Glossary
Turnover Ratio
How often a fund trades its holdings
Turnover measures how often a fund replaced its holdings over a year. At 100%, the entire portfolio was traded once during the period.
High turnover means cost. Every trade incurs commission and spread, and those come out of returns separately from the management fee — they do not appear in the stated expense ratio.
It is disadvantageous for tax too. Frequent trading realises gains more often, pulling forward the point of taxation. Money that could have kept compounding is paid out instead.
This is why index funds show low turnover. They adjust only when the index changes, so trading is minimal and costs stay low.
When choosing a fund, look past returns and fees to turnover. Unusually high turnover paired with index-like performance means paying more cost for nothing. Some active funds show low turnover too. A philosophy of holding for the long term produces a low figure. Turnover is also a window into how a fund is actually run.