Definition of 'Window Dressing'A strategy used by mutual fund and portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders. To window dress, the fund manager will sell stocks with large losses and purchase high flying stocks near the end of the quarter. These securities are then reported as part of the fund's holdings.
Investopedia explains 'Window Dressing'Performance reports and a list of the holdings in a mutual fund are usually sent to clients every quarter. Another variation of window dressing is investing in stocks that don't meet the style of the mutual fund. For example, a precious metals fund might invest in stocks that are in a hot sector at the time, disguising the fund's holdings, so clients really have no idea what they are paying for.
Window dressing may make a fund appear more attractive, but you can't hide poor performance for long.
window-dressingDefinitions1. The deceptive practice of some mutual funds, in which recently weak stocks are sold and recently strong stocks are bought just before the fund's holdings are made public, in order to give the appearance that they've been holding good stocks all along.2. The deceptive practice of using accounting tricks to make a company's balance sheet and income statement appear better than they really are.
Window dressing is a set of actions or manipulations with financial or other information in financial documents (financial statements, reports, etc.) to make this information look more attractive to its users.Even though window dressing can occur at any time, it is commonly used at the end of a period.Window dressing can be used by companies and mutual funds.A company can use window dressing when preparing financial statements to improve the appearance of its performance or liquidity. In this case, window dressing may consist of changing asset depreciation or valuation policies, making short-term borrowings, or engaging in sales and leaseback transactions at the end of a period. By doing so, management embellishes the company’s results or liquidity and obtains some benefits.Other examples of window dressing by companies may include advertising, selling, and marketing. In these cases, window dressing occurs when positive characteristics of products or services are a little exaggerated to increase demand for them while negative characteristics are not mentioned or kept hidden.Mutual funds use window dressing when preparing periodic (quarterly, yearly) reports. Window dressing by mutual funds consists of selling underperforming stocks and buying well-performing stocks near the reporting period end. This practice makes a fund portfolio look more profitable and thus more attractive to its (prospective) clients.
2. Reasons and beneficiaries of window dressingIn most cases, beneficiaries of window dressing are those who use this practice, i.e., companies and mutual fund managers. In many cases, managers’ remuneration (i.e., salaries and bonuses) depend on how well their companies or mutual funds performed; so there is a direct interest in making financial results or liquidity look better than they really are.
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