Crowding Solutions

With navigation technology and smartphones, real-time updates provided by other drivers now enable us to avoid traffic jams and pursue alternative routes. Do investors also experience traffic in their investment journey and how do they navigate through?

Crowding is to investing what traffic is to driving.

What is Crowding?

Crowding is the tendency of investors to focus on a similar set of strategies or stocks. When too much capital is chasing these securities and ideas, trades can become crowded, potentially increasing volatility and the risk of a liquidity or drawdown event.

Investors may experience different types of crowding depending on the nature of their investment strategies:

 

Security Crowding

Concentrations observed at individual stock-level

 

 

Factor Crowding

Concentrations observed across groups of stocks which share similar products
 

 

Hedge Fund Crowding

Concentrations observed at individual stock-level from institutional holdings analysis

 

Occasional but significant drawdown events in the past underscore the need for and potential value of a solution that can alert investors to growing traffic—or crowdedness—in the market. Until now, investors were unable to quickly assess crowding activity and its associated risks.

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Crowding Solution

In the same way that navigation apps facilitate driving, MSCI Crowding solutions provide investors with real-time financial traffic data to enable them to decide whether to avoid crowded thoroughfares. MSCI Crowding lets you know where crowding exists by individual security and factor. Our models can help institutional investors analyze their investments compared to the industry as a whole and make informed decisions based on market concentration.

MSCI Crowding solutions examine crowding from multiple dimensions using a range of metrics resulting in standardized scores that can be utilized to assess crowding exposure. Now investors can quickly identify where crowding risks may be developing—at the security and factor level, and from the hedge fund community—and assess whether adjustments to their exposures are warranted.

Crowding Solutions can be used to:

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Different dimensions of Crowding

Security Crowding

Measures the degree to which a stock has been chased by investors.

As of May 31, 2021

Download the factsheet
(PDF, 146 KB) (opens in a new tab)

Factor Crowding

This Model allows investors to examine Factor Crowding over time using multiple dimensions that provide further insight into risk and return drivers

Source: MSCI Factor Crowding Model. Learn more about the model here.

Download the factsheet
(PDF, 308 KB) (opens in a new tab)

Hedge Fund Crowding

Measures hedge fund positioning and potential crowding around stocks.

Global equity markets are represented by the MSCI ACWI Investable Market Index (IMI), developed markets by the MSCI World IMI and emerging markets by the MSCI Emerging Markets IMI. North America is represented by the MSCI North America IMI, Europe by the MSCI Europe IMI, Asia-Pacific by the MSCI Pacific IMI and the U.S. by the MSCI USA IMI.

Download the factsheet
(PDF, 152 KB) (opens in a new tab)