how window dressing works
window dressing is a deceptive practice no matter what industry it is used in or what purpose it serves it paints a false financial picture because information is changed to make a company seem to perform better than it did mutual funds are companies that purchase stocks and sell portions of those stocks to investors fund managers might replace non performing stocks near the end of a reporting period to make it seem as if a fund is performing better than it is companies can alter reportable financial information through their accounting procedures this changes the data that is reported on their quarterly and annual reports or letters to shareholders it is illegal for businesses to alter their accounting practices to change how their reports look but unless there is a clear violation of securities laws or if the fund alters its accounting methods to window dress investment managers are not doing anything illegal by replacing a fund s holdings at specific times that said it is an unethical practice because it attempts to deceive investors and regulators window dressing in mutual fundsfund and portfolio managers get paid to ensure investing instruments are performing if they don t perform investors may become interested in other products or services that appear to be offering better returns to prevent this from happening managers might replace holdings near the end of the reporting period to keep investors from moving money to other investments a hedge fund manager might sell stocks that have experienced significant losses and purchase high flying stocks near the end of the quarter or year these securities are then reported as part of the fund s holdings making it seem like they had been there the entire time 