Research analysis

The investors who try to invest in funds have a lot of information at their disposal, whether on the asset management’s web sites, in annual reports or in the fund’s notice. Certain investors are flooded under the mass of information (reporting, promotion, newsletters) and are thus held on basic information such as the past performance or the ratings, to make an opinion on a fund. There is however a lot of other very useful information to make good selection choice such as the turnover ratio. This measure is often a good indicator of the management style of a fund manager.

The turnover ratio of a mutual fund is the percentage of a fund's assets that have changed over the course of a given time period, usually a year – which is calculated by dividing the average assets during the period by the lesser of the value of purchases and the value of sales during the same period.

Examining the turnover of a fund is very interesting. For example, a 100% turnover rate (200% writing on the notice) indicates that the fund manager holds on average his positions during one year. It does not necessarily mean that each asset is sold or bought in a year, but it gives an overview of the evolution of the portfolio over the period and also of the management style. Other crucial point, what is the impact of number of transactions on the expenses paid by investor ? By comparing peer of funds with different management styles – over performing or under performing the market - during bear and bull market periods, we can measure the impact of the turnover ration on the performance of a fund according his management style.

Can we observe a correlation between fund performance and turnover ratio ? The portfolios which under-performed or over-performed the market over a certain period of time - are they characterized by a high or a low turnover ratio ? How to determine if a fund manager is too active or not ? Can we said that Actively managed funds often have