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Research Spotlight - Lost in the Crowd? Identifying and Measuring Crowded Strategies and Trades

The “quant meltdown” of 2007 and the subsequent global financial crisis highlighted the risks of crowded investment strategies. The recent growth of “smart beta” indexes and their use in ETFs has added to concerns about crowding. In this Research Spotlight, we explore the risks posed by crowded strategies and explain how the MSCI Crowding Scorecard enables asset managers to assess these risks as they exist in today’s markets. The Scorecard employs four metrics that can help managers understand the risks of overlapping trading strategies, which may not be apparent by focusing on a single metric alone.