Window dressing (June’13)

Q. What is window dressing (June’13)?

Window dressing: Window dressing is a term that describes the act of making a company's performance, particularly its financial statements, look attractive.

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.

How It Works/Example: Let's assume Company XYZ wants to look attractive to potential acquirers. It might do some window dressing by announcing much higher sales projections, obtaining and holding a lot of cash, or making other announcements that are likely to raise the stock price, even if only for a short time. The objective is to make a favorable impression on potential acquirers.

Companies are not the only ones to engage in window dressing. Mutual funds do it as well, often by cutting their losses and buying high-fliers (sometimes that are not even in the fund's investment sector) near the end of a reporting period.

References: http://www.investinganswers.com

                       http://www.investopedia.com