Turnover Ratio in 2025: What Investors Need to Know

The world of investing is packed with ratios and metrics, but few are as quietly influential as the turnover ratio. For Australian investors looking to fine-tune their portfolios in 2025, understanding this measure is more important than ever. With shifting market dynamics and new regulations, knowing how often your fund manager is trading assets can have a direct impact on your returns and tax outcomes.

What Is Turnover Ratio and Why Should You Care?

Turnover ratio, sometimes called portfolio turnover, measures how frequently assets within a fund or portfolio are bought and sold during a year. It’s expressed as a percentage—so a 50% turnover means half the portfolio’s holdings were replaced in the past 12 months.

• High turnover indicates frequent trading, which may suggest an active management style.
• Low turnover suggests a buy-and-hold approach, often associated with index funds or long-term strategies.

Why does this matter? Because turnover ratio can influence everything from transaction costs to your tax bill. In Australia, where capital gains tax (CGT) rules reward holding investments for over a year, turnover ratio takes on extra significance in 2025 as investors grapple with updated tax thresholds and cost bases.

2025 Policy Updates and Market Trends Impacting Turnover Ratio

This year, several policy shifts are affecting the way Australian investors view turnover ratios:

• Revised CGT Discount Thresholds: The federal government’s 2025 budget introduced new CGT discount thresholds for individuals and trusts. These changes make low-turnover portfolios more attractive for those seeking tax efficiency.
• ETF and Managed Fund Growth: Exchange-traded funds (ETFs), which generally have low turnover ratios, are surging in popularity. Australian ETF assets hit a record high in early 2025, reflecting a broader shift toward passive investing.
• Fee Transparency Rules: ASIC’s new disclosure requirements mean fund managers must now report turnover ratios alongside indirect costs. This increased visibility empowers investors to scrutinise how much trading is eating into their returns.

For example, a typical Australian equity managed fund had an average turnover ratio of about 60% in 2024. In contrast, major ASX 200 ETFs reported turnover ratios under 10%. That difference can mean thousands saved in trading costs and taxes over a decade.

How to Use Turnover Ratio When Comparing Investments

Turnover ratio isn’t just a technical footnote—it’s a practical tool for evaluating funds and portfolios. Here’s how savvy investors are using it in 2025:

• Cost Control: Higher turnover often means higher brokerage and transaction costs, which can drag on performance. Comparing turnover ratios helps reveal hidden fee differences between funds.
• Tax Efficiency: If you’re investing in a taxable account, look for funds with lower turnover to minimise realising short-term gains, which are taxed at higher rates.
• Strategy Alignment: Active funds (high turnover) might suit those seeking to beat the market, but they come with greater risk and cost. Passive funds (low turnover) are generally better for long-term, steady growth.

Real-world example: In 2025, the Vanguard Australian Shares Index ETF (VAS) reported a turnover ratio below 5%, while some actively managed funds in the same sector exceeded 80%. For a $50,000 investment, this could result in a difference of $500+ per year in costs and taxes, compounding over time.

Turnover Ratio: A Small Number with Big Implications

Turnover ratio might seem like a technical detail, but it’s a crucial metric for any Australian investor aiming to maximise returns and minimise tax in 2025. With new policy changes and increased fee transparency, it’s easier than ever to factor turnover into your decision-making. Whether you favour active management or a hands-off approach, keeping an eye on this ratio will help you build a smarter, more efficient portfolio.