Window Dressing

Window dressing is a short-term strategy with long-term repercussions. In other words, if you’re window dressing funds, you’re in a not-so-ideal position.

Window dressing is what portfolio managers do toward the end of the year (and at the end of each quarter) to make funds look better than they actually are.

Like...if a mutual fund manager can give a temporary discount on some stocks, selling at large losses, and buy stocks that are doing well. This changes the fund’s average stats, giving it a bit of a boost. However, doing this means you’re essentially stealing buyers from your future self. By getting buyers at a discount now, you’re forgoing selling to them at full price next year. Yet some portfolio managers will take that risk in order to boost their fund’s current attractiveness in the present.

If a fund isn’t doing well after a time, a portfolio manager could get fired. Window dressing can only take you so far, especially since it’s basically taking a lease on the next year/period. At the end of the day, you can’t hide a fund’s real performance.