Owning overcrowded stocks could increase volatility and lead to muted portfolio gains, according to Morgan Stanley.
"Crowded trades come with the risk of overvaluation and increased volatility as it may be more difficult to attract the marginal investor, while avoiding overcrowded stocks can provide investors with an opportunity to capture unrecognized value when paired with strong fundamentals," Morgan Stanley strategists said in a note to clients.
Car rental agency Avis Budget Group was the most crowded stock among hedge funds, with more than half its float owned by professional traders.
Aerospace and defense company Loar Holdings and real estate development and management firm Howard Hughes were also on the list of crowded trades.
Janus Henderson , The New York Times , Planet Fitness and Wayfair were popular names among hedge funds last quarter.
Persons:
Morgan Stanley, Russell, Howard Hughes, Janus Henderson
Organizations:
Avis Budget Group, Aerospace, Loar Holdings, The New York Times
Locations:
The