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Practice safe investing: Get protection by using a PTR!

January 27, 2014 by Editor, InvestingForMe

So, how can you protect yourself from that second layer of professionals when you invest in mutual funds or ETFs? Answer: Get to know a fund’s Portfolio’s Turnover Ratio (PTR)!



One sure way is to look for the fund’s Portfolio’s Turnover Ratio (PTR) before you invest. Every fund calculates and reports a PTR that tells you how actively the investment managers are trading the fund’s investments, in other words, how often the fund’s investments (i.e. your hard earned savings) are being bought and sold. And in other words, a fund’s PTR will tell you if this fund is right for you as a conservative or more active investor. Here’s how.

PTRs are measured as a percentage. For example, if the fund’s managers buy and sell all of the fund’s investments once in a 12-month period, the fund’s PTR is said to measure 100%. Other funds may have a PTR of 200%, which means that all of the investments are being bought and sold twice a year, or you may see funds with a PTR of 300%, which means that their managers are buying and selling all the investments three times each year.

Now while the fund with a PTR of 100% may very well sound conservative to some (i.e. everything being traded just once a year!), in actual fact it depends on the fund’s investment objective, the fund’s investment strategy, and your expectations. Here’s why:

  • If you think of yourself as a conservative investor, happily holding on to your investment for 6 years believing that your savings are invested with a similar approach, then maybe a PTR of 100% is too much for you. You might prefer a fund with a PTR of 16% that better matches your buy and hold approach.
  • But if you’re an active trader, then a PTR of 100% might be too low for you. Maybe you should be searching for a fund with a PTR of 200% or more.

In any case, whether you prefer a more conservative or active investing approach, it’s just good to be aware how active the professional managers are with your savings.

One final note about PTRs

PTRs are just one tool the average Canadian investor can use to help police the trading activities of the professionals hired to invest their savings. PTRs can also be used to screen out those investments that do not match the investors’ conservative/aggressive investing personalities. In other words, this simple tool can help you to make better investment decisions.

And interestingly, as the average Canadian investors flock increasingly towards mutual funds and ETFs as a more popular investing choice, it would appear that PTRs have increased dramatically as the pros actively trade the investments more frequently. According to John Bogle, the founder and former chairman of the Vanguard Group, someone who has lived through a lot of good and bad investing cycles, PTRs have been steadily increasing:

… when he got into finance in 1951, mutual fund turnover hardly varied from 16% per year, representing an average holding period of six years. However, Bogle noted that in more recent years, the average holding period has fallen to between 11 and 13 months, representing a 92% turnover rate. – Better Investing Journal, January 2006

In plain English, it would appear that the professional managers for mutual funds and ETFs are playing more and more with your savings, and that’s the exact opposite of being conservative when it comes to the investing approach that most Canadians would like! So that means we need to inform ourselves more than ever as investors when it comes to our savings in this ever-increasing volatile investment market/industry or as we all move towards becoming do-it-yourself (DIY) investors.

Join us next time as we discuss PTRs in greater detail, look at a couple of examples and tell you exactly where to find a fund’s PTR. They’re easy to find if you know where to look.


(This aricle published by Troy Media)


Read the next article in this series - Portfolio Turnover Ratios (PTRs): Break away from the flock


Read the 1st article in this series - Do you know where your investments are when you go to sleep at night? 


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