Business, Legal & Accounting Glossary
Portfolio turnover measures what percentage of a portfolio’s assets are bought and sold in a given year.
Portfolio turnover refers to the measure of trading activity in a fund’s portfolio.
The portfolio turnover rate is a percentage of the portfolio that is bought and sold in exchange for other stocks. The portfolio turnover is calculated by looking at the amount of new securities purchased and the amount of securities sold over a particular period. Whichever amount is less gets divided by the total net asset value of the fund, creating the portfolio turnover rate. A fund with a 50 per cent portfolio turnover, for example, replaces half of its holdings. A growth fund is an example of a fund that tends to have a high portfolio turnover rate since there is an abundance of purchases and sales. A firm with a high portfolio turnover rate will typically incur more transaction costs than one with a low portfolio turnover rate.
For example, a fund with 100% turnover holds stocks for an average of one year. A fund with a 20% turnover holds stocks for an average of five years. A fund with a 200% turnover, on the other hand, holds its stocks for an average of six months.
Turnover matters because buying and selling stocks generate transaction costs that affect the overall returns, but are not represented in the fund’s operating expense ratio.
Churn
Management
Mutual fund
Portfolio management
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This glossary post was last updated: 2nd December, 2021 | 0 Views.