- A fund or money manager's largest cumulative percentage decline in net asset value. It is defined as the percentage decline from the fund's highest net asset value (peak) to the lowest net asset value (trough) after the peak. Funds that have been in existence for long periods of time may have a number of peak-to-valley drawdowns over various time periods.
While declines in a fund's net asset value are inevitable, investors monitor the length of time it takes for the fund to recoup those losses. The shorter the recovery period, the better the fund's performance. However, the caveat here is that the recovery from the drawdown should not be achieved by the fund manager taking on a significantly greater degree of risk to get a boost in performance.
Investment dictionary. Academic. 2012.
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