Passive Styles When analyzing turnover, it is essential to compare peers within the same category. Understanding Turnover Ratio in Practice At its core, the turnover ratio is calculated by taking the lesser of total purchases or sales (excluding securities maturing or being sold) and dividing it by the average monthly assets of the fund.
Balanced Fund Turnover Ratio Sweet Spot: Finding the Ideal Range
Ultimately, the best turnover ratio is the one that reflects a disciplined approach to achieving the fund's specific goals. Strategic Alignment and Consistency A good turnover ratio is one that aligns with the fund's documented strategy.
A moderate turnover ratio of 40% to 80% is often considered ideal for a balanced, actively managed fund seeking a blend of growth and income. The Cost of Active Management High turnover is often the price paid for active management, where a fund manager attempts to outperform a benchmark index through frequent trading.
Balanced Fund Turnover Ratio Sweet Spot: 40% to 80% Ideal Range
For pure-play growth funds, turnover might regularly hit 100% or more, which is acceptable given the higher fees investors pay for that active expertise. Each transaction incurs brokerage commissions and bid-ask spreads, which erode the fund's assets.
More About What is a good turnover ratio for a mutual fund
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