RT Journal Article
SR Electronic
T1 Are All Capture Ratios Created Equal?
JF The Journal of Index Investing
FD Institutional Investor Journals
SP 60
OP 83
DO 10.3905/jii.2021.1.109
VO 12
IS 2
A1 Jeffrey M. Coy
A1 Eric J. Robbins
YR 2021
UL https://pm-research.com/content/12/2/60.abstract
AB This study aims to shed light on a freely published mutual fund screening tool—the capture ratio—and its ability to predict future fund performance (i.e., alpha). This analysis is of interest for both financial advisors and retail investors who deploy mutual fund screening tools. We find that capture ratios measured over shorter periods, such as one year, do not exhibit subsequent performance predictability. Conversely, we find that the three-year and five-year capture ratios are useful for investors in the full sample. However, analysis across cap and style-based fund subsamples shows that this return predictability is most consistent in predicting three- and five-year performance.TOPICS: Mutual funds/passive investing/indexing, performance measurementKey Findings▪ Capture ratios measured over one year are unreliable in predicting mutual fund performance.▪ Capture ratios measured over three and five years exhibit consistent performance predictability across cap and style fund subsamples.▪ Mutual fund investors exhibit a real return-chasing behavior as it relates to capture ratios.