Calculating Portfolio Turnover from Monthly Weight Changes

Summary

The document clarifies how to calculate portfolio turnover from monthly asset weights. It considers the absolute changes in each holding’s weight between consecutive months and explains why their sum should be divided by two for a one-way turnover measure. If a portfolio sells all of one asset and buys an equal weight of another, the absolute changes add to twice the traded amount; halving the sum counts the rotation as 100% turnover rather than 200%.

The response recommends calculating this half-sum separately for each monthly transition, then adding the monthly figures across the year to obtain annual turnover. This differs from multiplying each month’s weight change by twelve and averaging, which does not match the stated convention. The guidance assumes weights are measured consistently and treats purchases and sales symmetrically. It does not discuss transaction costs, cash flows, beginning or ending portfolio treatment, or alternative turnover definitions, so the convention should be checked when comparing reported figures across strategies or institutions.

Key ideas

• For each monthly transition, sum the absolute changes across asset weights.
• Divide that sum by two to avoid counting both the sale and replacement purchase twice.
• Add the monthly one-way turnover figures to obtain the annual total under the described convention.
• Turnover definitions can vary, and the document does not address costs or cash-flow adjustments.

Tags

# Portfolio turnover


# Portfolio turnover












Really easy question, but I am having doubts. If you want annual turnover, and you have monthly weights, wouldn't you just do in excel:

{=ABS(CurrentMonthsWeights-LastMonthsWeights)*12} for each month and then just do average over the 12 months to get the annual turnover?

## Answer by rmacey (score 3, accepted)

https://quant.stackexchange.com/a/40103

Consider this: Let's say you sell 100% of asset A and buy 100% of asset B. Most people would consider this 100% turnover, not 200%. Therefore you want to take the sum of the absolute difference in weights and divide that by 2.

I suggest a few changes to your formula. First, importantly you would take SUM(ABS(CurrentWts - LastWeights))/2 for each month. Note the SUM function and I'm dividing by 2 instead of 12 because of the first point in my response. Then you would SUM your results for 12 months.

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