Many fund managers are quick to claim that frequent trading is a good way to add value.
No, say industry critics. Portfolio turnover rates are excessive, and the costs of trading outweigh the benefits. But managers who invest in fast-growing companies say they must take advantage of big price swings. Barra, a Berkeley, California, financial research firm, attempted to quantify the costs of trading by looking at 150 large-asset funds from 1996 through 1998. Worse, value added by trading failed to clear the hurdle rate, falling short by an average of nearly two percentage points.