Do you know what the PTR figure is on your funds? No? You are not alone… A recent survey shows that only 8% of specialist investment advisers know what a PTR is. I don’t know what the figure is amongst private investors but I have only ever met a handful of people who knew about the PTR.

Yet it is a very important figure.

The PTR is the portfolio turnover rate of a fund. It is a figure, which expresses the amount of turnover in the fund in a year, which means how often they buy and sell the holdings in the fund. The year is normally the accounting year of the fund.

It is important for two reasons:

Firstly it will allow you to understand the trading style of the fund manager and possibly check their actions against their stated investment philosophy and practice. For example if a fund manager is meant to be pursuing a steady, long term buy and hold strategy but they have high PTRs this will suggest they are pursuing a more active strategy than the one they purport to pursue.

Secondly it will allow you to asses the hidden costs of a fund. This is because the costs of the transactions relating to portfolio trades (i.e. the turnover) are not part of the transparent costs.

This gives rise to a strange anomaly: the costs of a fund are expressed as a TER (Total Expense Ratio), which may be for example 1.8% p.a. The TER tells you how much the fund is deducting in costs, which might help you judge whether it is a high cost or low cost fund. However because the transaction costs are separate, not included in the TER, they do not affect or contribute to this figure. This means the TER, which is meant to be the “Total” is not the total.

High PTRs will mean high hidden costs and in particular if you find a fund that has a high TER (say anything more than about 1.5%) and a high PTR you could be looking at shockingly high costs.

Investors will be well served by knowing the facts surrounding PTRs but they are very hard to find and even when found might be difficult to translate into hidden costs.

The PTR will be expressed as a percentage, let’s say 100% as an example. This will mean that the fund has “turned over” once in a year, or put another way the whole portfolio will have moved in its entirety across the year. Put yet another way a PTR of 100% means that the average holding within the fund is one year. In changing the holdings the fund manager will incur costs (remember costs that are not revealed by the TER) and the more they churn and burn the more they incur extra costs.

Now this may be justified: that is not our point. They may be justified because the fund manager may get better results by chopping and changing, although this is far from proven across the board, however if investors don’t know the details they cant judge the position. Our point is that investors are better served by being better informed and the lack of knowledge and published information across funds of all types is damaging for investors who wish to make well-informed decisions.

We aim to help with this because we have access to a service that investors can benefit from: we can help investors get PTR information on a range of funds. We believe this service is almost unique in the UK.