One of the best things about sweeping away September is that we will now be spared the silly act of window dressing. Well, at least until the end of December rolls around. What is window dressing? Well, just as store owners like to doll up their sidewalk-facing displays with their finest wares, some mutual fund managers like to stock up their portfolios with some of the best-performing stocks at the end of every quarter so they look good to their fund shareowners.
It's an unsavory notion, because at least when you see a slick outfit on a mannequin, the chances are pretty good that the shop will be stocking it inside. That's not the case with mutual fund window dressing, when the pretty looks simply mask a hollow quarter. No, the practice is not illegal. But as the mutual fund industry's equivalent of a padded brassiere, one has to wonder if there is really a point to all this. As readers of our Motley Fool Champion Funds newsletter can attest, buyers of funds aren't a gullible lot.
You can't just load up on highfliers like Taser (NASDAQ:TASR) and Travelzoo (NASDAQ:TZOO) and expect your investors to ignore the fund's ultimate returns. If anything, window dressing may create some worrisome speculation if investors see that their funds owned the right companies yet botched the returns anyway.
To be fair, it's not just mutual funds playing the window-dressing game. How many companies -- even respectable companies -- try their hardest to move widgets before a quarter comes to a close?
How desperate were car dealers to clear out their showrooms this past week? Is there a tendency for computer makers to promote free-shipping deals nearer a fiscal quarter's end than at the beginning? If so, as long as investors are smart enough to look at the bigger picture, there is no way that mutual funds and corporations can dress a window that big.
What do you think of window dressing? Do you like your mutual funds a little skimpier? What kind of impact does this trading "for show" have on your fund investments? All this and more in the Mutual Funds discussion board.
Longtime Fool contributor Rick Munarriz loves his stocks, but he always manages a mutual fund or two in his portfolio. He does not own shares in any company mentioned in this story.
