Key takeaways

  • We view turnover as a source of excess returns
  • Earnings revisions and changes to analysts’ forecasts drive a lot of the changes we make within our SmartGARP® funds, and for good reason
  • Switching stocks within sectors can add value without increasing risk 
  • Transaction costs are more than offset by the benefits of moving capital into companies with stronger fundamentals and growth prospects, but cheaper valuations

Turnover can be controversial. It is often equated with higher transaction costs and higher fees.

We see it differently. We think turnover can be a potent source of alpha. We also see it as an integral part of our SmartGARP investment process.

One of the eight factors our SmartGARP stock-screening tool measures is ‘revisions’, i.e. changes to analysts’ corporate earnings estimates. We want to own stocks whose profit forecasts are being revised upwards by the analyst community and avoid those being downgraded.

Across the SmartGARP European Equity Fund’s 25-year history, our revisions factor has proven to be the most effective at pointing us towards those companies that subsequently go on to deliver superior fundamental growth.

Analysts amend their earnings forecasts when companies report results, which in Europe is quarterly or every six months. This is the cadence at which companies’ revisions scores change within SmartGARP. So if we are to gain exposure to stocks seeing upgrades, we need to adjust our portfolios frequently.

For the Artemis SmartGARP European Equity Fund, our average holding period is about a year, but it has been as short as six months – or as long as two years. Turnover tends to be higher when markets experience seismic change, such as during the Covid pandemic or the Global Financial Crisis. But even a two-year holding period is probably shorter than many of our peers.

Find out more