The turnover ratio is a measure of a fund's trading activity, which is calculated by taking the lesser of purchases or sales (excluding all securities with maturities of less than one year) and dividing by average monthly net assets.
What is a fund’s turnover ratio?
- The turnover ratio loosely represents the percentage of a fund’s holdings that have changed over the past year.
- A low turnover figure indicates a buy-and-hold strategy, while a high turnover figure may indicate a market-timing strategy.
Morningstar does not calculate turnover ratios. The figure is taken directly from the fund's annual report. A turnover ratio loosely represents the percentage of the portfolio's holdings that have changed over the past year; however, a turnover ratio of 100% or more does not necessarily suggest that all securities in the portfolio have been traded.
A low turnover figure (20% to 30%) would indicate a buy-and-hold strategy. High turnover (more than 100%) would indicate an investment strategy involving considerable buying and selling of securities. Higher turnover ratios are accompanied by higher transaction costs and are more likely to lead to short-term taxable capital gains.