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One key aspect of successful investing is avoiding overcrowded trades that could put your portfolio at risk. According to a recent study by Morgan Stanley, owning stocks that are popular among hedge funds can be risky, especially in the event of a herd-like stampede by systematic traders. By analyzing the largest 70 hedge funds based on assets under management, the firm identified Russell 1000 stocks with the highest percentage of public float owned by them, based on the most recent 13F filings.
Crowded trades come with the risk of overvaluation and increased volatility, as it may be more difficult to attract new investors to these stocks. On the other hand, avoiding overcrowded stocks can provide investors with an opportunity to capture unrecognized value, especially when paired with strong fundamentals. Despite their popularity and performance, none of the megacap tech stocks made the list of overcrowded stocks, thanks to their enormous share count that makes hedge funds’ ownership less significant.
Morgan Stanley’s research found that hedge funds were most overweight in consumer discretionary, industrial, and health care stocks last quarter, while they were most bearish on technology and consumer staples companies. Some of the most crowded stocks among hedge funds included Avis Budget Group, Howard Hughes Holdings, Incyte, Janus Henderson, The New York Times, Planet Fitness, and Wayfair.
At Extreme Investor Network, we understand the importance of staying ahead of the market trends and making informed investment decisions. Our experts can help you identify potential risks and opportunities in the stock market, so you can build a diversified portfolio that fits your financial goals.
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