Portfolio Turnover

AAA

DEFINITION of 'Portfolio Turnover'

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.

INVESTOPEDIA EXPLAINS '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. Asset Management

    1. The management of a client's investments by a financial services ...
  2. Net Asset Value - NAV

    A mutual fund's price per share or exchange-traded fund's (ETF) ...
  3. Passive Management

    A style of management associated with mutual and exchange-traded ...
  4. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  5. Net Asset Value Per Share - NAVPS

    An expression for net asset value that represents a fund's (mutual, ...
  6. Active Management

    The use of a human element, such as a single manager, co-managers ...
RELATED FAQS
  1. How do waivers, reimbursements and recoupments affect a fund's expense ratio?

    Waivers, reimbursements and recoupments can initially serve to keep a fund's expense ratio lower than it would be otherwise. ... Read Full Answer >>
  2. What are some popular mutual funds that give exposure to the drugs sector?

    The pharmaceutical industry has experienced outstanding growth in the 10 years leading up to 2015, consistently outperforming ... Read Full Answer >>
  3. What can cause the rate of return to be negative?

    Several factors can cause an investment to have a negative rate of return. Poor performance of a company or companies, turmoil ... Read Full Answer >>
  4. What information should I focus on in my mutual fund's prospectus?

    The U.S. Securities and Exchange Commission (SEC) requires investment companies to provide potential and current investors ... Read Full Answer >>
  5. How can I get a free mutual fund prospectus?

    Mutual funds are sold via prospectus, as mandated by the Securities Act of 1933. The prospectus document outlines many features ... Read Full Answer >>
  6. Is there an index for tracking mid-cap stocks?

    There are several indexes for tracking mid-cap stocks. The most widely referenced is the S&P Mid-Cap 400, but others ... Read Full Answer >>
Related Articles
  1. Active Trading Fundamentals

    Matching Investing Risk Tolerance To Personality

    Understanding risk tolerance is crucial to the advisor/client relationship and any good investment policy statement.
  2. Investing Basics

    Think Like Warren Buffett

    They don't call him "The Oracle" for nothing. Learn how Buffett comes up with his winning picks.
  3. Mutual Funds & ETFs

    The Advantages Of Mutual Funds

    Learn how to get diversification, liquidity and professional management at an affordable price.
  4. Mutual Funds & ETFs

    Mutual Funds Are Awesome - Except When They're Not

    This investment is very popular, but that doesn't mean it comes without risk.
  5. Insurance

    Healthcare Funds: Give Your Portfolio A Booster Shot

    Find out how healthcare investments can become the strongest asset in your portfolio.
  6. Mutual Funds & ETFs

    Mutual Fund Basics Tutorial

    Learn about the basics - and the pitfalls - of investing in mutual funds.
  7. Mutual Funds & ETFs

    Pros & Cons Of Bond Funds Vs. Bond ETFs

    Understanding the pros and cons of bond funds and bond ETFs will help you choose the instrument that is best for building your diversified bond portfolio.
  8. Mutual Funds & ETFs

    How Janus Capital Makes Money

    Before investing in Janus, it is prudent to understand how it makes money and what costs detract from shareholder wealth.
  9. Professionals

    Mutual Funds: How Many is Too Many?

    How many mutual funds are too many when it comes to a well diversified portfolio?
  10. Investing Basics

    Understanding Redemption

    In the investing world, redemption refers to cashing out the value of bonds or mutual funds.

You May Also Like

Hot Definitions
  1. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  2. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  3. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  4. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  5. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center