Jared Wasserman from Thomson Financial’s Corporate Advisory Services group discusses quarter end window dressing.
Transcript:
Hi, I’m Jared Wasserman with this Corporate Advisory Insight. Today we will focus on quarter ending window dressing, which is simply the buying and selling of stocks to enhance the appearance of a portfolio. As the name suggests, this occurs near the end of each quarter as portfolio managers rearrange their holdings to present to clients. However, there are two major times when this occurs, the end of calendar quarters as well as at the end of October.
One way to window dress is to sell an underperforming stock and replace it with one that has performed at least in line with the market, if not better.
Another use of window dressing happens when a particular stock or stocks are not in a portfolio but should be. Take, for example a technology portfolio that is coming into the final weeks of the quarter, but does not hold Google, one of the hottest tech stocks around. If clients discovered the money they invested in a technology fund held most of the best tech stocks, but not Google, they would likely be furious! So during the final weeks of the quarter, Google would be bought, and clients would be none the wiser.
Another example of window dressing is removing stocks or other investments that shouldn’t be in a portfolio. A good example would be holding high flying growth stocks in a value portfolio. The manager may have chased returns with these investments but they don’t fit into the firm’s stated strategy.
Although quarter end window dressing is the most widely utilized term, there is another less popular window dressing time period, the end of October. October 31st marks the fiscal year end for many mutual funds.
The events leading up to this day are similar to those of the quarter end time period, but only for mutual funds.
If a fast money investor is able to catch wind of a mutual fund looking to buy or sell shares of certain stocks for window dressing, these investors will often jump in or out ahead of time for short-term profits.
In summary, window dressing occurs at the end of each calendar quarter and near the end of October for mutual funds. It is used as a mechanism to hide underperformance or properly balance portfolio holdings and can be augmented by fast money investors looking for short-term profits.
Again, I’m Jared Wasserman with Thomson Financial’s Corporate Advisory Insight.
Duration : 0:2:8
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