Fund Performance in a Downside Context.

A risk-adjusted performance measure that focuses on total return and shortfall deviation, or downside risk, provides several advantages: consistency with investor reasoning, easy interpretation, and simplicity of calculation. Other risk-adjusted measures share the common feature of returns received relative to risk taken, but they all differ in definition and measurement of risk, thus affecting the overall evaluation. This article compares the performance and rankings of U.S. closed-end and open-end funds, U.K. unit trusts, and emerging market trusts using the different performance measures. Examination of fund performance rankings according to the specific measure used shows that downside risk is a valuable concept in the risk-return framework, especially in high-risk markets.