Does the portfolio turnover % includes rebalancing transactions? (as opposed to "replacing" stock transactions)

Research
1

Hi P123,

How is the turnover calculated particularly for a live strategy that uses active weighting?

  • I have a strategy that does circa 300% per P123 statistics. Portfolio of 10 stocks.
  • I understand that to mean the portfolio -on average- replaces the 10 stocks 3 times over a given 12 months period.

But every time it sells a stock and replaces it with a new stock, it (might and often does) adjusts the weight of all other stocks (because of the active weighting).
Example on the screenshot below:

  • DPZ and TAP are sold
  • SBUX and QRTEA are bought
  • But MO has to be “re-weighted” down to 4.74%

Are these “re-weighting” transactions included in the rebalancing % number? How?

Thank you very much,

Jerome

Rebalancing example.pdf (19.4 KB)

2

Hi Jerome,

I don’t the know the answer. But I believe that ‘Average Annual Turnover’ is a dollar volume type of metric and is defined as the ratio of the total of all purchases (or sales) in a portfolio over a period of time to the average value of the portfolio over that period of time.

Portfolio Turnover = Total Purchases/Average Portfolio Value

I would expect that any re-weighting of open positions would affect that calculation.

Walter

3

Thank you Walter

I think you are probably right based on the investopedia definition
https://www.investopedia.com/terms/p/portfolioturnover.asp

Could anyone from P123 confirm?

Thank you

Jerome