Window Dressing

Window dressing is a strategy used by mutual and portfolio managers near the year or quarter end to improve the appearance of the portfolio or fund performance before presenting it to the clients and share holders. It is an act of making a company’s financial statements look attractive. In this process, the fund manager will sell stocks with large losses and then purchase high flying stocks near the end of the quarter. The securities are then shown as a part of the fund’s holdings. Every quarter, performance reports and a list of holdings are sent to clients every quarter. Investing in stocks that don’t meet the style of the mutual fund is another variation of window dressing. It is actually an attention getting maneuver that sometimes may become illegal or unethical. Although the practice is generally looked upon unfavorably, but if done carefully, window dressing can pay off by attracting customers.

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Edited and Updated 31st May 2014

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