Fund Turnover and Investment Performance

Abstract

We examine the level of share dealing activity of UK long-term institutional funds and, for UK pension funds, assess the impact of this dealing activity on investment performance. The analysis is carried out using annual returns and activity from the WM Universe of UK funds. Previous published research has concentrated mainly on US mutual funds and has generally reported no relationship between annual turnover and returns within the same year. As we are studying UK institutional funds with long-term liabilities, our approach is to establish any relationship by straightforward observations over a ten year period. We conclude that dealing activity within the North American and Japanese equity portfolios of UK pension funds is generally detrimental to long-term investment performance.