What is your “ Share Turnover “ ratio ?




What is 'Share Turnover' From Investopedia.com


Share turnover is a measure of stock liquidity calculated by dividing the total number of shares traded over a period by the average number of shares outstanding for the period. The higher the share turnover, the more liquid the share of the company.



BREAKING DOWN 'Share Turnover'


For example, if the total amount of shares traded over the year was 10 billion and the average amount of shares outstanding for the year was 100 million, the share turnover for the year is 100 times.

A high turnover ratio is good at market level as it mean the overall trading volume and liquidity are high and good for traders/ fund managers who can trade easily in that particular market.


Stocks traded, turnover ratio of domestic shares (%) For US / JPN/ HKG and SIN Market ( here )

Base on above , STI has a quite low turnover ratio of around 31% as compared to advance market like US (95% ) , Japan ( 105%) or even the market closer to us , HKG (41%). This also partly explained why STI was not performing well in 2017 as lack of interest from global fund managers or traders.

Whereas at individual or mutual fund level , a high turnover ratio mean higher cost especially the “active manage “ fund or unit trust. We also know that more and more investors are moving towards passive fund like ETF due to cost factor.

I have written about the cost impact of buying unit trust / mutual fund which affecting the overall ROI in long run ( here ).

Quote “High turnover rates apply to actively managed funds, while passive portfolios such as an index fund have very low turnover ratios. To calculate the turnover ratio for a given fund, the total amount of assets purchased or sold during the year must be obtained. If a fund holds $100 million in AUM and $75 million of those assets are liquidated at some point during the measurement period, then assets sold/AUM = turnover rate, or 75%. 

It is important to note a fund turning over at 100% annually has not necessarily liquidated all positions with which it began the year; rather, the complete turnover accounts for frequent trading in and out of issues and the fact sales of securities equal total AUM for the year. Using the same formula, the turnover rate is also measured by the amount of securities bought in the measurement period.” Unquote.


What is your stocks traded turnover ratio ?

I try to work out my stocks traded turnover ratio by adding my buy & sell value divided by total equity asset value for 2017 vs 2016.

My turnover ratio in 2017 was around 54% vs 2016 ( 95% ) , there was a  huge reduction in ratio which simply mean that I traded less in 2017 and paying lesser fees to my broker. Assuming the cost of 0.3% on brokerage and clearing fees , the  total cost incurred for 2017 amounting  to around $4.6K as compared to 2016 of $6.7K.

Always remember that the more you trade, the more you are paying to your broker.  It reminds me about this book I read before:


Where Are The Customer’s Yachts


A great summary from renowned financial blogger about the book : Ben Calrson ( A Wealth of Common Sense )

10 Great Lines From ‘Where Are the Customers’ Yachts?’ (here )



How Mutual Fund Trading Costs Hurt Your Bottom Line from  from Money.USnews.com



I am not sure what will be the optimum level for such transaction ratio for retail investors like us, but for sure the cost shall increase in-tandem with the ratio. Should I be more passive and trade less in 2018 to reduce the ratio and paying lesser brokerages fees subsequently? What do you think ? or Have you ever calculate your share traded turnover ratio ?

Cheers !!


PS:
Total Expenses Ratio for typical Mutual Fund or Unit Trust is about 1.5- 2 % over AUM , which include “ management fees , administrative fees , operating cost , marketing and advertisement etc….whereas my brokerage fees incurred in 2017 was just about 0.16% of my portfolio value. Obviously , it is other expenses like Management Fees / Admin & Operating cost that kill the performance of active managed mutual fund in the long run …



“Trading is inevitably a zero-sum game before costs, and a ‘loser’s game’ after deducting the high costs of all those transactions. In economic terms, trading is a ‘rent-seeking’ function which subtracts value from Wall Street’s customers,” John Bogle

Comments

  1. I am thinking using the ratio of share value transacted / Portfolio start value.

    ReplyDelete
    Replies
    1. Hi Cory,
      Yah ,, that could be another way of tracking your trading and cost ..
      Cheers !!

      Delete

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