Could you please give me an example of situation where one might see 150% for an active ETF or aggressive mutual Fund? Thanks.
Mornngstar defines their ratio as "This is a measure of the fund's trading activity which is computed by taking the lesser of purchases or sales (excluding all securities with maturities of less than one year) and dividing by average monthly net assets".
To put it in simpler terms, the Portfolio Turnover Ratio is measuring how actively managed the fund is. As turnover ratio gets higher, it indicates that the frequency of purchases & sales will be higher. AUM also factors into the denominator, so if a fund is seeing significant outflows but continues trading frequently, then trading ratio could appear inflated. Both VSP and VFV have relatively low turnover ratios, so it means that the portfolios employ a more passive investment strategy with a buy and hold focus. This further checks out as VSP has a high turnover ratio likely due to its currency hedged nature, which requires more frequent trading than VFV.
An example of a 150% turnover ratio would occur in funds that employ a highly active strategy in a volatile market. Strategies like covered calls and sector rotational could result see this occuring. In a covered call scenario, if some of the calls the manager has written get exercised, the fund would have to sell the securities. The manager may also choose to replenish the position of the securities sold by adding to existing positions. This could increase the turnover ratio to a point of 150%.
Authors of this answer, directors, partners and/or officers of 5i Research and/or affiliated companies have a financial or other interest in VFV.