What is the portfolio turnover?

The

portfolio turnover is an assessment of how often the assets are purchased and sold. Measurement of this type of turnover can often bring valuable guides regarding the amount of costs caused by the investor with trading, and compare these costs with the return of these trades. The portfolio turnover is usually made for a 12 -month period, although the basic process can also be used to assess the turnover rate for a quarter or semi -annual time frame.

In order to determine the turnover of the portfolio, the value of the securities that are purchased or sold during the considered period are calculated. This number is then divided by the total net asset value of the portfolio over the same time period. If the total value of net asset for the current period is higher than in the previous period, the turnover is considered minimal. The value should be lower than in the previous period, it is a sign that the portfolio -related expression was higher, did not bring enough return tobalancing these expenditures and generated a higher rate of turnover.

For example, if an investor buys three investments during the year on the sale of one security, the sale would be deducted from the amount of purchase, which would allow any commercial fees or costs paid to brokers or dealers. This image is divided by the current portfolio value. If these three investments fail to contribute to the value of the portfolio as effectively as one security that has been sold, it will show as a loss or reduction of the total portfolio value and indicates an unacceptable turnover. In the event that the purchases have gone completely and these securities worked significantly better than the security sold, the portfolio turnover will be low and therefore very favorite for the investor.

Investors can also undermine the portfolio value by creating frequent trades that do not bring adequate return and help to balance differentFees and costs. For this reason, it is important to project the outcome of any transaction in terms of its ability to get a return. As in employees' situations, a high turnover indicates the presence of the problems to be addressed, the high portfolio turnover is a sign that the investor must carefully explore how he selects securities for purchase or sale, and adjust this process to make the turnover more convenient.