Portfolio churn: how other funds stack up

Curiousity is a good thing.

One reader opined this week that portfolio turnover of 481% at a Dividend Fund “is insane” (see prior post “Money manager churn alert!” September 8-09). That got me thinking; what are other fund managers doing? How often are they selling their dividend stocks in the hopes of finding “new and improved” securities for their mutual fund?

Here is a random snapshot of four independent fund managers:

AGF Canadian Large Cap Dividend Fund Mutual Fund Units
Portfolio Turnover: 27.3% (2008)
Management Expense Ratio: 2.16%
Trading expense ratio: 0.07%

Bissett Canadian Dividend Fund Series A
Portfolio Turnover: 21.2% (2009)
Management Expense Ratio: 2.36%
Trading expense ratio: 0.16%

Mackenzie Cundill Global Dividend Fund Series T5
Portfolio Turnover: 32.25% (2009)
Management Expense Ratio: 2.45%
Trading expense ratio: 0.13%

Trimark Global Dividend Class
Portfolio Turnover: 114.2% (2009)
Management Expense Ratio: 2.47%
Trading expense ratio: 0.19%

As you may recall, our friends at O’Leary Global Equity Income Fund (OGE.UN:TSX) racked up these figures according to their most recent financial report:

Portfolio Turnover: 480.9% (2009)
Management Expense Ratio: 2.51%
Trading expense ratio: 0.88%

As you can see, the higher the churn, the higher the trading costs that are incurred by investors. That we all understand.

There is less clarity, however, what high portfolio churn implies about the fund’s actual goals. Is high churn a sign of a constantly changing investment strategy, a desire to reward the institutional trading desks of the brokerage firms who place your product with their retail clients, or is it simply the byproduct of a very active research department?

And does anyone care? If your broker is recommending buying a Vanity Fund for the sake of owning something “As Seen On TV”, do these details actually matter?

Probably not. It might burn other professional money managers to hear this, but the age of conspicious consumption appears to have arrived in the world of portfolio management. As they say on Bay Street, “If the ducks are quacking, feed them”. Our friend KO recognizes this, and has succeeded like no one else in recent memory in quickly building a fund management company from a standing start.

He’s a rock star.

MRM
(disclosure – this post, like all blogs, is an opinion piece)