Capture ratio is a sort of "bang for your buck" summary. It's calculated by dividing a fund's downside capture (a fund that typically falls 1.1% when the market falls 1% has a downside capture of 1.10) by its upside capture (a fund that typically rises 1.1% when the market rises 1% has an upside capture of 1.10). Capture ratios greater than 1.0 reflect funds that produce more gains than losses; all other things being equal, high capture ratio funds are offering you the greatest reward for every unit of risk you've been subjected to.
Capture ratios even the playing field for cautious and aggressive investors. A cautious investor might look for fund with a downside capture of no more than .8. Given that constraint, anything above 1.0 is a winner! Aggressive investors might be willing to accept downside captures of 1.10 as long as they've been duly compensated. So, for them too, anything above 1.0 is a winner.
I screened to equity-oriented domestic funds, which included "flexible portfolios" and "aggressive allocation" funds but excluded global. For this first pass, I excluded closed funds, high-minimum ones and those with a downside capture greater 1.00.
Yacktman Focused (YAFFX)
Capture 1.26
Downside capture 0.7
APR 10.6%
Great Owl
Yacktman (YACKX, $100k minimum with no backdoors that I can find)
Capture 1.22
Downside capture 0.71
APR 10.1
Great Owl
Reynolds Blue Chip (RBCGX)
Capture 12.1
Downside capture 0.80
APR 11.1
The appeal of the Reynolds BCG fund is almost entirely driven by its performance during the 2007-09 crash. It appears to have been almost entirely in cash and simply sailed through it. $10,000 invested in RBCGX at the peak of the last market would be worth $36,000 today, the same investment in the S&P 500 index would be $26,000. Since then it's been entirely uninspiring.
Madison Dividend Income (BHBFX, $25,000 minimum, $500 for an IRA but $100 at Schwab)
Capture 1.20
Downside capture 0.66
APR 8.9
Great Owl
Intrepid Endurance (ICMAX)
Capture 1.18
Downside capture 0.46
APR 6.6
I hesitated to include ICMAX despite its long-term record. I love the absolute-value discipline and willingness to hold cash until the market offers rationally priced stocks. Cash is down to 42% of the portfolio now. That said, it's made about 1% a year over the past 3- and 5-year periods and has undergone three sets of manager turnovers: Cinnamond to Wiggins to the current team, with president Mark Travis in and out, in and out.
Monetta Core Growth (MYIFX)
Capture 1.17
Downside capture 0.89
APR 11.4
Investors consciously looking to keep their downside capture as low as they can would start with the Yacktman and Madison funds but might add
First Trust Value Dividend ETF
Capture 1.17
Downside capture 0.72
APR 9.2
Great Owl
Prospector Opportunity (POPFX)
Capture 1.14
Downside capture 0.75
APR 9.0
Great Owl
The best fund that's fallen between those cracks is Parnassus Equity. It, along with the Yacktman funds, are the only fund in the lower downside capture group to exceed 10% annual returns over the full market cycle. It adds the attraction of a long-standing commitment to an ESG-screened portfolio.
Parnassus Core Equity (PRBLX)
Capture 1.17
Downside capture 0.79
APR 10.6
Great Owl
David's disclosure: I'm playing with possible articles for February and March, with an eye to finding options for indolent investors (that is, those who might shift their portfolios once every year or two) and, possibly, newer investors who have the necessity of starting their portfolios in a market that might well slap them in the face soon.
Is this a useful focus? How might I improve it?
I did update the list following Stillers suggestion to add ticker symbols. At that point I also figured out that Virtus KAR Small-Cap Growth had closed and that I was having trouble finding a way about Yacktman's $100,000 minimum, so I added Intrepid and Monetta since they were the next funds on the list.
David
Comments
Improvements? Well, since you asked...
you might want to add the symbols for the OEFs/ETFs, e.g., YAFFX for Yacktman Focused.
To your question...borrowing a phrase, if I may, from Lambert's HOF induction speech...
"You damned well better believe (it)!"
I am scrutinizing MFOP and not seeing anything capture when you click a fund and get its individual sheet, and then when you compare three funds and side-scroll to capture metrics I see up cap % sp500 and ditto for down, 80 and 64.9 for YACKX, say, but no
Yacktman (YACKX ... )
Capture 1.22
Downside capture 0.71
visible, and nothing when searching for .71.
(Am trying to see how bad downside for DSEEX is, why it gets to little attention in these respects.)
I simply set the screener using three parameters:
Category - 12 styles (LCV, etc) plus Equity Income, Aggressive Allocation, Flexible
Universe - mutual funds or ETFs
Display - full cycle 5
You get a warning that there are 1400 resulting funds and the list will be truncated to the 1000 with the highest APR unless you add criteria. I just accepted the top 1000.
On the results screen, I scroll over to "Capture SP500" and click. That sorts them by that criterion.
When I shift to a six-year display (because DSENX is 6), it is more or less 70th on the list.
DoubleLine Shiller Enhanced CAPE DSENX
Capture 1.12
Downside capture 102
Upside capture 114
APR 15.0
Does that help?
David
That is, it wouldn't matter if a fund were twice as volatile or half as volatile as its benchmark. If it correlated well with its benchmark, it would be adding no value (alpha). The more value it added, the more the upside capture ratio would exceed the downside ratio.
Admittedly there are many paths to a given upside capture ratio. An upside ratio of 100% can be achieved with a beta of 80% and an alpha of 20(%) to get back to 100%. Or you can get there with a beta of 100% and no alpha. Or with a beta of 120% and an alpha of -20.
See the column linked below.
According to that column, it turns out that despite potentially different paths to the same capture ratios, there's a strong correlation between alpha and {upside capture ratio} minus {downside capture ratio}. The column examines the difference rather than the quotient of upside and downside capture ratios. Nevertheless I expect that either way, difference or quotient, the end number will correlate well with alpha. (Perhaps quotient might correlate better with log alpha? Have to think this through some more.)
https://www.pionline.com/article/20180628/ONLINE/180629854/commentary-up-market-capture-minus-down-market-capture If you want to calculate your own capture ratios, here's a page that explains the formulas and provides a template spreadsheet. All you have to do is plug in monthly return figures for the fund and benchmark of your choosing.
https://breakingdownfinance.com/trading-strategies/upside-downside-capture/
David, thank you very much for your and your team's continuous efforts to highlight the best fund options for us small investors.
Edit: By the way, I was at the Steelers-Browns game (or is it Stillers-Browns) in Pittsburgh this year. Even waved a yellow towel my son gave me for the game (he and his wife live there, she's a native). The next week I cheered even louder in front of the TV when they played the Bills-cheered for the Bills of course
@msf: we might ask Charles. Part of what I was searching for was to find a way to help investors who do not want to assume market like risk. Many long short funds, for example, are premised on a 60% net market exposure. I was trying to imagine equity funds whose downside risk simulated that. That is, funds whose downside was equivalent to an 80% market exposure or a 60% market exposure.
@MikeM: The Steelers suffered 20 years of futility in between their two great quarterbacks, Bradshaw and Roethlisberger. Not sure that I have 20 years to wait for the next great rotation. Might become a KC Chiefs fan.
@newgirl: no reason for paralysis, though certainly prudence is always in order. What sort of guidance would you find most useful as you tried to get comfortable with taking some level of risk? I'd be happy to work from there, since I'm sure that your experience reflects that of many, many other people.
David
Re: charles review of IOFIX- it shows a 0.17 correlation to SPY - but it is only 4 years old. How would this do in a recession ? And Charles Commented that the strategy had a limited shelf life. Looking for other suggestions to put some cash to work. Currently greater than 60% bonds and cash. I have both 401k and taxable cash to invest. Many thanks for your commentary... it is enlightening.
SP500 capture = 1, u/d 100/100.
CAPE (whose index is SP500) u/d likewise = 1, 103/103. In its 7+y, it adds (to a $10k startpoint) ~$7k above SP500, ~$30k vs ~$23k. That seems a lot of added value.
DSENX even more than that, with its 1.12 capture. Special bond sauce is the difference from CAPE.
Is CAPE's automatic monthly operating principle marketing timing, or defensive? Or both? Must reread the P&I article @msf cites. By RGoldsticker (great name) of ABiller & Assoc.
There is none. With respect, the very person who recently told us to ignore speculative comments like this has just made one himself!
The facts all point to continued growth in the US stockmarket for the foreseeable future. There is absolutely zero evidence supporting the recession theory, let alone the crash theory. Volatility, however, is normal and to be expected. For those who are new to investing or some way from retirement do not let the daily "noise" put you off making decisions. Never attempt to time the market; instead drip-feed in your money on a monthly or regular basis if you don't want to commit yourself 100%.
What do you see as the fuse, or the clock, --- the ticking event?
He makes the old-guy-with-a-PhD (my people!) argument that we increasingly devalue evidence in favor of "trusting our gut." Maybe. I was intrigued to learn that phrases like "gut reaction" only date to the 1960s and 1970s but I'm not sure that the underlying idea is as new as Dr. Shiller assumes.
Hi, gmarceau. "There are 11 industry sectors in the S&P 500. The CAPE index ranks them from most expensive to least expensive, based on their 10 year earnings history, and invests in the five least expensive sectors." It's certainly a bit more complex than that, and DoubleLine implements the strategy with derivatives rather than direct investment, but it doesn't strike me as terribly complex. Some critics think the bigger question is whether there's useful information in a sector's 10 year CAPE. I haven't much looked at the question, though perhaps the other David has?
David
I think you might be over-reading my original statement, or at least its intent. The argument is simply that many younger investors (or potential investors) are paralyzed by fear right now, and are struggling to imagine investments that aren't going to fail disastrously. My argument is simply that funds with low downside capture and high capture ratios might be one option for such folks to consider.
As for the "can't happen / sure to happen" debates, maybe. Which was sort of a theme in our January 2020 publisher's letter: the stock market is scary, it's always scary, make a sensible long-term plan and get with life.
David
https://www.nobelprize.org/uploads/2018/06/shiller-lecture.pdf
I am far less experienced than the other members that comment here regularly , but I am confident there are many more of my Ilk following along out here. Perhaps there might be a special section for us - so we don't bore the rest of y'all. I am grateful what I am learning as I follow along... !
You're at a good place here, to learn and absorb.
Possibly boring whomever here should never be a consideration for any comment or question.
I've been playing with investments to the meaningful side of life since the early '70's and would have been delighted to have had access to such a place as this forum then, to ask the dumb questions.
And like you, I continue to learn.
Stay here and stay tuned, as your time allows. You'll look back one day in the future and be pleased with the rewards of your patience; from what you've learned and will continue learning here.
Remain curious and particularly towards investments; what makes them tick, and to what makes you tick discovering your investment paths.
The below Saving and Investing Calculator (new type, June, 2019) has some preset numbers I'd placed previous to help others with minor children envision the power of compounding to encourage them to help their children start a Roth Minor IRA from monies from part time work, etc. All of the values set now may be changed to whatever is suitable for you. You'll see the initial investment value and yearly contributions are small. I did not enter a future tax calculation, as hopefully; the Roth still won't be taxed. Also, I used 7% as an annualized investment return.....not, too hot, not too cold. Anyway, play with the numbers, if this would be of benefit. A few of the other tabs above for budgeting, etc.; may be of value, too; although this is an AARP site.
NOTE: the 7% return in the calculator is of course an unknown going forward, but a reference point of one decent balanced fund, FBALX ,has an annualized return from its inception in 1986 of 9.3%. So, these have been and may continue to be achievable numbers. ALSO, read the descriptions below the calculator area.
Saving and Investing Calculator
Good Evening,
Catch
David, regarding Yacktman's $100,000 minimum purchase at Fidelity Investments, for an IRA account, although it says $100K min purchase, when you actually make the trade it states $25K min purchase.
https://www.etf.com/sections/blog/20177-inside-professor-shillers-cape-etn.html
I cannot find that he has written a word since. AUM now $200M.
Decent liquidity on the ETN, but has an end date of 2022... these Barclays funds... guess there’s no risk on their end.
Regarding the existing list, I think it is important to analyze sector exposures within funds that performed in the last cycle and analyze how those sectors might perform in the next cycle. Yacktman for instance has long held exposure in consumer defensive or staples stocks such as Proctor & Gamble, Coca-Cola, Pepsi, Johnson & Johnson in addition recently to a large slug in Samsung. The question to ask is has anything changed in the commercial outlook for such steady-eddies? I would argue for instance a lot has changed for a company like Proctor & Gamble as thanks to the Internet the competitive landscape for purchases like razor blades and soap is different. The question then becomes is the money manager aware of these changes. in Yacktman's case, I think the answer is yes from my experience with them. Yet just because you're aware of significant changes in the mainstays of your portfolio, doesn't mean you have figured out what suitable replacements might be yet. That can be quite challenging. One can do a similar analysis with Prospector Opportunity, which has significant exposure to the financial services sector, albeit that sector has diversification within it in various sub-sectors.