Portfolio Pumping

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DEFINITION of 'Portfolio Pumping'

The illegal act of bidding up the value of a fund's holdings right before the end of a quarter, when the fund's performance is measured. This is done by placing a large number of orders on existing holdings, which drives up the value of the fund.

Also known as "marking the close".

BREAKING DOWN 'Portfolio Pumping'

Portfolio pumping can be highly destructive for investors in the fund because it is a temporary gain and the stocks will generally fall back to previous levels once the price manipulation is over. For example, if a fund has 1,000 shares of ABC purchased for $10 per share, if the shares are trading at $9 right before the managers' performance is measured, they will have performed poorly. As a result, the managers may resort to portfolio pumping and place enough orders to bid the price to $14, dramatically increasing the fund's performance. However, it is likely that the shares will fall back towards $9, leaving investors with a $9 stock that was made to look like a $14 stock.

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RELATED FAQS
  1. How does a pump and dump scam work?

    A pump and dump scam is the illegal act of an investor or group of investors promoting a stock they hold and selling once ... Read Full Answer >>
  2. Why are mutual funds not FDIC-insured?

    Mutual funds are not Federal Deposit Insurance Corporation (FDIC)-insured because money invested in funds are not considered ... Read Full Answer >>
  3. Can mutual funds invest in commodities?

    Mutual funds can invest in commodities. In fact, mutual funds may provide a better way for investors to gain exposure to ... Read Full Answer >>
  4. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  5. Can mutual funds outperform savings accounts?

    A mutual fund can – and should – outperform a savings account. In most cases, it should not even be a close race. Savings ... Read Full Answer >>
  6. Can mutual funds invest in private companies?

    Mutual funds can invest in private companies, which may come as a surprise to many investors. It is rare for a fund to have ... Read Full Answer >>

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