Minimize Turnover

Listen to Podcast We try to minimize the amount of turnover that a portfolio will incur. Turnover is the number of times a portfolio is traded relatively to its total value. 100% turnover would mean that the entire portfolio was traded at least once during the year. Many studies have shown that turnover leads to inferior investment performance mostly due to transaction costs (and taxes) even at the institutional level. Some portfolio managers have superior trading skills and generate extraordinary returns through their trading activities. However, this is the exception rather than rule.^ In recent years, many investors have been introduced to the separately management account (SMA). This investment product allows one investment advisor to hire another investment advisor to manage the portfolio of his or her client. While this may make sense for some clients, our general experience is that many investors find themselves having several managers and owning hundreds of securities in tiny amounts relatively to their total portfolio. Sometimes these portfolios have significant amounts of turnover. New clients routinely testify that on a monthly and quarterly basisthey receive pages and pages of statements that make little or no sense to them, and their advisors know very little about the investments in the portfolio. They also have very little access to the person(s) whom they pay to manage their portfolio. Our clients usually want fewer investments, less turnover and want to own companies for the long-term. We help clients simplify their investments and their statements. ^Bauman, W. Scott, Managing Portfolio Turnover: An Empirical Study, Quarterly Journal of Finance and Accounting, Summer 2005.