The portfolio turnover rate is a measure of the level of trading activity by a fund’s portfolio manager.
A fund’s portfolio turnover rate indicates how actively a fund buys or sells securities in its portfolio in the financial year. A 100% turnover rate is equivalent of a fund buying and selling all of the securities in its portfolio once over the financial year.
A fund with a higher portfolio turnover rate will generally incur higher trading costs. Investors in such a fund will also be more likely to receive capital gains from the fund for that year. Although the tax impact to an investor may depend on the type of investment account used to hold the fund. There is not necessarily a relationship between a high turnover rate and the performance of a fund.
The portfolio turnover rate is based on a calculation: the total cost of new portfolio securities or the total proceeds from portfolio securities sold in a financial year (whichever is less) divided by the average value of the portfolio securities owned by the investment fund that year.
Portfolio turnover = lesser of the cost of purchases and proceeds of sales, of portfolio securities, for the financial year / average of the value of the portfolio securities owned by the investment fund, during the financial year
A fund purchased $20 million of securities and sold $5 million of securities over the course of its financial year. The average value of the fund’s portfolio of securities during the financial year was $40 million.
The fund’s portfolio turnover rate is: ($5 million / $40 million) x 100 = 12.5%
You can find a fund’s portfolio turnover rate in its Management Report of Fund Performance (MFRP) disclosure document. This is available on the fund manager’s designated website, as well as on SEDAR, the regulatory filing system.