Portfolio Turnover

Understand the importance of turnover

Portfolio turnover is a measure of a fund's trading activity and is calculated by dividing the lesser of purchases or sales (excluding securities with maturities of less than one year) by the average monthly net assets of the fund. Turnover is simply a measure of the percentage of portfolio value that has been transacted, not an indication of the percentage of a fund's holdings that have been changed.

Turnover in action

We can determine the turnover rate of the hypothetical GlobalOmni Fund, with the following assumptions:

Average monthly net assets = $1,000,000
Purchases (excluding short-term securities) = $300,000
Sales (excluding short-term securities) = $400,000

To determine turnover, divide the lesser of purchases or sales (excluding short-term securities) by the average monthly net assets.

Lesser of purchases or sales = $300,000
Average monthly net assets = $1,000,000
$300,000/$1,000,000 = 30% Turnover Rate

Why is turnover important?

Turnover is important when investing in any mutual fund, since the amount of turnover affects the fees and costs within the mutual fund. However, turnover is just one element of a complete evaluation of an investment — one that includes management strategy, fund objectives and the current market climate.

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