Portfolio Turnover

Portfolio turnover measures how much of a portfolio is bought and sold over a given period, usually expressed as a percentage. A turnover of 50% means that half the portfolio’s holdings have changed during that timeframe. In quantitative investing, turnover is directly linked to trading costs, tax efficiency, and strategy stability. High-turnover strategies react quickly to new signals but incur greater transaction costs and slippage. Low-turnover strategies trade less frequently, reducing costs but potentially responding slower to changing market conditions. Turnover is largely driven by signal volatility and rebalancing rules. Momentum strategies typically have higher turnover because rankings change frequently, while Value or Quality strategies tend to rebalance more slowly. Portfolio construction choices, such as position limits and optimization constraints, also influence turnover. Managing turnover is a practical necessity. Even strong alpha signals can be erased by excessive trading. Quant frameworks therefore often include turnover penalties inside the optimizer, minimum holding periods, or buffer zones around rankings to reduce unnecessary churn. Importantly, turnover should be evaluated in context. A strategy with higher turnover may still be attractive if it delivers sufficiently strong risk-adjusted returns. Conversely, low turnover alone does not guarantee good performance. Well-designed quantitative portfolios aim for an efficient balance: trading enough to capture signals while minimizing frictional costs. Sustainable strategies treat turnover as a controllable risk, not an afterthought.