Time Is The Investors’ Best Friend

According to research from European fund manager SMA Gestion, most active managers “turn” their portfolio on average approximately once a year, which means that the holding period of investments does not exceed one year. Multiple studies (from Sharp in 1991 to Elton in 1993 to French in 2008) show that there’s a strong correlation between portfolio turnover and a fund’s net return. The higher the turnover, the worse the performance. Why exactly managers are driven to churn their portfolios in such a way, when it should be their aim to minimise trading and protect investors from sentiment driven swings, is…