Good question, and at first, I was also flummoxed by this formula. Had never checked, really. But on further thought, the reason for taking minimum of the two is obvious. Let us say a fund gets a lot of inflows, and buys a lot of stocks. Sells nothing. How much should the portfolio turnover be? Zero, right? We want to measure churn, and this is not churn. Or take the reverse case – a fund is facing redemptions, sells stock, buys nothing. What is the churn? Zero again. Minimum of the two is the actual churn.
I think it is ignored, but I am not fully sure.
Never felt the need to calculate the ratio.
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