Portfolio Turnover

Loading the player...

What is 'Portfolio Turnover'

Portfolio turnover is a measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by taking either the total amount of new securities purchased or the amount of securities sold - whichever is less - over a particular period, divided by the total net asset value (NAV) of the fund. The measurement is usually reported for a 12-month time period.

BREAKING DOWN 'Portfolio Turnover'

The portfolio turnover measurement should be considered by an investor before deciding to purchase a given mutual fund or similar financial instrument. After all, a firm with a high turnover rate will incur more transaction costs than a fund with a lower rate. Unless the superior asset selection renders benefits that offset the added transaction costs they cause, a less active trading posture may generate higher fund returns.

In addition, cost conscious fund investors should take note that the transactional brokerage fee costs are not included in the calculation of a fund's operating expense ratio and thus represent what can be, in high-turnover portfolios, a significant additional expense that reduces investment return.

RELATED TERMS
  1. Turnover Ratio

    The percentage of a mutual fund or other investment vehicle's ...
  2. Annual Turnover

    The percentage rate at which a mutual fund or exchange-traded ...
  3. Turnover

    1. In accounting, the number of times an asset is replaced during ...
  4. Asset Turnover Ratio

    The amount of sales generated for every dollar's worth of assets ...
  5. Overall Turnover

    A synonym for total revenues, commonly used in Europe and Asia. ...
  6. Share Turnover

    A measure of stock liquidity calculated by dividing the total ...
Related Articles
  1. Investing Basics

    What Is Portfolio Turnover?

    Portfolio turnover measures a fund’s percentage of assets that are bought and sold by its manager over a year.
  2. Fundamental Analysis

    How to Calculate a Turnover Ratio

    A turnover ratio measures a mutual fund’s level of trading activity in a given time period, usually a year.
  3. Mutual Funds & ETFs

    Portfolio Turnover

    By Richard Loth (Contact | Biography)"Critics have long said that money managers who buy and sell frequently are confusing motion with progress." -Ian McDonald, The Wall Street Journal, August ...
  4. Retirement

    Turnover Ratios Weak Indicator Of Fund Quality

    This indicator is not as important as some investors might think.
  5. Investing

    Understanding Turnover

    Turnover has a number of different, but related, meanings depending on the context in which it is used. Generally, it means the number of times an item is replaced with a new or similar version ...
  6. Fundamental Analysis

    Understanding Activity Ratios

    Activity ratios measure how effectively a business uses its assets.
  7. Investing

    Asset Turnover Ratio

    Investopedia explains: The asset turnover ratio is a measure of a company's ability to use its assets to generate sales or revenue, and is a calculation of the amount of sales or revenue generated ...
  8. Investing Basics

    4 Expensive Mutual Fund Mistakes to Avoid

    Mutual funds are a good way to balance your asset allocation but there some potentially expensive pitfalls investors need to be aware of.
  9. Personal Finance

    AR & Inventory Turnover Is Key For These Sectors

    Accounts receivable and inventory turnover are two important ratios in the current asset category. We will also discuss the key industries that benefit from a thorough understanding of these ...
  10. Mutual Funds & ETFs

    Understanding Mutual Fund Returns

    By Richard Loth (Contact | Biography)The return on any investment, measured over a given period of time, is simply the sum of its capital appreciation and any income generated divided by the ...
RELATED FAQS
  1. How should I use portfolio turnover to evaluate a mutual fund?

    Learn about the turnover rate for mutual funds, and understand the effect higher turnover may have on fund performance and ... Read Answer >>
  2. What is considered a good turnover ratio for a mutual fund?

    Understand what the concept of turnover ratio represents in relation to a mutual fund, and how an investor can evaluate a ... Read Answer >>
  3. What is a good turnover ratio for a mutual fund?

    Learn about mutual fund turnover ratios and why the ideal ratio may differ based on the type of mutual fund and your investment ... Read Answer >>
  4. How can a mutual fund raise or lower its turnover ratio?

    Find out how a fund manager can raise or lower a fund's turnover ratio, including how to interpret this metric and what it ... Read Answer >>
  5. What does a high turnover ratio signify for an investment fund? (KNOW)

    Find out more about the turnover ratio, what the turnover ratio measures and what a high turnover ratio indicates about an ... Read Answer >>
  6. How can a company raise its asset turnover ratio?

    Find out more about the asset turnover ratio, what it measures, how to calculate the ratio and how a company could increase ... Read Answer >>
Hot Definitions
  1. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
Trading Center