Do you know how often your fund manager is turning over the stocks in his or her portfolio? If not perhaps you should have a look at the latest study from Lipper, the fund research group.

It shows that average annual turnover level for equity funds is 56 per cent, indicating that fund managers will typically hold a stock for just under two years, but it is worth finding out the relevant figures for your fund.

Quite apart from indicating whether your fund manager is a ‘buy and hold’ operator or has more of a trading mentality this turnover statistic is important because it has a bearing on fund charges. Funds with a high portfolio turnover tend, naturally, to generate greater commission charges, which pushes up costs.

Some regions of the world tended to produce much higher portfolio turnover than others. For example funds investing in Japan and North America had average annual turnover of more than 80 per cent, while Europe was just behind with a figure of 79 per cent. Asia Pacific was also at the higher end of the spectrum, with a 69 per cent figure, while at the other end of the scale UK equity income and smaller company funds boasted annual turnover levels of just 43 per cent.

Leaving aside the question of extra charges, do funds adopting a strategy of rapid portfolio turnover do better than those operating a style of buy and hold? The evidence is mixed. Some very good fund managers, such as the multimanager team at Jupiter, turn over their portfolio very rapidly while producing very good performance.

On the other hand Neil Woodford, of Invesco Perpetual, who manages more private investors’ money more successfully than any other fund manager, is a big fan of the buy and hold strategy. He holds a typical stock for an average of more than five years and does not believe managers add value by making short-term market calls.

The same seems to hold true for UK private investors, according to a recent study of investor behaviour carried out by Dimensional Fund Advisers, a fund manager. It showed that in the period from 1992 to 2003 the average annual UK equity fund return was 6.93 per cent. But investors would only have achieved that figure if they had been fully invested in their funds for the entire period. What most did was to dip in and out of funds and, since their timing tended to be poor, this reduced their average annual return to 4.91 per cent - about two percentage points lower than the funds they were investing in.

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