Investors should be wary of fund managers who turn over their portfolios too much, as they can incur large additional costs that are not stated in their annual management charges. Fundsmith Equity Fund is to be applauded for delivering a negative portfolio turnover figure of -0.19 per cent.
Terry Smith, chief executive of Fundsmith, says that during the period from 1 January 2012 to 30 June 2012, all they did was to invest the money invested in its fund except for a small increase in its cash. The fund sold no shares. As the money flowing into the fund was slightly greater than the shares they bought, they ended up with negative portfolio turnover.
A 2008 report by Lipper found that the average annual portfolio turnover level for actively managed equity funds is 56.6 per cent, reflecting a typical stockholding period of just under two years.