At many quarter ends, the markets often exhibit unusual behavior. Moreover, the oddities leading up to quarter ends are frequently partially or fully reversed in the days following the quarter. The irregular activity is in part due to window dressing.

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Mutual funds are only required to share their holdings with investors quarterly. As such, they can buy and sell securities at quarter end to change the appearance of their portfolio. For example, they may want to add a hot stock or reduce a poorly performing sector at the quarter end but not hold the hot stock throughout the quarter. Ergo, window dressing trades can be very misleading.

The SEC is changing its rules to increase mutual funds and ETF transparency. From now on, mutual funds and ETFs must report their holdings at least monthly. This new rule will reduce some volatility and odd trading at quarter ends and distribute it to month ends. The rule change will not take effect until November 2025 for larger funds and May 2026 for funds with assets of less than $1 billion.

The graph below from Statista shows approximately $25 trillion of assets under management invested in mutual funds. Furthermore, although not shown, the Investment Company Institute estimates roughly $8.1 trillion in ETFs.

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