest it was doing well. Effectively, the fund captures 1.5 times more upside than downside. Conversely, if a fund is only capturing 80% of the upside and 120% of the downside, its ratio would be 0.7, meaning it loses more than it gains relative to the benchmark.

Looking beyond the ratio

It’s important to remember, this ratio needs to be looked at in combination with the upside and downside capture scores as it is possible that one metric has a disproportionate influence. 

For instance, the fund with the highest ratio over 10 years is Scottish Mortgage Investment Trust (3.1), but the majority of that strength comes from its upside capture – 367%. In general, it falls more than the market, with a downside capture of 117%, but its outperformance in bull markets makes up for that. This is also true for the Baillie Gifford American fund. This is the kind of profile an investor would expect to see from a growth fund – its strength comes from capturing many times the upside in bull markets, while only losing a little more than the market on the downside. 

Top Elite Rated funds Upside/Downside Capture Ratio over 10 years

10-year view: growth funds shine

Most of the funds with the highest ratio over 10 years have this profile, with the ratio raised by their strong upside capture rather than their limited downside. This is to be expected during a period where a handful of US technology names have dominated markets and overall market performance has been strong. 

Exceptions worth nothing: 

• Ninety One Global Gold: which has an upside capture of 243% and only captures 81% of the downside. 
• Orbis Global Balanced: a balanced profile with an upside and downside capture of 129% and 73% respectively. 
• GAM Star Credit Opportunities: the only top-50 fund with upside under 100%, but its success has come from limiting the downside to just 52.6%. This was the lowest on the list. 

Top Elite Rated funds Upside/Downside Capture Ratio over 5 years

5-year view: risk control matters more

Over the past five years, the picture looks different. Markets have been choppier, the US mega-cap technology trade has not been as profitable and investors have started to diversify beyond the US. There has been less upside available, and more weakness to avoid. 

• • Growth funds like Scottish Mortgage and Landseer Global Artificial Intelligence still show strong upside, but their higher downside capture has pulled ratios down around 1.3.
  • Value funds are out in front. Top of the chart is the Ranmore Global Equity fund with an astonishing downside capture of 17%. The fund takes its ‘benchmark agnostic’ view very seriously, and, for the most part, did not participate in the US technology trade.
  • Of the top 20 funds, only two had a downside capture ratio of more than 100%. Of the top five funds, the highest downside capture was 37%. This is a testament to far choppier markets and an environment where market drawdowns have been greater. 

The exception has been the UK funds 

Ninety One UK Special Situations, Artemis UK Select, Schroder Recovery and Fidelity UK Smaller Companies all made the top 20 funds. These funds have done well through their upside capture – in excess of 200% for the Artemis UK Select – while none have done particularly well at minimising the downside. 

This reflects the nature of the UK market over the past five years, where value investing has been at the forefront. As such, capturing more upside has been more important than limiting downside relative to the benchmark. 

Additional highlights:

Within bonds, it has been the short-duration focused bonds that have done well. 

• • The Artemis Short-Duration Strategic Bond stands out, having captured just 28% of the market downside. 
  • The Jupiter Monthly Income Bond has a ratio of 1.7, with a 96% upside capture and 56% downside capture. 
  • The Man High Yield Opportunities fund also stands out among the bond funds, with an upside capture of 144% and downside capture of 80%. 

Over five years, the funds with the weaker ratios have tended to be more growth-focused. There hasn’t been as much growth on offer, which has meant, in many cases, that the multiple of the upside they could capture hasn’t compensated for the downside. It also contains some familiar names. 

• • Fundsmith Equity, for example, has a ratio of just 0.8, having captured just 75% of the market upside, but 95% of the downside. 
  • WS Lindsell Train UK Equity has a 0.6 ratio, with a 51% upside capture and 83% downside capture. 

Is any of this predictive as to how well a fund will do in future? 

In our view, it offers a useful indication of what to expect from a strategy. It can also be a test of process: the profile of the Baillie Gifford funds, for example, suggests that they are living up to the group’s stated view on asymmetric returns — that it is more important to find exceptional companies that can deliver many multiples of their initial investment than to minimise downside risk. 

Ultimately, Upside/Downside Capture is just one tool in a fund analysis toolbox, to be used in conjunction with a range of other metrics. It shows that funds capturing multiples of market upside while minimising the downside are rare, but do exist. 

*All data is sourced from FE Analytics using cumulative Upside and Downside Capture over 5-year and 10-year relative to the fund’s stated benchmark, figures to 31 August 2025