Upside Capture
Definition
Upside Capture measures how well an investment performs relative to a benchmark during periods when the benchmark is rising. It is expressed as a percentage. A value above 100% means the investment outperforms the benchmark in up markets, while below 100% means it underperforms. In TiltFolio's case, upside capture is measured relative to the S&P 500.
Why It Matters to Investors
- Shows an investment's ability to participate in market gains relative to the S&P 500
- Helps assess if a strategy captures growth during positive trends
- Important for investors seeking strong returns during bull markets
- Provides insight into how a portfolio reacts in favorable conditions
- Useful when comparing funds or strategies against benchmarks
The TiltFolio View
At TiltFolio, both systems recognize that upside capture is important but not the only factor for success. Capturing gains during rising markets is valuable, but it must be balanced with managing losses during downturns.
TiltFolio Adaptive's trend-following system typically has an upside capture around 35% relative to the S&P 500, reflecting a cautious approach that avoids many market peaks. However, against a diversified portfolio benchmark (including bonds and gold), TiltFolio Adaptive's upside capture is higher than 100%. This lower upside capture relative to the S&P 500 is offset by a much stronger downside capture, leading to better risk-adjusted performance overall.
TiltFolio Balanced has different upside capture characteristics due to its diversified allocation (50% bonds, 30% stocks, 20% gold). While it may have lower upside capture than the S&P 500 during strong equity bull markets, it provides more consistent upside capture across different market conditions through its diversified approach.
We believe investors benefit more from limiting losses than from chasing every gain. Upside capture alone does not tell the full story. Both systems prioritize risk-adjusted returns over maximum upside capture.
Real-World Application
• A fund with 110% upside capture relative to the S&P 500 gains 10% more than the index when markets rise
• An index fund typically has an upside capture near 100%, matching the market
• TiltFolio's system captures around 35% of the S&P 500's gains but much less of its losses
• Upside capture is higher than 100% when measured against a diversified portfolio benchmark