Friday, December 24, 2010

Turnover

Turnover is a measure of the fund's trading activity. It measures the percentage of the fund's assets that have been 'turned over' i.e. replaced with other holdings in a given year. Some funds may have a high turnover ratio due to the specific trading strategy that they employ (particularly for some quantitative trading strategies). For some funds a high turnover ratio may indicate lack of conviction, management turnover, or internal disagreement on stocks, and an excessively high turnover ratio should be questioned. Funds with higher turnover ratios may also impact on an investor's tax liability - however this will depend on the particular rules in each tax jurisdiction; it is important to receive competent tax advice. The turnover ratio will likely vary through the years e.g. a year of intense market activity, or a year in which several long term holdings are liquidated, etc. A higher turnover will generally mean higher expenses for the fund due to trading costs; thus a higher turnover ratio will need to be justified by higher returns.

Synonyms: Annual turnover, Holdings turnover, Changes in holdings, Expense ratio, Portfolio churn
 
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