Invesco Canada blog

Insights, commentary and investing expertise

Michael Hatcher | May 14, 2014

Low turnover is your friend, not your enemy

At Trimark, we pride ourselves on being active managers, but that doesn’t mean we’re active traders. Our funds generally have a lower turnover rate than the average mutual fund because we invest for the long-term and we invest with conviction.

Typically, you can expect turnover on Trimark Global Fundamental Equity Fund to be somewhere between 15% to 20% and a five- to six-year holding period.

That said, in today’s market environment we’re experiencing a lower than normal turnover across our global fund mandates.

For example, in Trimark Global Fundamental Equity Fund, our turnover is currently around 10%, which is low for me. On its face, that suggests a 10-year average holding period.  I can’t tell you whether my turnover is going to be under 10% for the next five years, but that’s the reality of the current market environment.  

Generally speaking, the market is fully valued. I’m not saying the market is overvalued – there are plenty of stocks that are overvalued and plenty that are marginally undervalued. But I’m looking for stocks trading at the 30% intrinsic discount. Right now those are few and far between, so I’m holding what I have until the market shifts.

We’re taking advantage of short-term volatility to upgrade our existing positions in high-quality companies with strong cash flows. We’re selling the companies who fit into a riskier cash-flow category. This frees up cash to put into the companies with more structurally stable and sound cash flows. We haven’t taken any large positions, but we’re further de-risking an already de-risked portfolio.

What does this mean for short and long-term? We hold high-quality compounding companies with “very good” to “very high” return on invested capital to generate a lot of cash which should grow and compound over time. But, if we get into a downturn or we get into issues within the global market, these companies also have some of the most stable and sustaining cash flows that I know.

Do you have any questions about low turnover? Feel free to leave a comment or question below or via e-mail. 

Learn more about the Trimark Investments team.

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2 responses to “Low turnover is your friend, not your enemy

  1. Am I correct in assuming that low turnover also means a lower cost to the untiholders? What about the Europe fund does that have low turnover as well?

    1. That is correct. All things being equal, a fund with lower turnover will result in a lower cost to unitholders. The level of trading activity in mutual funds is measured by portfolio turnover. Funds with high portfolio turnover rates will incur higher trading costs than those that trade less often. Within the Management Report of Fund Performance (MRFP), Canadian mutual funds are required to show the trading expense ratio of the fund, which represents the trading commissions incurred to manage the portfolio as a percentage of the total assets of the fund. For example, if you had a $100 million fund and the trading commissions for the year totaled $1 million, then the trading expense ratio would be 1%.

      To answer your second question, yes, the Trimark Europlus Fund, Series A also has a low turnover rate. It was 10.36% as at December 31, 2013.

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