High turnover vs buy and hold: which fund approach is working best?

Investing is a simple game on the face of it. You buy good companies, attempting not to pay too much for their shares. Then you stick with your holdings and watch strong returns compound over the years.

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A version of this mantra has been popularised over the years by Fundsmith founder Terry Smith, who likes to talk about buying good stocks at reasonable prices and then “doing nothing”.

But the buy and hold approach to investing has had a tricky few years, as have some of its biggest advocates. Both Smith and Nick Train have struggled, interrupting a lengthy period of success.

Many investors have made the case against high portfolio turnover over the years, arguing that it ramps up costs and gets in the way of compounding.

But it’s worth noting that some funds with a higher-turnover approach have done well amid the ups and downs of markets in recent years. Understanding the pros and cons is important.

From Ranmore to Nutshell: high-turnover success stories

Portfolio turnover can be understood in different ways: it can reflect outright changes to portfolio holdings but can also relate to when a fund manager simply increases or decreases their holding sizes.

Some turnover is also not totally voluntary, given that managers of open-ended funds need to manage the inflows and outflows of investor money.

Turnover data is notoriously elusive: a handful of funds do disclose their turnover rates, but wider figures are not readily available. But anecdotally there are some funds that embrace it, to good effect.

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Starting with global equity funds, value play Ranmore Global Equity is a good example. Manager Sean Peche recently addressed this in a video interview with interactive investor due to be published later this month.

He argued that a manager should want to dispose of the investments they have gotten wrong, adding: “And surely when a share reaches fair value you want us to sell, too.”

Peche said: “You can give the money to a company and hope they compound for you, but what we’ll do is say we’ll be in charge of compounding, thank you. The academic literature says high turnover hits returns but that was done when brokerage rates were far higher than they are now.”

As the table shows, there are others. Nutshell Growth is very different to a value fund, with fund selector Simon Evan-Cook describing it as “Fundsmith-esque” in approach.

The fund, which looks for “quality, resilient, exceptional companies at reasonable valuations”, recently had Adobe Inc (NASDAQ:ADBE), Mastercard Inc Class A (NYSE:MA), Microsoft Corp (NASDAQ:MSFT), Amphenol Corp Class A (NYSE:APH) and ASML Holding NV (EURONEXT:ASML) among its top 10 holdings and has been cited as having a 700% rate of annual turnover.

Source: FE Analytics, 01/12/2025. Past performance is not a guide to future performance.

Meanwhile, Charlie McCann of Titan Square Mile points to T. Rowe Price Global Focused Growth Equityas one example.

Some others may appear to have high turnover although this up for debate.

Note, for example, that the Blue Whale Growth team is not afraid to shake up its holdings and make outright sales of holdings, although Fairview Investing’s Ben Yearsley views this as a name with relatively low turnover.

The Blue Whale team made a number of changes in the first half of 2025 alone, exiting positions in Microsoft and Meta Platforms Inc Class A (NASDAQ:META), while adding Uber Technologies Inc (NYSE:UBER) and South Korea’s SK Hynix to the portfolio.

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Should we embrace high turnover?

As is often the case for funds with different approaches and styles, it’s good to hold a bit of everything.

Buy and hold names with the right investments might fare well when there aren’t many winners in markets, whereas high-turnover funds at least have a chance of navigating market shifts.

Evan-Cook believes the need to show some flexibility, and be prepared to make changes to a portfolio, was amply demonstrated in the growth sell-off of 2022 when interest rates rose.

“Lots of people got walloped in 2022 because they bought the idea that you should never turn over [portfolios] and turnover is a sin,” he says.

“People were caught holding stuff that was far too expensive.” He notes that the Ranmore and Nutshell funds are among some of the best performers in his portfolio in recent history.

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Buy and hold investing can sometimes coincide with fund managers taking big positions, and these two approaches can combine in a painful way if a holding struggles.

Smith experienced this via the woes of then major holding Novo Nordisk AS Class B (XETRA:NOV), while Train has seen that this year via the struggles of Diageo (LSE:DGE), RELX (LSE:REL), Rightmove (LSE:RMV) and London Stock Exchange Group (LSE:LSEG), all of which occupy big positions in his funds.

But quality growth funds such as those run by Smith and Train can also struggle in the late stages of bull markets but perform well when things turn, a point that might persuade some to keep the faith.

The criticisms of turnover carry plenty of weight, too. A fund manager selling out of a winning position quickly can miss out on substantial further gains, for one.

“I have Standard Chartered (LSE:STAN), which has been the biggest holding in my SIPP for about three years and went from £5 to £17,” explains Ben Yearsley of Fairview Investing.

“You could have sold after a 20% gain but it has trebled in two or three years, so you would be better off holding it.”

And then there’s the fact that trading often incurs costs, leading to higher fund charges. Ranmore is not the cheapest, with a one-year total expense ratio of 0.98%. But buy and hold funds can also prove expensive, as Fundsmith Equity I Acc investors are well aware.

Style concerns, and the UK

As mentioned, the global equity funds we have identified have quite different styles, with Ranmore taking a value approach but Nutshell focusing more on quality growth. But some argue that value managers might be more inclined to churn their portfolios.

“If you’re a value manager, you should be aiming to get your turnover up,” says Evan-Cook. “If turnover is low that suggests you’re buying too soon.

“Ideally you buy a cheap stock. In three months people spot what you’ve seen, it doubles in price and you move on.”

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The value style can be seen in some of the UK equity funds that he identifies as having higher turnover than peers. He points to Premier Miton UK Value Opps B Acc , while adding that Man Undervalued Assets Profl Acc C and Man Income Professional Inc value manager Henry Dixon has tended to run high levels of turnover.

Elsewhere, Evan-Cook also points to the distinctively named SVS Dowgate Cape Wrath Focus £ A Net Acc, which has around three-quarters of its portfolio in mid-cap shares and a smaller allocation to smaller companies, as another high turnover portfolio. Top holdings recently included Marston's (LSE:MARS), Watkin Jones (LSE:WJG), Tracsis (LSE:TRCS) and YouGov (LSE:YOU).