Investment portfolio turnover is an important statistic to consider when analyzing an investment portfolio. This consideration should apply to all investment portfolios, whether they are actively or passively managed.

First, Let’s Talk About Mutual Fund Portfolio Turnover

For years, I conducted due diligence on actively managed mutual funds. In my opinion, portfolio turnover was one of the most important statistics to examine. It got to the heart and soul of a manager’s investment style. Was it high turnover or low turnover? This usually depended on his or her investment philosophy and process, and the data and time frames used to make decisions. Also, was the turnover fairly consistent over the years? If it was erratic, this might be an important clue regarding the discipline, or lack thereof, of the process. Understanding turnover provides considerable insight into how a portfolio is managed and should be expected to behave moving forward.

While I was neutral on the high- or low-turnover style of an active management approach, I recognized that both styles could be successful if they were disciplined. I was also aware turnover tended to correlate with other key portfolio statistics.

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