Portfolio turnover rate


Also found in: Acronyms.

Portfolio turnover rate

For an investment company, an annualized rate found by dividing the lesser of purchases and sales by the average of portfolio assets.

Portfolio Turnover Rate

The ratio at which a portfolio trades the securities in it. A higher turnover rate indicates active management; if it becomes very high, this may indicate that the broker or manager is trading securities for the sake of collecting more fees. It is calculated as the trading volume of the portfolio as a percentage of the entire portfolio. See also: Prudent person rule.
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The portfolio turnover rate can be a little harder to track down (and they are not published for pension funds).
Investment advisers can dig beyond fund disclosures to detect market-timing by comparing a fund's current portfolio turnover rate to the fund's historic rate.
In addition to a lower portfolio turnover rate, index funds typically have lower management fees than do activity managed funds.
A high portfolio turnover rate, therefore, in addition to significantly reducing or even eliminating the tax deferral advantage, presents an additional disadvantage to a taxpayer with significant capital losses or a 31% tax rate.