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. Overall Turnover

    A synonym for total revenues, commonly used in Europe and Asia. ...
  5. Asset Turnover Ratio

    The amount of sales generated for every dollar's worth of assets ...
  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. Mutual Funds & ETFs

    Turnover

    Turnover
  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. 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.
  5. Mutual Funds & ETFs

    Fund I-Q No. 5: Portfolio Turnover Ratio

    By Richard Loth (Contact | Biography)Why should fund investors be concerned about portfolio turnover? There are four major reasons, and they all impact a fund's investment quality: There ...
  6. Retirement

    Turnover Ratios Weak Indicator Of Fund Quality

    This indicator is not as important as some investors might think.
  7. 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 ...
  8. Mutual Funds & ETFs

    Scoring Fund Turnover Data

    By Richard Loth (Contact | Biography)The Morningstar and Value line mutual fund reports all present current and historical portfolio turnover figures. This is a useful piece of comparative data. ...
  9. Professionals

    Operating Efficiency Ratios

    CFA Level 1 - Operating Efficiency Ratios. Learn the three operating efficiency ratios. Includes definitions and formulas for total asset, fixed-asset and equity turnovers.
  10. Fundamental Analysis

    Understanding Activity Ratios

    Activity ratios measure how effectively a business uses its assets.
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. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center