That’s because portfolio window-dressing at the end of June will have made that month’s poor performers fall even further than they would have otherwise. It’s likely that once this artificial selling pressure disappears, these stocks will bounce back.
Just the opposite is the case for stocks that managers buy for window dressing. These are the stocks that already have been performing well and which managers want to show in their end-of-quarter holdings report. Their cosmetic buying will cause these stocks to perform even better — which, in turn, results in them falling back to earth once the new quarter comes around.
Also as expected, end-of-quarter window dressing is less of a factor at the end of the first- and third quarters. In fact, as you can see from the chart, the short-term reversal effect is even less dominant in April than in non-quarter-end months.As is often the case, an exchange-traded fund has been created to exploit the short-term reversal effect. Vesper US Large Cap Short-Term Reversal Strategy ETF UTRN, +0.
For anyone interested in the individual stocks that performed the worst in June, I constructed the following list. I started with the 50 stocks in the S&P 1500 index with the worst June returns, and then eliminated ones not currently recommended by any of the top-performing newsletters monitored by my newsletter-performance-tracking service.