max DD · drawdown
Maximum drawdown
The largest peak-to-trough percentage decline in a fund's unit price over a measurement window. Captures worst-case past loss in a way standard deviation does not.
Maximum drawdown is the largest peak-to-trough percentage decline a fund has experienced over a specified measurement window — typically the past 5 or 10 years, or the fund's full history. It is calculated as the largest gap between any prior high in the unit price and the subsequent low before a new high is reached.
Maximum drawdown is a complementary risk metric to standard deviation. Two funds can have the same σ but very different maximum drawdowns if one had a single severe sustained decline while the other had several smaller declines that quickly recovered. Drawdown captures the practical investor experience of "how much of my money was at risk at the worst point".
NZ retail Quarterly Fund Updates do not include max drawdown as a standardised metric. Some active managers report it in fact sheets for periods such as the COVID-19 March 2020 drawdown or the 2022 bond-and-equity correlated drawdown.
Related terms
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volatility · σ
Standard deviation (volatility)
The statistical measure of how widely a fund's returns vary around their average. The input to the FMA risk indicator: weekly returns over five years, mapped to a 1–7 band.
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FMA risk indicator
Risk indicator (1–7 scale)
A standardised 1–7 risk score every NZ retail managed fund must publish, calculated from the fund's price volatility (standard deviation of weekly returns) over the past five years.
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sortino-ratio
Sortino ratio
A downside-only variant of the Sharpe ratio: excess return divided by the standard deviation of negative returns only. Penalises losses but not symmetric upside volatility.