Since this type of information is not readily available and must be calculated manually, specific funds were chosen to illustrate both extremes of the cost impact. Turnover was calculated by taking the average of purchases and proceeds of sale, and dividing by weighted average net assets. Of those fund companies that do disclose turnover in their annual reports, all calculate it based on the lesser of purchases and proceeds of sale. The difference between published MERs and implied MERs is due mainly to transaction costs, which are a factor of a fund's turnover rate. The increased cost puts the heavy trader at more risk of underperforming.
High turnover is sometimes unavoidable.
Specialty funds that focus on specific countries, regions, or sectors will almost always have high turnover. That's a natural by-product of the narrow mandates of those funds. Larger companies have a cost edge over their smaller counterparts. The large amounts of money managed by bigger firms allows them to negotiate lower trading costs, thereby resulting in a less severe impact when trading securities. Even if a fund is small, a firm may have a substantial institutional business in order to negotiate low trading costs.