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Portfolio Turnover

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Portfolio turnover refers to the measure of trading activity in a fund's portfolio. The portfolio turnover rate is a percentage of the portfolio that is bought and sold in exchange for other stocks. The portfolio turnover is calculated by looking at the amount of new securities purchased and the amount of securities sold over a particular period. Whichever amount is less gets divided by the total net asset value of the fund, creating the portfolio turnover rate. A fund with a 50 percent portfolio turnover, for example, replaces half of its holdings. A growth fund is an example of a fund that tends to have a high portfolio turnover rate, since there is an abundance of purchases and sales. A firm with a high portfolio turnover rate will typically incur more transaction costs than one with a low portfolio turnover rate.



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