![]() ![]() ![]() The longer the holding period, the lower the turnover and vice versa. If you have questions or comments please contact Morningstar. Turnover is a measurement of how long a fund holds the securities it buys. Learn how to invest like a pro with Morningstar’s Investment Workbooks (John Wiley & Sons, 2004, 2005), available at online bookstores. For example, a turnover ratio of 55 percent means that each year, the mutual fund replaces just over half of the stocks in its portfolio. It's not uncommon to see turnover rates of 300% or more, even in funds that aren't particularly aggressive. The mutual fund asset turnover ratio measures the percentage of the portfolio that the mutual fund replaces on an annual basis. With bond funds, though, quite often managers employ cash-management strategies that inflate turnover rates. And generally, very high-turnover managers tend to practice aggressive strategies. In general, buy-and-hold managers will have lower turnover rates than managers who trade on short-term factors. Turnover can give you a sense of a manager's trading activity, but don't read too much into a fund's turnover rate, particularly with bond funds. ![]() Conversely, a shrinking asset base can inflate a fund's turnover ratio. Fund accountants calculate a funds turnover rate by dividing its total sales or purchases (excluding cash), whichever is less, by its average monthly assets. Depending on what kind of investor you are, you can go for a fund based on this. Mutual funds that have a low turnover rate are usually passively managed funds. This indicates that the fund manager is employing a strategy of buy-and-hold. If the manager doesn't change her trading pace, a fund's turnover ratio will decline as assets rise. Essentially, a ratio of the turnover of the fund is low when it is equal to 30 or even lower than this. For instance, a dramatic change in the fund's asset base (the turnover ratio's denominator) can give a false impression of a fund's trading activity. You can translate this math easily: A fund that trades 25% of its portfolio each year holds a stock for four years, on average.ĭespite its seeming simplicity, turnover rates have their quirks. Fund accountants calculate a fund's turnover rate by dividing its total sales or purchases (excluding cash), whichever is less, by its average monthly assets during the year. Examining a Stock Fund's Portfolio, Part 2Ī fund's turnover rate represents the percentage of a fund's holdings that have changed over the past year, and it gives an idea of how long a manager holds on to a stock. The Best Mutual Funds of September 2022 Best Large-Cap Blend Equity Fund American Funds Washington Mutual F1 (WSHFX) 5-Year Avg. ![]()
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