Portfolio turnover
The share of a portfolio replaced by trades over a period. It shows how often the composition is rewritten and sets the size of the costs directly.
Formula
T = \frac{\min\left(\text{purchases},\ \text{sales}\right)}{\text{average assets}}The smaller of purchases and sales over the period is divided by the average value of assets, so that money coming in or going out does not inflate the figure.
How to read the number
A high reading is not a fault in itself but needs explaining: every replacement has to earn more than the spread, the commission and the tax event cost.
When the metric lies
The number says nothing about what the trades cost: the same turnover in a liquid name and in a rarely traded one are fundamentally different amounts of money.
Also known as: turnover ratio