Contrary to recent reports by investor advocates, mutual fund trading patterns, or turnover rates, have remained largely unchanged for the past 20 years, according to a new study released by the Investment Company Institute.
The ICIs new study claims that industry methods for calculating mutual fund turnover rates are frequently incorrect and, as a result, recent studies tend to inflate mutual fund trading activities.
Shareholder advocates have expressed dismay at reports of rising turnover, which can have an adverse affect on mutual fund performance, generate higher taxes and jack up fees. In fact, Zero Alpha Group , a national investment advisory group, says trading costs can increase a funds total cost by 43.4%.
But the ICI criticizes other turnover studies for using average figures as a basis for calculating trends since, it maintains, funds with higher-than-average turnover rates skew the studies.
Almost 66% of the entire stock fund universe has a turnover rate that is lower than the average 117% turnover rate logged so far this year. Removing 200 funds, about 4%, from the average calculation reduces the average stock fund turnover rate to only 76%, a 40% reduction, according to the ICI.