Patience is a virtue that can be profitable

Having shares can be a headache. First you have to buy at the right time, then there is the need to review one's holdings and decide when to sell. For investment managers, the process is a full-time job, but even for them the variance in activity between different funds can be extreme. Standard & Poor's Fund Services produce "Portfolio Turnover Ratios" as a guide to the proportion of a fund's value sold and reinvested over a year, and it can range from less than 15 per cent a year to more than 100 per cent.

Having shares can be a headache. First you have to buy at the right time, then there is the need to review one's holdings and decide when to sell. For investment managers, the process is a full-time job, but even for them the variance in activity between different funds can be extreme. Standard & Poor's Fund Services produce "Portfolio Turnover Ratios" as a guide to the proportion of a fund's value sold and reinvested over a year, and it can range from less than 15 per cent a year to more than 100 per cent.

Could this help to prove a link between the charges incurred and the performance of a fund, because the costs must have an effect? Peter Jeffreys, managing director at S&P Fund Services, says: "We looked at funds with low turnover, assuming that the lower charges would only help performance. With some it did, but with others there was no evidence." They concluded there was "zero correlation" with performance.

But wouldn't the frequency of sales, and as a result, charges, have some impact?

Philip Hardy, fund manager of the Schroder UK Enterprise Unit Trust, says: "Turnover is certainly monitored although there are no self-imposed limits. Charges are low and while it depends on the size of deal, with stamp duty being the main cost, the bid/offer spread is considered more important."

His fund has a Portfolio Turnover Ratio of 73 per cent, compared with Schroder's UK Growth Investment Trust with a ratio of 16 per cent (though ratios do also vary with different methods of calculation). Having recently taken over running his fund, Mr Hardy said he was looking for "a revised figure of 20 to 50 per cent a year".

Similarities begin to emerge when a specific type of fund is considered. Jupiter's UK Growth Unit Trust is listed as 24 per cent, but their UK Special Situations Unit Trust is 98 per cent. These figures point to the assumption that funds with a long-term approach and large-cap holdings keep a low turnover, compared to more speculative funds.

Mr Hardy says: "It depends on how aggressive the mandate is and whether there is a concentrated number of stocks [in which case] only a few changes could represent a big percentage of the portfolio."

His approach assesses a stock on a 12-month view, and should the price veer, positively or negatively, it is reviewed but not necessarily sold.

Shareholders increasingly monitor portfolios and want to make their own decisions, in turn leading to an incredible rise in execution-only deals.

So with your portfolio smiling from your computer screen and your broker on the end of a phone ready to act on your instruction, should you be trading every day? The reduction in costs from online and execution-only dealing is real, but they still have their impact, especially as most of us place smaller deals than fund managers. Active home traders may feel like home-based Wall Street stars, until they look at their net position after charges and realise their trading has resulted in zero profit.

Shares bought to hold in sickness and in health should not be jilted at the first opportunity. Split your portfolio; one section, Mr Hardy says "should be those you passionately believe in, and where the business is good, including its position in the market, management and focus", to have and to hold. The other section can be the punts, the more uncertain holdings where quick trade chances might exist. These should be a small proportion of total holdings. For most investors, charges are still an issue and no one should over-react in fickle markets. Patience is a virtue.

Derek Pain is on holiday