As the rally continues, it's wise to avoid overcrowded trades among hedge funds as herd mentality often leads to trouble in the stock market, according to Morgan Stanley.
Investors in overcrowded trades could run the risk of getting caught in a losing bet when hedge funds, especially systematic traders, form a herd-like stampede to exit the same trades.
Morgan Stanley found that hedge funds were most overweight in the consumer discretionary, industrials, and health-care sectors last quarter.
Even though they have been extremely popular, these stocks tend to have outsized share counts that make hedge funds' ownership less significant.
Avis Budget Group was the most over-owned stock by hedge funds at the end of 2023 with half of its outstanding float shares owned by the cohort, according to Morgan Stanley.
Persons:
Morgan Stanley, Russell, Howard Hughes, Janus Henderson, — CNBC's Michael Bloom
Organizations:
Avis Budget Group, Liberty Media, Liberty Media , New York Times
Locations:
Wendy's, Liberty Media ,