Return and risk are two sides of the same coin: a fund that earns a lot by taking on a lot of risk isn't necessarily "better" than one that earns less with much more stability. The Sharpe ratio and the Sortino ratio exist precisely to measure that -the return earned per unit of risk taken- and they're two of the metrics used in the FUND-RANK ranking.
The Sharpe ratio divides a fund's excess return (over a risk-free asset) by its total volatility. In plain terms: how much extra return the fund delivered for each unit of "swing" -ups and downs- the investor had to put up with. A higher Sharpe ratio indicates a more efficient return-to-risk relationship.
Its weak point: it treats a sharp rise the same as a sharp fall, because both count as "volatility." A fund that jumps up suddenly can see its Sharpe ratio penalized even though that jump is, in reality, good news for the investor.
The Sortino ratio solves exactly that problem: instead of dividing by total volatility, it divides by downside volatility -only the falls-. It completely ignores sharp upward swings when "penalizing" the fund. That's why it's considered a more faithful measure of what an investor actually perceives as risk: nobody worries about an unexpected rise, only about the drops.
Imagine two funds with the same annualized return. Fund A has symmetric swings: it rises and falls by similar amounts. Fund B has sharp occasional spikes upward and gentle, controlled dips downward. Both can end up with a similar total return, but Fund B will have a noticeably better Sortino ratio than its Sharpe ratio, because its "bad" volatility (the falls) is much smaller than its total volatility. Sharpe doesn't capture that nuance; Sortino does.
They're not mutually exclusive. Sharpe gives a general picture of risk-return efficiency and is the most widely used and comparable metric across funds and fund managers. Sortino sharpens the analysis when what worries you most is avoiding large falls. The most complete approach is to look at both alongside the maximum drawdown, which answers a different, complementary question: not "how much has it swung" but "how much has it fallen at its worst."
In the FUND-RANK comparator you can sort the ranking table by any of these three columns by clicking its header, within each fund category.
What's the difference between the Sharpe ratio and the
Sortino ratio?
Sharpe penalizes all volatility, both upside and downside. Sortino only
penalizes falls, ignoring sharp upward swings. That's why it's often
considered a more faithful measure of the risk an investor actually
perceives.
Which ratio is better to look at when comparing
funds?
Neither replaces the other: Sharpe gives a general view and Sortino
focuses on downside risk. The most complete approach is to look at
both alongside the maximum drawdown.