Friday, December 28, 2012

Window Dressing Myth





FBMKLCI
1,681.330 (+7.170)

High: 1,686.700 Low: 1,678.580













Today 28th December 2012, the FBM KLCI to record two milestones, which were the record intra-day high of 1,686.70 and all-time closing high of 1,681.33.

What is it mean? Is it FBM KLCI is doing the window dressing action for this last 2 trading days in the year 2012?

Let see what actually is the definition of window dressing in investopedia website,


Definition of 'Window Dressing'

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.


Investopedia explains 'Window Dressing'

Performance reports and a list of the holdings in a mutual fund are usually sent to clients every quarter. Another variation of window dressing is investing in stocks that don't meet the style of the mutual fund. For example, a precious metals fund might invest in stocks that are in a hot sector at the time, disguising the fund's holdings, so clients really have no idea what they are paying for. 

Window dressing may make a fund appear more attractive, but you can't hide poor performance for long.

Read more: http://www.investopedia.com/terms/w/windowdressing.asp#ixzz2GLhFfGUw

So in the fund manager quarterly or yearly report, they normally want to stress on their fund portfolio is outperform the benchmark index, so the window dressing should be not to move the index to a very high level but push the stock price of their respective portfolio without disturb the indexing too much.

Of course as pushing up the stock price it will be hard to not effecting the index performance, but if the index is moving too high, the said portfolio may not to claim they are outperform the benchmark index.

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