Window Dressing
Fund managers buying recent winners near quarter-end to make portfolios look more attractive in reports.
What is Window Dressing?
Window dressing is a practice in which mutual fund and hedge fund managers buy recent top-performing stocks and sell underperformers at the end of a reporting period — typically a quarter — so that the fund's disclosed holdings appear more impressive to investors and in marketing materials. By holding high-flying stocks at the reporting date, managers create an impression of skilled stock selection, even if those positions were purchased only days before. Window dressing can temporarily inflate prices of recent winners at quarter-end and depress those of recent losers, with the effect often reversing in early the following period. While the SEC does not explicitly ban window dressing, it is widely criticized as misleading to retail investors evaluating a fund's true strategy.
Example
With three days left in Q3, a fund manager's top holding is a lagging utility stock. The quarter's best performers are AI semiconductor companies. The manager sells the utility and buys the semiconductor stocks. When the quarter-end 13-F filing discloses holdings, the fund appears to have correctly identified the winning AI theme — even though the manager only bought in for the final days of the quarter.
Source: Investopedia — Window Dressing