Morgan Stanley’s (NYSE:MS) IWB reveals hedge funds are piling into a handful of names, with Avis Budget (NASDAQ:CAR) topping the list at 51.1% of its public float owned.
13F filingsquarterly SEC disclosures of long positions by managers with $100 million+ AUMshow Loar Holdings (NYSE:LOAR) at 41.4% and Howard Hughes (NYSE:HHH) at 39.1%, making these three the most crowded trades in the Russell 1000 universe.
Todd Castagno, head of Global Valuation, Accounting and Tax at Morgan Stanley, warns that crowded trades come with the risk of overvaluation and increased volatility as it may be more difficult to attract the marginal investor. After the top trio, Janus Henderson Group (NYSE:JHG) saw 29.8% of its float snapped up, followed by Wendy’s (NASDAQ:WEN) at 22.8%, Incyte (NASDAQ:INCY) at 22.6%, Exelixis (NASDAQ:EXEL) at 19.7%, Formula One Group (NASDAQ:FWONA) at 19.4%, QuidelOrtho (NASDAQ:QDEL) at 18.6% and Lyft (NASDAQ:LYFT) at 17.6%.
Sector flows in Q1 tilted away from information technology and consumer discretionary and into health care along with staples, underscoring hedge funds’ hunt for defensive exposure amid market jitters. High float-ownership ratios can signal herd dynamics, where collective positioning amplifies price moves if sentiment shifts.
Morgan Stanley’s analysis suggests that avoiding these overcrowded namesand instead seeking undervalued stocks with strong fundamentalscould unearth hidden upside. Amid rising market volatility, investors may want to monitor each crowded name’s liquidity and short-interest metrics, since any forced rebalancing could trigger outsized swings.
This matters because an abrupt rotation out of overowned stocks can create steep losses, while underowned names with solid growth and balance sheets might offer calmer waters. Investors should keep a keen eye on 13F trends and consider whether crowded positioning aligns with their risk tolerance before mimicking hedge-fund favorites.
This article first appeared on GuruFocus.
