Crowded Trades — Q2-2020

Investors look at crowded trades for idea generation, as well as for assessing tail risk for a stock

Investors have long tracked "crowded trades" in order to piggyback on ideas generated by some of the best asset managers in the industry. If top managers with their extensive research, data and computing resources can agree on an idea, shouldn't others jump on board? Several studies purport to show that portfolios built with crowded trades outperform the market.

On the other hand, investors also follow crowded trades to assess tail risk associated with crowded trades, i.e., the risk of several large investors unloading their positions in a bad market with negative implications for liquidity and asset price determination.

We took a look at the latest regulatory filings by 73 of the largest hedge funds (with significant equities focus) and came up with a list names that appeared most in the top-10 US-traded equity holdings of these funds. As expected, the largest companies by market cap figure in the list, but the data show that the crowding has intensified post-Covid. Fintuitive's subscriber data further attributes the effect of new purchases versus increased crowding due to price appreciation. The results for crowded trades as of June 30, 2020 and December 31, 2019 (pre-Covid) are charted below.

Crowded Trades — December, 31 2019

(Hover over any bar to see list of funds with the company in its top-10 holdings)