Investing DeMYSTiFieD by Paul Lim

Author:Paul Lim
Language: eng
Format: epub
Publisher: McGraw-Hill
Published: 2011-07-14T16:00:00+00:00

Fund Turnover

A fund’s turnover rate refers to the speed with which its manager replaces stocks in his or her portfolio. A turnover rate of 100 percent, for example, would indicate that the manager sells virtually all of his stocks in a given year. A turnover rate of 50 percent would indicate that he replaces about half of his holdings in any given year. (Figure 9-2 shows the annual turnover rate for equity funds in recent history.)

Higher turnover rates may be an indication that a fund manager is jumping on opportunities. But they also can have negative implications. Higher turnover leads to higher trading costs. And as we just discussed, every time your manager buys and sells stocks, he or she incurs regular brokerage and transactional expenses. These costs aren’t borne by the investment management companies that run your funds, but rather, by the shareholders who invest in them.

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