Eyeing the Crowds from Multiple Perspectives

Blog post
6 min read
Howard Zhang, Jay Yao, George Bonne
July 8, 2021
  • We used the MSCI Crowding models to get a complete view of crowding — across factors, industries and individual stocks — in the U.S. equity market.
  • As of June 28, 2021, beta, residual volatility and liquidity were the most crowded factors, and unusually strong performers. Crowded factors have, historically, experienced a higher frequency of large drawdowns than uncrowded ones in the periods that followed.
  • We found the most crowding in industries — such as airlines — that were hit hardest by the pandemic but strongly rebounded. At the stock level, some retail-targeted "meme" stocks remained among the most crowded.
As the world moved into and through lockdowns and then the first stages of the reopening of the global economy throughout 2020 and the first half of 2021, we observed historically notable crowding behavior in markets across factors, industries and stocks. Though many are excited to be able to gather in large groups once again, an awareness of crowded investments may make for more informed investor decisions.
Factor Crowding Heaviest in Beta, Liquidity and Residual Volatility
The most crowded factors in the MSCI Barra US Total Market Model, as of June 28, 2021 — beta, liquidity and residual volatility — all experienced performance and crowding levels last observed in the late 1990s.1 Momentum, on the other hand, fell to an extremely uncrowded level — one not seen since 2002, after the tech bubble burst. Further, the component scores revealed that high-momentum stocks were unusually cheap relative to low-momentum stocks and that investors had shorted low-momentum stocks less than they had much of the time since 1995.
MSCI Integrated Factor Crowding Model Scores as of June 28, 2021
Readers may recall that, in December 2020, we highlighted the residual volatility factor as unusually crowded. The factor's crowding score and performance continued to climb into January 2021, before suffering a drawdown of 11.5% from February through May, as seen in the exhibit below. Crowded factors have historically experienced a higher frequency of large drawdowns than uncrowded ones in the periods that followed.
Performance and Factor-Crowding-Model Score for US Residual Volatility
Investors Crowded into Industries Hurt Most by COVID-19
Next, we aggregated the MSCI Security-Level Crowding Model scores for U.S. stocks at the Global Industry Classification Standard (GICS®)2 industry level, using market-cap weighting and equal weighting, as of June 28, 2021.
The 10 Most and Least Crowded Industries as of June 28, 2021

GICS Industry

Market-Cap Weighting

Equal Weighting

Airlines

0.98

0.71

Automobiles

0.05

0.68

Entertainment

-0.24

0.57

Hotels, Restaurants & Leisure

0.24

0.55

Metals & Mining

0.55

0.53

Biotechnology

-0.13

0.50

Energy Equipment & Services

0.69

0.49

Internet & Direct Marketing Retail

-0.29

0.48

Distributors

0.56

0.45

Construction & Engineering

0.72

0.42

Wireless Telecom Services

-0.12

-0.55

Mortgage REITs

-0.57

-0.60

Thrifts & Mortgage Finance

-0.58

-0.61

Insurance

-0.45

-0.68

Household Products

-0.76

-0.69

Diversified Financial Services

-0.57

-0.74

Tobacco

-0.59

-0.83

Gas Utilities

-0.83

-0.95

Electric Utilities

-0.90

-0.98

Multi-Utilities

-1.28

-1.02

Industries were selected and ordered based on their equal-weighted crowding score.
We found that some of the industries hit hardest during the pandemic — such as airlines, automobiles and entertainment — were now the most crowded, while the reverse was true for those favored in spring 2020, such as consumer staples and utilities. While the stock prices of some, such as Southwest Airlines Co., have rebounded to pre-pandemic levels, sales and earnings still lagged. We also note that the equal-weighted aggregate crowding scores were significantly different from the market-cap-weighted values for some industries, such as automobiles. Digging deeper into the drivers of this difference for autos, we found that small-cap electric-vehicle makers had very high crowding scores while major large-cap automakers such as Ford Motor Co., General Motors Co. and Tesla Inc., had neutral or negative scores. We saw a similar phenomenon for entertainment — small caps such as AMC Entertainment Holdings Inc. had very high crowding scores, while the two largest companies, the Walt Disney Co. and Netflix Inc., had neutral or negative scores.
Retail-Investor-Targeted Stocks Still Among the Most Crowded, and Shorted
Earlier this year we observed some retail-investor-targeted stocks had very high crowding scores and some of those had heavy crowding in hedge funds' short positions. Several of these were still among the most-crowded as of June 28, 2021. The stock price of AMC Entertainment jumped from about USD 10 per share in May 2021 to over USD 50 in early June, as it became a target of retail investors seeking to ignite a short squeeze. As shown in the exhibit below, several other companies associated with entertainment, travel and leisure were very crowded, consistent with our analysis by industry.
The 10 Most Crowded US Stocks as of June 28, 2021

Company

Crowding Score

MicroStrategy

3.41

Lindblad Expeditions

2.85

Sabre

2.70

DigitalBridge

2.63

Ocugen

2.61

AMC Entertainment

2.52

Marcus Corp.

2.51

Clean Energy Fuels

2.49

Norwegian Cruise Line

2.37

Rubius Therapeutics

2.29

Examining hedge-fund holdings, we found that AMC Entertainment was still among their most crowded short positions, as of April 30, 2021.3 While hedge funds are generally viewed as "smart money" and portfolios have been created to mimic their moves, we believe that piling on to the most crowded positions of hedge funds could bring unanticipated risks such as those posed by rapid liquidation. As we have previously shown, MSCI Peer Similarity Scores could be used to identify similar companies that are not crowded.
Hedge Funds' Most-Crowded Long and Short Positions

Most-Crowded Long Positions

Weight Multiple

Most-Crowded Short Positions

Weight Multiple

Kadmon Holdings

64.7

American Airlines

53.2

VBI Vaccines

52.5

AMC Entertainment

51.8

Impinj

49.2

Clovis Oncology

49.9

SpringWorks Therapeutics

41.0

Stoke Therapeutics

46.6

Five Point Holdings

39.6

Health Catalyst

46.2

Avis Budget Group

39.2

Chewy

39.6

Global Blood Therapeutics

37.4

Invesco Mortgage Capital

37.5

Tivity Health

37.2

BigCommerce Holdings

36.8

Quotient Ltd

37.2

GTT Communications

36.1

Forestar Group

35.9

Credit Acceptance Corp

35.8

Data is from aggregated hedge- fund holdings as of April 30, 2021, from MSCI Hedge Fund Crowding data. Weight multiple is defined as the security weight in the aggregate hedge fund portfolio relative to its weight in the MSCI ACWI IMI.
Examining crowding from multiple perspectives — from factors to the individual-stock level — and incorporating multiple data elements including valuation, short interest, volatility, trading activity, momentum and hedge-fund holdings provide investors with a holistic view of where crowded trades may be — and further insight into managing their portfolios.
Further Reading
Are (Stock) Bubbles Rising? The Pressure of the Crowd: Stress Testing Thematic Indexes Insights Gallery: Which Factors May Be Crowded? MSCI Integrated Factor Crowding Model Are (Momentum's) Wings Finally Starting to Melt? Is There a Hedge Fund Crowding Factor? Anatomy of Hedge Fund Portfolios
George Bonne
George Bonne
Jay Yao
Jay Yao
Vice President, MSCI Research
Howard Zhang
Howard Zhang
Howard Zhang was a vice president at MSCI

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1The MSCI Integrated Factor Crowding Model estimates crowding in factor strategies by analyzing the behavior of factors and securities with large exposures to those factors. The model assesses valuation spreads, short-interest spread, pairwise correlation, factor volatility and trailing factor performance to create a crowding score for each factor.2GICS is the global industry classification standard jointly developed by MSCI and Standard & Poor’s.3MSCI Hedge Fund Crowding data aggregates hedge funds’ long and short positions on a monthly basis, with a reporting lag of 45 days.

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