Asymmetric rolling ‘capture’ numbers are useful in identifying style discipline in listed equity strategies
Post-pandemic, Indian allocators likely didn’t bother about an investment’s ‘down capture’. Their advisors likely didn’t bother either, and the ‘easier’ pleasant advice was the ‘preferred’ sell over the past 5 years. Rather disturbingly, during this period, how a strategy holds up during periods of liquidity drying up and associated drawdowns was barely even a subject within allocation decisions.
A rolling period plot of ‘Up’ vs ‘Down’ capture, particularly in case of long-tenured strategies, is generally a reasonably sound way of interpreting ‘capture’ metrics fairly (by taking an un-skewed look), vs. a standard since-inception measure of up-down capture. A mostly favorable rolling up-down capture often establishes consistency in underlying style. For instance, while Minerva India Under-served has since-inception ‘up capture’ of 81 and a ‘down capture’ of 68, this by itself doesn’t confirm whether our favorable up-down capture differential was skewed (or not) by certain periods. By itself, it fails to establish consistency. To address that, the attached exhibit plots our 3-year rolling ‘down capture’ (on y axis) vs. ‘up capture’ (on x axis) - The most telling strategy characteristic is that 62% of all observations over nearly 14 years of allocation fell in the asymmetrically high ‘up capture’ region (i.e. higher up-capture and lower down-capture) of the plot.
While flows in more discerning (read ‘more institutionalized’) markets respond positively to superior down-capture when broader sentiment is negative and/or valuations are very elevated, evidence in retail-driven markets such as India does not sync with this. Sensitivity to downsides in such markets is often overwhelmingly managed by shifting between asset classes, often overly exposing capital to market timing risks. Regardless, consistently positive differentials between ‘Up’ and ‘Down’ capture strongly indicate style discipline in listed equity strategies, and (arguably) superior security selection. To that extent, these are certainly useful measures in the hands of discerning allocators.
For our historical up/down captures across various time frames of your choice and vs. different benchmarks of your choice, please reach out to Deepak Gaur or Devchandra Ramani.
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