Turnover
Definition
Turnover refers to how frequently assets within a portfolio are bought and sold over a specific period, usually expressed as a percentage of the portfolio. A 100% annual turnover rate means that the entire portfolio was effectively replaced within one year. High turnover strategies trade frequently, while low turnover strategies maintain positions for longer periods.
Turnover can be applied to funds, strategies, or individual portfolios and is often used to gauge trading activity, tax efficiency, and implementation cost.
Why It Matters to Investors
- Higher turnover may result in increased trading costs and tax liabilities
- Lower turnover often correlates with greater tax efficiency and lower fees
- Turnover affects how reactive a strategy is to changing market conditions
- Can be an indicator of whether a strategy is active, passive, or tactical
- Excessive turnover can dilute strategy performance if not paired with discipline
The TiltFolio View
Both TiltFolio systems maintain different turnover levels by design. TiltFolio Adaptive, as a trend-following system, reacts to changes in price and volatility, adjusting portfolio exposures only when signals shift. This results in moderate turnover, typically rotating monthly between asset classes. The focus is on meaningful trend changes, not short-term noise, which helps minimize trading costs, reduce tax drag, and preserve capital over time, while still maintaining the flexibility to shift into defensive allocations when risk conditions deteriorate.
TiltFolio Balanced maintains very low turnover by design, rebalancing only annually to restore its target allocation (50% bonds, 30% stocks, 20% gold). This approach minimizes trading costs and tax drag while maintaining consistent diversification benefits.
Both systems prioritize meaningful changes over short-term noise, but TiltFolio Adaptive does this through dynamic rotation while TiltFolio Balanced does this through strategic diversification with minimal rebalancing.
Real-World Application
• A momentum fund with 300% annual turnover trades frequently to capture short-term moves
• A buy-and-hold ETF tracking the S&P 500 has very low turnover, often below 5%
• A trend-following strategy exits equities and reallocates to bonds during a bear market, triggering a turnover event