We’ve added a new statistic to the backtests and screener for all of the strategies that we track: Annual Turnover. We realize that this isn’t the most glamorous of metrics, but we think it’s an important data point to consider when analyzing a strategy.
Annual turnover measures the rate at which a strategy replaces its holdings. 100% annual turnover would mean that, on average, the strategy replaces 100% of the value of its holdings in any given year.
Annual turnover varies widely across the strategies that we track, from a low of 7% for Dalio’s All Weather Portfolio (*) to a high of 552% for Adaptive Asset Allocation. It might seem like Annual Turnover is redundant given the fact that we already report Trades per Year, but actually those are two very different things. To illustrate:
Varadi’s Minimum Correlation Portfolio has traded 96 times per year, the most of any strategy that we track. But nearly all of those trades were very small adjustments, not big shifts in the portfolio, so its annual turnover comes in at just 82%. That means that, despite all of those trades, it turns over the value of its holding less than once per year. Compare that to Antonacci’s Composite Dual Momentum. CDM has traded just 1/10 as often (9.3 trades/year), but because the strategy allocates far more of the portfolio to each trade, its annual turnover comes in roughly twice as high at 162%.
In this example, Trades per Year measured the frequency of trades, but was misleading. Annual Turnover was a better measure of both the frequency and size of trades, and in many ways a better measure of how active each strategy has actually been. That can be useful for understanding the impact of transaction costs (our results are net of transaction costs), potential tax ramifications, and just being generally more prepared for what to expect from a given strategy.
A development update:
We’ve spent the last couple of months doing development on “behind the scenes” aspects of this site (server optimization, yuck). Like getting the oil changed in your car, this type of work doesn’t solicit many oohs and ahhs, but it keeps this finely-tuned machine humming.
We’re turning our focus back to front end development. The turnover statistic described here was low hanging fruit that we wanted to put to bed. In the next few weeks, you’ll be seeing a major new feature: a brand new subpage added to each backtest analyzing historical asset allocation. After that, we have a member wish list that we’ll be working through.
We think that the platform that we’ve built for members is pretty special, and unlike anything else that exists, but we don’t want to get complacent. We’re going to continue building up this platform until our keyboards combust.
We invite you to become a member for less than $1 a day, or take our platform for a test drive with a free limited membership. Have questions? Learn more about what we do, check out our FAQs or contact us.
(*) Calculation note regarding “trades” vs “rebalances”: When calculating Trades per Year we only count changes in a strategy’s optimal allocation (read more). Rebalances, which return a strategy to the optimal allocation (ex. the All-Weather Portfolio’s annual rebalance), are not counted as a trade, but are counted in the Annual Turnover statistic. So even buy & hold strategies like All-Weather will have annual turnover.