Up Capture Ratio = average ETF return in months when the benchmark was UP / average benchmark return in those months. Down Capture Ratio = average ETF return in months when the benchmark was DOWN / average benchmark return in those months. Both expressed as percentages. A perfect benchmark tracker would show 100% up capture / 100% down capture. A defensive ETF might show 75/50 (captures 75% of upside, only 50% of downside) — attractive asymmetry. A leveraged ETF might show 200/200 (amplifies both directions equally). The capture-ratio difference (up minus down) reveals defensive vs aggressive character.
The formulas
Up Capture Ratio = (Σ RETF,i for months where Rb,i > 0) / (Σ Rb,i for months where Rb,i > 0) Down Capture Ratio = (Σ RETF,i for months where Rb,i < 0) / (Σ Rb,i for months where Rb,i < 0) where: RETF,i = ETF monthly return Rb,i = Benchmark monthly return Both expressed as percentages. Calculated separately for "up market" and "down market" months.
Alternative formula (some sources): use geometric mean instead of arithmetic sum. UK Tax Drag uses the arithmetic version for clarity.
The asymmetry insight
Capture ratios reveal whether an ETF behaves differently in up markets vs down markets. Two ETFs with identical Sharpe and similar beta can have very different capture profiles:
| Profile | Up capture | Down capture | What this means |
|---|---|---|---|
| Defensive / low-vol | 70-90% | 40-70% | Captures most upside, dodges most downside — desirable asymmetry |
| Index tracker | 95-105% | 95-105% | Symmetric — what passive should be |
| Quality factor | 90-100% | 75-90% | Slight defensive tilt |
| Aggressive growth | 110-130% | 110-140% | Amplifies both directions |
| Leveraged 2× | 180-210% | 180-220% | Roughly 2× both directions (more on downside due to volatility decay) |
| Inverse 1× | −80 to −100% | −80 to −100% | Moves opposite — good hedge but always loses long-term |
| Tactical / market-timing | 50-120% | 50-120% | Varies — successful timing shows up here |
Inputs we use
| Input | Source | Notes |
|---|---|---|
| ETF monthly returns | Issuer + LSE | 36 months, GBP TR |
| Benchmark monthly returns | Issuer-stated benchmark | 36 months, GBP TR |
| Up/down split | Separated by sign of benchmark monthly return | Months where Rb > 0 vs Rb < 0 |
| Threshold | 0% (any positive benchmark return = "up" month) | Some methodologies use MAR or arbitrary threshold |
Worked example — defensive UK equity ETF
Suppose a "defensive UK equity" ETF (low-volatility factor tilt) against FTSE All-Share, 3 years ending April 2026.
| Total months in window | 36 |
| Up months (FTSE All-Share > 0): 22 months | |
| Down months (FTSE All-Share < 0): 14 months | |
| Total benchmark return in up months | +47.8% |
| Total ETF return in those same up months | +38.6% |
| Up Capture = 38.6 / 47.8 | ~80.8% |
| Total benchmark return in down months | −31.4% |
| Total ETF return in those same down months | −18.5% |
| Down Capture = −18.5 / −31.4 | ~58.9% |
| Defensive profile: 81% up / 59% down | ~22% asymmetry |
This defensive ETF captures roughly 81% of FTSE All-Share's upside while only 59% of its downside — a 22% asymmetry advantage. Over time, this typically translates to lower volatility and similar (sometimes higher) total returns than the benchmark.
What capture ratios reveal that Sharpe misses
Sharpe ratio averages everything — up months and down months equally. Capture ratios separate them, revealing characteristics like:
- Tail behaviour: a "defensive" ETF that captures 90% of upside but 110% of downside is actually NOT defensive — Sharpe might still look OK if down months were small.
- Volatility-decay impact on leveraged products: 2× leveraged ETFs often show down capture > 200% (because of mathematics of compounding losses), revealing why long-term holding is dangerous.
- Quality vs growth factor difference: Quality typically shows 90% up / 75% down. Growth shows 105% up / 115% down. Sharpe might be similar; profiles are completely different.
- Asymmetric hedges: A successful "tactical" or "hedged" ETF would show high up capture with notably lower down capture — the holy grail of asset management.
What capture ratios do NOT tell you
- Causation. Why an ETF has asymmetric capture is not revealed by the numbers alone — could be factor exposure, cash buffer, sector tilt, or just luck in the specific period.
- Statistical reliability. With 14 down months in our example, the down capture estimate has wide error bars. Treat capture as descriptive of past, not predictive.
- Future behaviour. Capture during 2023-2025 mostly-up market may not predict capture in a sustained bear market.
- Asymmetric reward vs asymmetric risk. 70% up / 50% down sounds defensive but if the ETF dramatically lags in long bull markets, the "defensive" trade-off might not be worth it.
- Capture vs lagging the benchmark. 80%/60% capture sounds asymmetric but doesn't tell you if the ETF underperforms over the full cycle.
The "complete profile" — combining capture with other metrics
For honest ETF evaluation, look at capture ratios alongside:
- Total return over the period — does the asymmetric capture actually translate to better long-term returns?
- Max drawdown — did the "defensive" ETF actually avoid the worst drawdowns?
- Volatility — is the asymmetry achieved through lower vol or higher vol (with skewed timing)?
- Sortino vs Sharpe — large gap between them often signals asymmetric capture.
- Up/down market history — was the period dominated by up or down months? Heavily-up periods make defensive products look bad.
How to reproduce this yourself
- Get 36 months of returns for ETF and benchmark (GBP TR).
- Filter: copy ETF and benchmark returns for months where benchmark > 0 (up months).
- Sum the ETF returns in up months. Sum the benchmark returns in up months. Divide: Up Capture %.
- Repeat for down months (benchmark < 0). Down Capture %.
- Excel: =SUMIF(benchmark_col, ">0", etf_col) / SUMIF(benchmark_col, ">0").
Sources and methodology
Capture ratio methodology developed by Morningstar and BlackRock as part of factor-investing analysis literature. Standard practice in institutional fund evaluation. The ETF Data Methodology documents all data sources. The site methodology documents the broader review process.
Related metric pages
How UK Tax Drag holds itself to account
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