Downside Capture Ratio measures how much of a market decline a fund absorbs — 80% means the fund fell only 80% as much as the benchmark during market downturns.
Downside Capture Ratio = Fund's average return in benchmark-negative months ÷ Benchmark's average return in those same months × 100. A ratio below 100% means the fund falls less than the benchmark in bear markets. A ratio above 100% means it falls more. You want downside capture to be low (below 100%) — meaning the fund cushions bear market losses. Combined with a high Upside Capture Ratio, this is the signature of a skilled defensive equity manager.
If the market falls 10% in a bad month, and your fund only falls 7%, the downside capture is 70% (it absorbed only 70% of the market's fall). Lower is better here. You want the fund to act as a shock absorber during market crashes.
Identify all months where the benchmark had a negative return.
Calculate fund's average return in those months.
Downside Capture = Fund's average ÷ Benchmark's average × 100.
Values below 100% indicate downside protection vs benchmark.