Portfolio turnover measures the frequency by which securities within a mutual fund or ETF are bought and sold. Turnover is determined by the dollar value of buys or sells (whichever is less) during a year divided by the total assets in the fund. For example, a mutual fund with $200 million in assets that has $100 million of sales and $100 million worth of purchases (using the same proceeds) during the year would have a 50% turnover rate, indicating an average holding period of two-years. A churn rate of 100% signifies that a fund manager has sold the fund’s entire portfolio and bought new holdings during the course of a year. High portfolio turnover translates into higher investment costs whereas low portfolio turnover is better because it lessens the impact of trading and tax related expenses.
