Skip to content
GetProfitable
Search
Dictionary

Portfolio turnover

The proportion of a portfolio traded over a year, used as a proxy for trading costs and, in taxable accounts, for how much gain is likely to be realised.

Turnover of 100% implies the whole portfolio was replaced during the year. A broad index fund may run under 5%; an active fund 60% to 120%; a systematic momentum strategy several hundred percent.

Each unit of turnover carries commission, spread and market impact, none of which appear in the total-expense-ratio. As a rough guide, 100% turnover in liquid large caps might cost 0.2% to 0.4% a year, and considerably more in small or illiquid names.

In taxable accounts turnover also converts unrealised gains into realised ones, accelerating tax. High turnover is not automatically bad, but it must be paid for out of the strategy's gross edge before anything reaches the investor. See slippage and fee-drag.

Related: slippage, fee-drag, total-expense-ratio, tax-loss-harvesting, momentum-factor, equal-weighted-index

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Slippage on a market orderA buy order clears four price levels, so the average price paid is worse than the price first quoted.Buy 1,000 shares at marketpricesell orders resting (bar length = size)20.04300 shares20.03200 shares20.01200 shares20.00300 sharesnothing resting at 20.02order sweeps up the bookaverage fill 20.02SLIPPAGE0.02 a share$20.00 in totalintended 20.00Each level fills at its own price; the average is what you really paid.
Slippage on a market order. You click at 20.00, but only 300 shares are resting there, so the rest of the order fills at 20.01, 20.03 and 20.04. The average price paid is 20.02, and that two-cent gap is slippage.

Educational only, not advice. Spotted an error? Post in Site Feedback.