Stock market professionals spruce up their portfolios with window dressing
Published: Thursday, Dec 28th 2023, 11:31
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"The same procedure as every year." As the calendar year draws to a close, there is also a fixed ritual on the stock market: window dressing. Often as early as the end of November, many funds make their portfolios look more attractive by shedding loss-makers and buying stock market stars.
The aim of the exercise is to ensure that shares that have outperformed over the year as a whole are included in investor portfolios at the end of the year. The biggest losers, on the other hand, are sold by the reporting date at the latest so that these positions do not have to be shown in the annual report.
"It's an open secret that this happens," says an experienced expert in an interview with AWP. "But nobody would admit it." After all, who would want to show off a fund that has two or even three of the biggest "annual losers" in its portfolio?
Trend strengthening at the end of the year
This effect causes the prices of many well-performing shares to rise again towards the end of the year because some fund managers buy the shares before the deadline. The losers, on the other hand, are removed at short notice towards the end of the year and have to accept further price losses without there being any fundamental reasons for this.
Such cosmetic portfolio corrections are increasingly common in good stock market years - and they are legal. Nevertheless, the effect of this measure of adding good stocks to the portfolio only lasts for a short time.
This is because fund managers usually sell the newly acquired shares again at the beginning of the year - with corresponding losses in these securities. The exit often takes place by mid-January, especially as the stock market liquidity, which generally drops significantly over the Christmas holidays, returns by then.
Opportunities for small investors
It is therefore worthwhile for small investors to study the reports of their own funds more closely and to take a look at the year-end adjustments in particular. And those who invest in individual shares could try to adhere to the "December rule".
This states that shares that have performed particularly well from January to November often also perform above average in December. In a good stock market year, it can therefore pay off to bet on precisely these winners in the last four weeks of the year.
On the other hand, it may well be worth buying the biggest losers of the year at the end of December. This is because when the window dressing effect fizzles out, the prices of the "sour cucumbers" spurned at the end of the year often rise again significantly from the beginning of January.
Winners in the pot, losers in the bowl
Developments on the Swiss stock market this year also indicate that the "window dressing" has definitely been carried out again. In the SMI Expanded, which contains the 50 highest capitalized stocks on the Swiss stock market, the position of the biggest winners has been cemented in the last four weeks.
VAT, UBS and Temenos, for example, have risen by more than 50 percent over the year to date. In December alone, the three stocks rose by up to 10 percent. Sika (+24% in 2023) accounted for more than half and Kühne+Nagel (+35%) for a good third of its annual performance in December.
At the other end of the top 50 stocks, Meyer Burger has lost a good two thirds of its value this year - weighed down by Germany's budget crisis and the cuts in solar subsidies. In December alone, the share price fell by 8 percent. Other annual losers such as Barry Callebaut (-23% in 2023), SGS (-19%) and Clariant (-12%) were also no longer an option for investors at the end of the year.
©Keystone/SDA
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