what is annual turnover 
annual turnover is the percentage rate at which something changes ownership over the course of a year for a business this rate could be related to its yearly turnover in inventories receivables payables or assets in investments a mutual fund or exchange traded fund etf turnover rate replaces its investment holdings on a yearly basis portfolio turnover is the comparison of assets under management aum to the inflow or outflow of a fund s holdings the figure is useful to determine how actively the fund changes the underlying positions in its holdings high figure turnover rates indicate an actively managed fund other funds are more passive and have a lower percentage of holding turnovers an index fund is an example of a passive holding fund calculating annual turnoverto calculate the portfolio turnover ratio for a given fund first determine the total amount of assets purchased or sold whichever happens to be greater during the year then divide that amount by the average assets held by the fund over the same year portfolio turnover max applyfunction fund purchases fund sales average assets begin aligned text portfolio turnover frac operatorname max begin cases text fund purchases quad text fund sales end cases text average assets end aligned portfolio turnover average assetsmax fund purchasesfund sales for example if a mutual fund held 100 million in assets under management aum and 75 million of those assets were liquidated at some point during the measurement period the calculation is 7 5 m 1 0 0 m 0 7 5 where begin aligned frac 75 text m 100 text m 0 75 textbf where text m text million end aligned 100m 75m 0 75where it is important to note that a fund turning over at 100 annually has not necessarily liquidated all positions with which it began the year instead the complete turnover accounts for the frequent trading in and out of positions and the fact that sales of securities equal total aum for the year also using the same formula the turnover rate is also measured by the number of securities bought in the measurement period annualized turnover in investmentsannualized turnover is a future projection based on one month or another shorter period of time of investment turnover for example suppose that an etf has a 5 turnover rate for the month of february using that figure an investor may estimate annual turnover for the coming year by multiplying the one month turnover by 12 this calculation provides an annualized holdings turnover rate of 60 growth funds rely on trading strategies and stock selection from seasoned professional managers who set their sights on outperforming the index against which the portfolio benchmarks owning large equity positions is less about a commitment to corporate governance than it is a means to positive shareholder results managers who consistently beat the indices stay on the job and attract significant capital inflows while the passive versus active management argument persists high volume approaches can realize moderate success consider the american century small cap growth fund anoix a four star rated morningstar fund with a frantic 141 turnover rate as of february 2021 that outperformed the s p 500 index considently over the last 15 years through 2021 index funds such as the fidelity 500 index fund fxaix adopt a buy and hold strategy following this system the fund owns positions in equities as long as they remain components of the benchmark the funds maintain a perfect positive correlation to the index and thus the portfolio turnover rate is just 4 trading activity is limited to purchasing securities from inflows and infrequently selling issues removed from the index more than 60 of the time indices have historically outpaced managed funds also it is important to note a high turnover rate judged in isolation is never an indicator of fund quality or performance the fidelity spartan 500 index fund after expenses trailed the s p 500 by 2 57 in 2020 annual turnover in business inventory turnoverbusinesses use several annual turnover metrics for understanding how well the business is running on a yearly basis inventory turnover measures how fast a company sells inventory and how analysts compare it to industry averages a low turnover implies weak sales and possibly excess inventory also known as overstocking it may indicate a problem with the goods being offered for sale or be a result of too little marketing a high ratio implies either strong sales or insufficient inventory the former is desirable while the latter could lead to lost business sometimes a low inventory turnover rate is a good thing such as when prices are expected to rise inventory pre positioned to meet fast rising demand or when shortages are anticipated the speed at which a company can sell inventory is a critical measure of business performance retailers that move inventory out faster tend to outperform the longer an item is held the higher its holding cost will be and the fewer reasons consumers will have to return to the shop for new items 